Economic Confidential, October 2007

NATIONAL

Nigeria and Tempting Foreign Loans

By Cosmos Aley

The Finance Minister, Dr. Shamsuddeen Usman has made a case for fresh foreign loan, saying for the nation to meet its development goal it must secured loans from multilateral organisations, particularly those with concessionary facilities. He was quick to add that funds secured from foreign creditors must be well utilised to improve the living standard of the people.

Addressing the annual review meeting of development partners in Abuja, he said it was a good business for the nation to obtain loans and use such funds to develop the infrastructure and other areas requiring urgent financing. The meeting was with officials and Project Managers of the World Bank, International Fund for Agriculture Development (IFAD), African Development Bank (ADB), and Islamic Development Bank (IDB).

Referring to the $3 billion the country got from the World Bank since 1999, Dr. Shamsuddeen said: “$3 billion since 1999 is like a drop in the ocean. And I think the challenge for us in this meeting, especially now that we have repaid all our Paris and London Club debts, is to see how to significantly increase credit to the nation. We have seen from the presentation of the Islamic Development Bank (IDB) what funds are available on long term (40 years) and in the case of IDB it is zero interest. But even the World Bank and others also have interest free loans with only administrative charges. So what are we doing? They are willing to give us more. We have the capacity to take more. We need more. So what are the problems?

“We have to identify them because $3 billion since 1999, if I tell you our needs, just the Federal Government alone. We are talking of huge infrastructural projects: the power plants. We are looking for billions of dollars to get power going. Imagine what will happen to this economy if we had sufficient power. Just imagine if you close your eyes and you cannot remember when light went off unexpectedly. Now we need billions of dollars to do the railways, we need billions of dollars to do the roads, we need billions in so many areas like to provide for food security and these are funds that are available and cheaper. Because this is one of the conditions of the Paris Club, London Club that we have to restrict ourselves to concessionary lending going forward. So here are the concessionary lenders and there are many others that are willing to come,” he said.

“We have to the use the money well and we have to get projects that the partners will be very happy to finance. And if we set a very enviable target for ourselves of multiplying these three to four times in the next three to four years, I am sure it is possible. So it is pertinent to mention that each of these projects is financed with highly concessionary credits that has a repayment period of 40 years including 10 years moratorium,” he said.

The minister said from the 2008 fiscal year, all concessions and duty waivers to all government agencies would stop, as according to him, they have been subjected to abuse and must, therefore, be discontinued.

His words: “Let me also draw your attention to a potential problem that can delay the implementation of future projects at state level so that we all take pre-emptive actions to avoid this. And this is very important. I am referring to the recent decision by the Federal Government to suspend import duty waivers until further notice.

“In fact, this week, I am inaugurating a committee that will start work in that area. As part of the Federal Government’s fiscal strategy for 2008 to 2010, we made a detailed presentation to all the state representatives. I remember I also made a presentation at the last National Economic Council where most of the state governors were there about this medium term fiscal strategy.

“One of the provisions we have made there is that all entities, whether federal, state or local government, would now be expected to budget for any import duty VAT and other charges for all items to be procured and imported into the country. It is bad budgeting, bad planning. Some states will come and get exemptions, others will not and so on and those exemptions are being abused even by the states.

“There is evidence of abuse by some of those waivers and the correct thing is: budget for any taxes in the project. Put it as part of your budget and pay the taxes when due. If we are all doing it properly, this money will come back to us anyway. Who gets VAT? The majority of VAT is collected by the states and local governments. Who gets, under the federation account also, import duties? Everything, it all comes back into the federation account. So, at the end of the day, the money will come back. And the abuses, the money that is being drained by the abuses will stop,” he said.

Dr. Shamsuddeen stressed that it was erroneous to consider Nigeria as a rich country as according to him, “we make a mistake that Nigeria is a rich country. Nigeria is a richly endowed country but it is not a rich country. We do need a lot more resources to come into this economy. The limited resources that we have even with oil are completely inadequate to finance even the level of basic infrastructure that we need.”

Earlier, the World Bank Country Director in Nigeria, Dr Hafez Ghanem, said the organisation’s portfolio in the country stood at $ 2.6 billion and called for a closer collaboration with the Federal Government to increase the volume.

He said there were 20 projects in sectors such as agriculture, water and sanitation, health, roads and electricity power.