Working in his father’s farmland on a sunny Monday morning, Kwesi Owusi got a call from a friend who told him to rush down to the neighbouring town in Kumasi.
The government had flagged off the construction of a 143km road in the area, to be financed partly from $63.4 million loan collected from international sources, and was employing its citizens for the project.
Owusi, 32, had just graduated from the Kwame Nkrumah University of Science and Technology, where he read engineering; and the road project would mean the long years of staying jobless at home is over.
“It is one of the happiest moments for me seeing that I graduated from the University three years ago, and with the new employment, I can make some money and take care of my parents,” Owusi said.
For him, there is a justification for the government’s borrowing, which has increased Ghana’s debts by more than half from $27.2 billion in 2014 to $43 billion at end of March 2021; evident in the number of infrastructural projects in the country, from roads to electricity down to hospitals, creating jobs for the teeming youth population, improving the standard of living, and reducing widespread poverty.
“I think the government should borrow more,” Owusi said, pointing out to our correspondent the numerous projects of the government, directly and indirectly, impacting lives.
Rwanda-born Vestine Rebecca has also started exporting oilseeds in large quantities to neighbouring Uganda, which has put her in a comfortable position to train her three siblings in the University of Kigali.
“My business began to boom after our government extended a $39.8 million loan and grant gotten from the International Fund for Agricultural Development (IFAD),” Rebecca said.
The inward joy felt from the tone of Owusi and Rebecca was similar to the over 15 persons who BusinessDay spoke with across Ethiopia, Rwanda, Ivory Coast and Tanzania.
But the story appears different in Africa’s biggest economy where government borrowing continues to spark controversy.
Long years of infrastructure decay and increased unemployment have triggered an increased feeling of bitterness in the hearts of many Nigerians whenever they hear the government’s intention to borrow.
For many Nigerians, the past borrowings have not been justified, so, why continue to sell their future, paying for loans they felt was not judiciously utilised.
If it was judiciously utilised, why would there be a failed healthcare system in the country, with some of the worrying statistics from high maternal mortality rate accompanied by low life expectancy? Meanwhile, the elite spending over $1 billion annually on medical tourism.
If it was also judiciously utilised, why does the economy groan under epileptic electricity supply, with Nigerians enjoying power for an average of five hours a day, while industries run on generators, paying hugely for alternative energy supply?
Why also, as Ghana, Nigeria’s West African neighbour, becomes the home for many Nigerians in tertiary institutions, while students who cannot afford to school abroad are forced to stay idle at home over incessant strike caused by the inability of the government to meet up with growing demands of the Academic Staff Union of University (ASUU).
All the frightening tales paint a wrong picture in the minds of Nigerians whenever the government announces its intension to borrow more.
“I can’t really phantom what the government uses the money it borrows to do,” according to Emeka Chigo, a young Nigerian around his 30s, who claims he is against any further borrowing by the government.
Nigeria increases debt yet slow growth
It is never wrong for countries to borrow, as long as such borrowing would be targeted at specific infrastructure spend that would, in turn, make life better for the people.
But that is never the case for Africa’s biggest economy, which in 2018 became the poverty capital of the world, according to Brookings Institute, with about 40 percent of the population living below poverty line.
The country has nearly tripled its debt profile to N32.2 trillion ($84bn) as at September 2020, from N11.2 trillion ($67bn) some five years ago; but that has failed to translate to growth.
In most cases, the borrowed funds are targeted at paying salaries and overheads in the government’s budget with little attention paid to capital expenditure believed to drive growth.
That has subdued economic growth within the period, with the economy growing at an average 2 percent, below the birth rate.
What is more worrisome is the fact that more than 22 million of its citizens are jobless, data from Abuja-based National Bureau of Statistics (NBS) show, with not enough industries to employ the millions of graduates going into the labour force annually. The number could climb as much as 50 million when one adds those who are underemployed.
“Increased borrowings can only make lives better when such borrowings are channelled into things that yield economic returns,” said Joachim MacEbong, an analyst at SBM Intelligence, saying, “But that has never been the case for Nigeria, as we have seen borrowings channelled into servicing debt and paying salaries, which is even a problem.”
The country would need an annual spend of $100 billion for the next 30 years, to solve its huge infrastructure deficit.
Although, in recent years, several infrastructure projects, particularly railways, have commenced like the 156-kilometre Lagos-Ibadan railway, funded by a $1.3 billion loan from the Export-Import Bank of China and about $182 million from the Nigerian government; the 326 KM Itakpe-Ajaokuta-Warri rail line, and also the 2,733-kilometer Lagos-Kano standard-gauge north-south railway being constructed by Chinese engineering giant the China Civil Engineering Construction Corporation (CCECC).
Similarly on roads, the ongoing construction of Abuja-Kaduna-Zaria-Kano highway, construction of second Niger Bridge, dualisation of Kano–Wudil–Shuari section of Kano–Maiduguri Road; dualisation of Kano–Katsina Road Phase I, and the Sabon Gari and Kantin Kwari market electrification projects, as well as the completed 135km Sokoto–Tambuwal–Jega Road.
But it is still not enough to move the needle in the government’s plan in lifting an average 10 million Nigerians in the next 10 years.
Other African countries that are increasing their debt stock continue to see a corresponding increase in growth, thus justifying the need for increased borrowing.
In the past five years – before the pandemic struck, Ghana’s economy grew at an average 7 percent annually.
The same can be said of Ethiopia, Rwanda, Ivory Coast, Benin Republic, all of which growth has averaged 9 percent, 8 percent, 7 percent and 7 percent, respectively.
“If the economy does not grow above the rate of population, it would be impossible for the lives of citizens to be impacted,” Johnson Chukwu, CEO, Cowry Asset Management Limited, said.
“A slow growth below population only shows that more people are getting poorer and the standard of living are being jeopardised,” Chukwu said.
Over time, Nigeria’s President Muhammadu Buhari has justified the increasing borrowing, adjudging the country’s present debt stock to be sustainable.
But that is because he sees the country’s debt stock from the percentage to GDP perspective, an economist argued, and that may not be a better measure to gauge the financial strength of a country. A better measure is to look at the total debt as a percentage of revenue.
Rising debt service in a time of falling revenue
With the increasing borrowing appetite, Africa’s biggest economy uses a larger part of its resources to service its debt, and that has become of great concern to economists, especially in the wake of already lean revenues made worse by the pandemic.
Nigeria’s debt-to-revenue ratio stood at 83 percent in 2020, according to data from the Budget Office of the Federation.
Debt to revenue ratio is described as the percentage of countries revenue that is used in servicing its debt.
With Nigeria’s debt-to-revenue ratio put at 83 percent, it shows that for every N100 obtained as revenue in the period, the government spends N80 servicing the debt.
But while it is necessary for a country to service its debt obligation so as to give confidence to investors, a huge debt servicing in the wake of low revenues leaves the government with little or no resources to spend on education, health and other key sectors needed for the betterment of the citizens.
The economy is in its worst recession since the 80s, contracting 6 percent and 3.2 percent in the second and third quarter in 2020; with the government hoping to spend its way out of the recession with an N13.6 trillion budget in 2021.
While that appears plausible, analysts say the government would need to spend on viable infrastructure products that would create jobs and boost economic growth.