DAMNING REPORT: NIGERIA Ranks Second Most Corrupt Country in West Africa -Transparency International … ‘100 powerful Nigerians exposed as having used anonymous companies to buy properties worth £350 million in the United Kingdom alone’, Panama Papers document *Borrowed US$11.7 billion from WORLD BANK’S International Development Association *‘Nigeria’s DEBT to China is N32.9 trillion ($86.3 billion)-Debt Management Office DEBT Breakdown: N12.7 trillion ($33.3 billion) in external debt contracted by federal government, N20.2 trillion ($53 billion) in domestic debt, involving bank loans, of this fund the Nigerian government still owed extra N16 trillion ($42 billion), while balance are loans collected by the state governments and the federal capital territory *BY AHMED LUUKMAN/SPECIAL Anti-Money Laundering Reporter


NIGERIA Ranks Second Most Corrupt Country in West Africa -Transparency International

… ‘100 powerful Nigerians exposed as having used anonymous companies to buy properties worth £350 million in the United Kingdom alone’, Panama Papers document

*Borrowed US$11.7 billion from WORLD BANK’S International Development Association 

*‘Nigeria’s DEBT to China is N32.9 trillion ($86.3million)-Debt Management Office 

DEBT Breakdown: N12.7 trillion ($33.3 billion) in external debt contracted by federal government, N20.2 trillion ($53 billion) in domestic debt, involving bank loans, of this fund the Nigerian government still owed extra N16 trillion ($42 billion), while balance are loans collected by the state governments and the federal capital territory

*BY AHMED LUUKMAN/SPECIAL Anti-Money Laundering Reporter

AFRICA’S Most populous nation in the world, Nigeria has come under severe criticism for owing various sums of money in different financial institutions in spite of the nation’s war on anti-corruption. A damning report revealed by Transparency International recently has proven that this most populous black nation in the world is categorised as the second most corrupt country in West Africa. According to the nation’s Debt Management Office, DBO, Nigeria’s debt to China is at N32.9 trillion ($86.3 billion), while owing the World Bank’s International Development Association the sum of US$11.7 billion. 

This debt comprised: N12. 7 trillion ($33.3 billion) in external debt, all of it contracted by the federal government, N20. 2 trillion ($53 billion) in domestic debt, including loans by banks. Of this amount, the federal government owed N16 trillion ($42 billion) while the balance was loans by the state governments and the federal capital territory. Of the external debt, 9.7% or N1.2 trillion ($3.3 billion) was owed to the Export-Import Bank of China. 

Despite the efforts of the anti-corruption agencies, Nigeria’s corruption data remains worrisome as a recent study ranks the country as the second most corrupt in West Africa (#154) out of 180 countries evaluated globally.

This is based on statistics from Transparency International’s Corruption Perception Index for 2021. The index assigns a score to each country on a scale of 0 to 100, with 0 being the most corrupt and 100 being the cleanest.

 Pandora Papers revealed 100 powerful individuals who were exposed as having used anonymous companies to buy properties with a total worth of £350 million in the United Kingdom alone.

  • Nigeria was ranked (154) in 2021, down from (149) in 2020, with a score of 24 out of 100; This means that corruption in the country’s public sector has worsened over the last 3 years, despite the present administration’s efforts to combat bad practices.
  • In 2019 Nigeria was ranked (#146) out of 180 countries questioned in the 2019 study, with a score of 26 out of 100. Nigeria’s ranking in the 2020 report declined three places to (#149) out of 180 countries surveyed, with a score of 25 out of 100.
  • Nigeria follows Guinea Bissau, ranked (#162) on the index as the most corrupt nation in West Africa, scoring 21 points. In Sub-Saharan Africa, South Sudan and Libya are perceived as the most corrupt nations in the region and on earth.
  • Other African countries perceived as more corrupt than Nigeria include Zimbabwe, Chad, Eritrea, Burundi, Comoros, Congo, Guinea Bissau, Democratic Republic of Congo, Libya, Equatorial Guinea, Sudan, and South Sudan.
  • In comparison, with a score of 70, Seychelles (#23), Africa’s smallest country, is also the least corrupt. Other major improvements include neighbouring countries Rwanda, South Africa, Ghana, and Tanzania, all of which have risen to the top of the least corrupt countries list.

Nigeria and China mark their golden jubilee of official relations in 2021, having established diplomatic ties in 1971.

