Bailout: Can debt be good? (3)

As Paul Krugman, the renowned Nobel laureate in economics and New York Times columnist, has posited, the current debt stock of the USA which some economists deem as too high may actually not be deep enough to drive and sustain the global economy hence the current slump in most European and Asian economies which, as major trading partners, are linked to the US economy. A booming USA economy should serve as a tailwind to drive the rest of the global economy, especially as Chinese economy is now suffering a headwind that has slowed down the second-largest economy significantly.

If we should extrapolate the erudite American professor’s view and apply it to Nigerian situation, we probably need more debt to boost national productivity and as such the CBN and DMO efforts at buoying up the economies of the states could well be steps in the right direction as those policies would stimulate the necessary growth that would drive employment and prosperity in Nigeria.

That being the case, President Buhari should not shy away from stepping up efforts in investing in projects that generate productive activities like establishment of solar power manufacturing plants and windmills in the desert areas of Sokoto and Katsina States; hydro dams in the riverine areas of Niger and Kogi States; as well as modular refineries in the oil and gas-rich areas of Niger Delta to grow the economy and create jobs. It is better to subsidize production of such goods and services than petroleum which is gulping trillions of naira annually and creating jobs overseas instead of Nigeria.

Take Sheik Mohamed Al Maktoum of the United Arab Emirates, for instance. The visionary leader has a philosophy that if you build it, the people will fill it. Today, Dubai’s Buj Khalifa is the tallest building in the world, Jebel Ali seaport which is considered very huge by every standard is soon to be replaced by an even bigger one presently under construction and ditto for the very futuristic airport which is one of the most sophisticated in the world. Dubai aspires to be home to one of the largest malls in the world and her airline, Emirates, parades one of largest fleet of Airbus in the industry globally, yet Dubai has a population of less than 5 million people and it was less than 30 years ago an economy based on local boat building.

Although the UAE (comprising of seven emirates) is rich in oil wealth abundant in Abu Dhabi, the capital, guess what? Most of the money for the aforementioned gigantic infrastructures in Dubai is borrowed from the west. Yes, western countries like the UK and Scandinavian countries like Sweden and Norway, etc. In the aftermath of the 2008 global economic recession, Dubai was going broke and was about to default in debt repayment to European creditors until Abu Dhabi rescued her by advancing some funds to enable her bounce back as the economic recession eased.

What’s more, oil/gas-rich Saudi Arabia with one of the largest oil reserves and a robust sovereign wealth fund recently borrowed $5 billion for investments in projects.

The fundamental difference between the UAE and Nigeria is that foreign direct investment funds flowing into that country is essentially from ‘mum and dad’ investors (pensioners) in Europe and all over the world who channel their retirement benefits into equities in Dubai ventures, which is why the tenure of the funds invested are long as opposed to the so-called ‘hot’ money from international funds from portfolio managers which are moved in and out of Nigeria at the speed of light as soon as volatility is noticed. Perhaps it is towards integrating Nigeria into the UK equity market that London Mayor Boris was in Nigeria recently to explore relationship with Nigerian Stock Exchange with respect to investing the pension funds of her ageing population in Nigerian market.

The reason for the disparity in western investors’ interest between Dubai and Nigeria is not farfetched. Over the years, the stability of Dubai’s economy has been proven to the European investors who have become confident in the safety of their funds, but on the contrary, the Nigerian economy has been negatively portrayed as unstable and unviable. Moreover, Nigerians are perceived as hunger-stricken fraudsters, and worse still, the society is classified as disease- and conflict-ridden. Which investor from advanced society would prospect for economic returns in polio-ridden society like the Kano suburb which CNN’s Sanjay Gupta recently showcased on his programme ‘Vital Signs’? With such pathetic perception, western investors would only see opportunity for offering aid instead of trade, so no ‘mum and dad’ investors (who are critically needed because they engage in long term) would consider Nigeria a worthy investment destination. Therein lies Nigeria’s dilemma.

How our country can be rebranded for a more positive perception in the global marketplace so that she can be considered a worthwhile investment destination in the manner that Dubai is viewed in Europe and the Americas is a task that must be accomplished. The burnishing of Nigeria’s image may already be 50 percent up given the positive perception that the leaders of the free world (Barack Obama, David Cameron, Angela Merkel and Francois Holland amongst others) have of Nigeria’s new president, Muhammadu Buhari, who is viewed by fellow leaders as a man of integrity and fidelity whom they can do business with (based on the encomiums showered on him during their recent meetings). The nitty-gritty of rebranding Nigeria as an investment haven will be the subject of a subsequent article.

Magnus Onyibe