Nothing wrong with Nigeria’s borrowing, if used right

Victor Ogiemwonyi

Victor Ogiemwonyi, a retired investment banker, is a former Governing Council member of the Nigerian Stock Exchange (NSE), now Nigerian Exchange Group (NGX Group). He sent this contribution from Ikoyi, Lagos. He can be reached via comment@businessamlive.com

Borrowing to speed up development and grow the economy will greatly benefit  Nigeria at this time.
A country’s economy can be analysed from an accounting balance sheet perspective. A balance sheet always has two sides. On one side are assets of an institution, and on the other are its liabilities. The relationship between the two is what is managed.

The economy is no different. By expanding the capacity for asset creation via debt instruments, it can translate the same to accelerate the development that we need so badly. The 4th Industrial Revolution is upon us, yet Nigeria is still grappling with challenges of the second.

Our  current revenues compared to what we need to get our population out of the slow growing economy require us to borrow. Government revenues are too small for our needs, we will need to borrow, to do what we have to do. What people are worried about is borrowing to fund corruption, padding our budgets, and inflating contracts, and ending up with nothing to show for it.  If managed right; and we can choose to “grow big fast” to develop  the needed infrastructure, that will  help us grow our economy, leveraging our comparative advantages.

We need to rapidly develop our energy and transportation infrastructure, like roads, rail, and aviation, to help us properly connect and integrate the country, thus facilitating the movement of goods, people, and services. This aspect of our development alone can double our current economy and create its own growth levers that will support whatever debt we incur.

There are also other development areas that need urgent intervention to advance our economy. We are a nation in a hurry, some of what needs to be done today, cannot wait. If borrowing is what is needed to ensure rapid development, we must do it now. It is not going to be cheaper anytime soon, and we will not have the budget allocations sufficient to get them done. We have to borrow now and pay later to stimulate the economy based on the value proposition of Keynesian economics. This is not a case of accumulating debt for our next generation. This is about building assets for them that will enable them to live a better life in the future and in greater numbers. We can not wait to double our population before we tackle the problems that will come with it. If well planned, most of the debt will be self liquidating from the expected double-digit growth that will come out of it, and this will take us out of our current poverty. This will be the result of borrowing that is grounded in sound economic logic.

Social services like education and health, with  their own multiplier effects,  need urgent attention. We must invest in them heavily. There is no alternative to making them the cornerstone of our development.

We must also ramp up growth in our other areas with comparative advantage, such as agriculture  and mining, We need to de-risk these areas and make it attractive for the private sector to participate. Create the incentives and partner, where necessary. We may just find that, all we really need are clear  unambiguous rules with an efficient regulatory environment, where regulators, will know that their role is to enable participants in their sector,  and not be a hindrance playing police.

Recently,  the media was
reporting an Indian minister explaining India’s progress in the last two decades, lifting millions out of poverty and modernising the economy. It was all planned, and we can do same here,  if we are serious and there is sincerity of purpose, at all leadership levels.

Indonesia has just proposed a policy that will require everyone who wants to sell  into their economy to  also invest in it. If you want to sell to us make them here. That is a policy that Nigeria can  also adopt and implement. What this means is that countries are realising where their strength is, and want to maximise them.

Both Nigeria and Indonesia have large populations and large consumer markets. We are learning from Trump… He says anyone who wants to sell to the “beautiful US market,” must come and manufacture there. If it is good for the US, it should be good for us. We must do everything possible to rapidly increase manufacturing in our economy. We need to quickly replace those industries that have operated here for many years and still cannot find the raw materials here to manufacture their products. What does it take to manufacture local soaps that can compete with OMO, LUX, etc? Those industries that are largely rent extracting and are not adding value, they should exit.

Our huge import bills, will need to be upset with exports. Our recently correcting Balance of Trade must continue until we earn enough FX  to be self sufficient.

The low value of our currency, the Naira, is mainly due to low productivity of the Nigerian economy. It is not helped by those who insist on importing things we are producing here already, or we can make here. The export of commodities, like cocoa, now doing well, was always here, we did not create the needed incentive to grow them  for export. A market aligned Naira value is one such incentive.  I have previously stated in other articles that we should let the Naira rest on the strength of our economy. When in December of 2023 that I saw the Naira trading at N1500 to the dollar, when it first crossed the N1000 to the dollar mark, I said then, if the South Korea “ WON “ was trading at 1350 to the dollar then, with a bigger economy and smaller population, we should not expect anything different. We should worry more about Naira stability to enable us plan.

The need to do everything rapidly, to develop the economy is paramount,  and borrowing to do so will not be so wrong headed. We have capacity for debt, far more than we know!