As trade and investment have grown, so has lending, leading to an increased focus on the balance of the bilateral relationship. Nigerian president Muhammadu Buhari has at times had to deny that  his country was too reliant on Chinese debt.

But the public debate about the level of Nigeria’s indebtedness to China, including claims that Abuja is risking its sovereignty, is one that is never too far from the limelight. Detailed sheet looks at the size of current debt.

In 2020 and the early months of 2021 federal government ministers pushed back at allegations, including from lawmakers, Nigeria was under Beijing’s thumb because of increased borrowing.

In August 2020, transport minister Rotimi Amaechi said Nigeria had waived immunity on a loans-immunity which would have prevented China taking it to arbitration in the event of a default. But this did not mean the country had ceded its sovereignty.

“We must learn to pay our debts and we are paying, and once you are paying, nobody will come and take any of your assets,” he said.

Justice minister Abubakar Malami supported Amaechi, saying the clause in question was standard and meant to protect lenders. The Chinese embassy in Nigeria also made a statement.

Of the external debt, 9.7% or N1.2 trillion ($3.3 billion) was owed to the Export-Import Bank of China. This is a state-owned and funded bank that supports China’s foreign trade and investment.

The debt to China formed 80.1% of bilateral debt, or $1.4 billion. Bilateral debt generally refers to debt loaned by one state to another state. Other countries that have lent to Nigeria are France, Japan, India, and Germany.

Multilateral debt, or debt owed to international financial institutions such as the African Development Bank, the World Bank and the International Monetary Fund, stood at $17.9 billion. 

The loans from China are concessional, which means they are given at more generous terms than market loans.

Eleven projects are funded by the money, according to the debt office. These range from water supply, power and railways to airport terminals, communications and agricultural processing.

“Those are all concessional loans and there are no reasons to be worried about them, they’re all project-tied which I think Nigeria should be happy about,” Patience Oniha, who heads the debt office, said in a February 2021 media interview. 

In total, Nigeria has agreed to $5.6 billion in loans with China. But as of March 2020, Beijing had disbursed $3.3 billion. 

With Nigeria already servicing the loans, $3.1 billion was outstanding as of then.

The earliest of these funding agreements was signed in 2010,  while the most recent dates back to May 2018. They all have interest rates of 2.5% per year, a grace period of seven years and a repayment period of about 20 years.

The earliest maturity date is September 2030, with the last loan to be paid up in March 2038.

Official figures show that Nigeria’s debt to China grew 136% between September 2015 and September 2020, from $1.4 billion to $3.3 billion. Buhari started his first term in May 2015.

External debt in that period also grew from $10.6 billion to $32 billion.  The debt management office has said the country would not default on its loans.

“Nigeria explicitly provides for debt service on its external and domestic debts in its annual budgets. In effect, this means that debt service is recognized and payment is planned for,” the office said in a 2020 statement. 

“In addition, a number of the projects being and to be financed by the loans are either revenue generating or have the potential to generate revenue.”

In the February 2021 interview, Oniha of the debt office said the country could do “much better” on its debt service to revenue levels. “[But] so far, let’s be very clear that there has not been any default, whether of local or international debt.”

Nigeria spent $195.5 million to pay its debt to China in 2020, or about 12.6% of the $1.6 billion it spent servicing all its external debt.

Nigeria is Fifth Country in the World with Highest Debt Exposure-World Bank:

The World Bank recently ranked Nigeria fifth on the list of 10 countries to which it has the highest debt exposure. Nigeria owes the International Development Association-one of the two lending arms of the World Bank – US$11.7 billion.

The International Development Association lends to countries based on their relative poverty or per capita income levels, at low to zero interest rates. Nigeria qualifies for funding based on its per capita income levels.

To non-economists, the announcement that Nigeria is fifth on the list of International Development Association borrowers is alarming. It appears to portend grave dangers for the Nigerian economy and the welfare of Nigerians.

A more nuanced analysis of Nigeria’s debt profile, however, shows that the World Bank’s report does not give as much cause for concern.

As of 31 March 2021, Nigeria’s external debt stock was about US$32.9 billion. Of this amount, debt to multilateral institutions such as the World Bank accounted for 54.3%, followed by commercial debt (33%), bilateral debt (12.7%) and promissory notes (0.55%). Domestic debt stock was about N16.5 trillion or US$40 billion, using the Central Bank of Nigeria’s 30 August 2021 official exchange rate of N410 to $1.

Nigeria’s total public debt was about $87 billion. Domestic debt represented 62.3% of this at 31 March 2021, and external debt 37.6%.

Debt risk is not only about how much a country has borrowed, but also the country’s ability to service its debt.

Economists use two indicators to determine a country’s debt sustainability. The first is gross debt as a percentage of a country’s economy as measured by the gross domestic product (GDP). This is commonly referred to as the debt-to-GDP ratio. Nigeria’s external debt-to-GDP ratio was 12.7% in 2019. The International Monetary Fund puts total debt-to-GDP at 34.3%. 

Economists believe that debt begins to hurt economic growth when the total debt-GDP ratio exceeds 90%. Based on this threshold, Nigeria’s current debt level is harmless.

Most of the top 10 countries to which the International Development Association has significant exposures have much higher debt-GDP ratios than Nigeria. For instance, the external debt-GDP ratios for some of the top 10 countries on the World Bank’s list are Ethiopia (29.7%), Ghana (41.1%), Kenya (36.6%), Tanzania (31.8%) and Uganda (40.8%).

Another indicator of debt sustainability is the debt service ratio, which is the proportion of export earnings that is used to service a debt, including principal and interest payments. A healthy ratio is below 15%. 

Nigeria’s debt service ratio fell from 23% in 1990, to an all-time low of 7% in 2019, lower than some major African countries: Angola (27%), Ethiopia (29%), Kenya (38%) South Africa (16%) and Tanzania (14.7%).

Based on the debt-GDP and debt service ratios, Nigeria’s debt is sustainable. Why then should anyone worry about Nigeria’s name appearing on the list of top 10 countries the World Bank has lent the most money? One reason may be concerns about Nigeria’s ability to meet its debt obligations in the future.

Debt repayments are often made from revenue generation. At less than 5%, Nigeria has one of the lowest revenue-GDP ratios in Africa. The average for sub-Saharan African countries is almost 20%, and 30% for oil exporters.

About 65% of government revenue and over 90% of foreign exchange earnings in Nigeria comes from the oil sector. Uncertainties in the global oil market and sluggish revenue growth, as well as the negative impacts of COVID-19 on the economy, imply that the country would face challenges generating enough revenue to service its debt.

By October last year, only 64% of the revenue expected from oil had been generated. Meanwhile, government expenditures have been growing faster than expected, meaning that the deficits will be covered by borrowings. More borrowings means that an increasing proportion of revenues generated will be devoted to debt service.

Another source of worry about Nigeria may be related to the continuous deterioration in the country’s macroeconomic performance during the past five years. Creditors are often concerned about debtor countries whose economies are not well managed, and perceive them as risky borrowers. Nigeria’s economic growth fell from 11.9% in 2015 to 2.2% in 2019, and then turned to negative 1.8% in 2020 because of COVID-19.

The rate of inflation rose from 9% to 13% during the same period, while the unemployment rate jumped from 9% in 2015 to 22.6% in 2018. The naira has depreciated by a whopping 57 between 2015 and 2019. These are all macroeconomic challenges.

Media frenzy generated by the recent World Bank ranking may rattle foreign investors and further reduce Nigeria’s attractiveness as an investment destination. Foreign direct investment in the country has been declining continuously, from 6% of GDP in the mid-1990s to about 0.5% in 2019.

There is also the risk that foreign investors in Nigeria may relocate to other less risky countries, thereby depriving the country of revenues needed to service debt. This is more so as the country battles other challenges such as high unemployment, interest, and inflation rates, insecurity, poor infrastructure and acute shortages of foreign exchange.

To change its perception as a debt-risk country, Nigeria needs to manage its debt very prudently and avoid a return to the era of the early 2000s when the country’s debt-GDP ratio was almost 60%.

It should reduce the high governance cost and rein in corruption. Nigeria’s government should promote faster economic growth by investing in infrastructure (especially roads and electricity), providing access to capital for micro, small and medium-sized enterprises, and supporting agricultural development.

There is also an urgent need to diversify the economy and make it less reliant on oil. The Nigerian government should embark on an intensive public enlightenment campaign about the sustainability of Nigeria’s debt. There has been a public perception, albeit erroneous, that Nigeria is under debt distress. Although Nigeria’s Debt Management Office has tried to counter that narrative, more should be done by the government.

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