No one can fault taxation hawk, Taiwo Oyedele, who became the Minister of Finance and Co-ordinating Minister of the Economy after the unexplained exit of his predecessor, Wale Edun, for what seems to be his major preoccupation of getting Nigerians to pay taxes by all means, including the tactical shooting down of the idea of loans.
It is easy to understand his newfound fetish of “agreement” with those who think Nigeria’s debt profile is dangerously high, as it has now led to the dedication of high portions of Nigeria’s annual budgets to servicing of loans.
To be sure, one of the most important constitutional duties of Nigerian citizens is embedded in Section 24(f) of Nigeria’s Constitution, which provides that “It shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly.”
But then, nothing is really wrong in anyone or any country taking loans that accountants and other finance professionals describe as leverage, because it can be used for the realisation of dreams that would have remained dreams forever. The only problem is that the money must be appropriately applied.
If you added OPM, or other people’s money, to your own, you get the advantage of scaling up your commercial operations to take advantage of large-scale production, the manufacturing or marketing of high volumes of goods at unit costs that should be lower than what they would have been if the production level were lower.
But sometimes loans have to be taken with extreme caution, by paying utmost attention to the terms and conditions and prevailing environmental circumstances. As the Christian Bible admonishes, not everything lawful is expedient.
Oyedele will be the first person to acknowledge the dangers of transborder loans, or Eurobonds, that come with “hidden costs” that continuously “expand”, especially if the currency of the debtor continues to depreciate relative to the currency of the lender.
That is probably why critics of Nigeria’s debt profile suggest that Nigeria had better take foreign loans from the Paris Club, of multilateral institutions, like the World Bank, International Monetary Fund, and African Development Bank, that come with cheaper interest rates, rather than the London Club, made up of hawkish private lenders with higher interest rates, terms and conditions. And they have a point.
If Nigeria took a loan denominated in US dollars, it means that as the naira depreciates, more naira will be needed to service and eventually repay the loan. To repay the $6.1 billion Eurobond that former President Muhammadu Buhari took in 2021 at a N399 exchange rate to the dollar, the government will require N1,372.74, which is the current exchange rate.
In addition to a strong appetite for taking loans to finance Big Government, coupled with the stealing and frivolous use of public funds on white elephant projects, the continuously deteriorating exchange rate is responsible for the high debt profile of Nigeria.
Even President Bola Tinubu, who is probably looking for a way to drum up support for Oyedele’s appetite for increased taxation, alluded to the disadvantage of foreign loans while speaking at the Africa Forward Summit in Nairobi, Kenya.
His words: “Every dollar spent on ‘punitive’ interest rates (on foreign loans) is a dollar not invested in steel, textile, agro-processing, digital industry or power infrastructure.” At the moment, the debt profile of Nigeria is 53 per cent domestic, while 47 per cent is foreign loans.
And the usual argument brought forth for taking foreign loans is that the government does not want to crowd out the private sector from access to loans from domestic lenders, like banks, institutional investors, mutual funds and high-net-worth individuals.
But after you have made your deductions from the stark statistics of foreign and domestic loans almost being equal, you will understand the argument in the book, “The Wretched of the Earth,” wherein the writer, Franz Fanon, tried to explain Africa’s poverty to Europe’s relative prosperity.
Fanon argued that “Europe is literally the creation of the Third World. The wealth which smothers (the Third World) is that which was stolen from the underdeveloped people.” He even used more colourful words: “You are rich because you are white, you are white because you are rich.”
According to President Tinubu, $11.6bn has been earmarked to service debt in the 2026 budget. It is instructive to note that the $6.1bn Eurobond that President Buhari took in 2021 was to fund the deficit in the 2021 budget. This is evidence of the dangerous trend of using loans to service or repay loans.
As stated earlier, there’s really nothing intrinsically wrong with taking loans. But the purpose for which the loan is taken is what matters. If loans are taken to finance a “Marshall Plan” for electricity, waterworks, petroleum refineries, the steel industry or digital technology, no one will complain.
But if it is just to pay for consumptions and overheads, like purchase, maintenance and fueling of fleets of suburban vehicles for senior government officials, purchase of new aircraft for the president, renovation of the residence of the vice president, sundry overseas travels and white elephant projects, that will lead to serious concerns.
Oyedele certainly understands that the issues about raising money through loans or taxes and spending it should be guided by appropriate macroeconomic policies, the making of policy choices that economic theory describes as the rational allocation of scarce resources.
But the plugging of leaky loopholes is crucial to the effective use of macroeconomic policies. The other necessary plank is the intentional application of domestic and foreign loans and tax revenues to projects, or assets, that guarantee future returns.
But Nigeria needs to address the big elephant in the room, which is the raising of money by convincing the Organisation of Petroleum Exporting Countries to raise Nigeria’s daily crude petroleum quota and getting Nigeria National Petroleum Company Limited committed to ramping up production of condensates that are exempt from OPEC quotas.
As the government already pledged significant portions of its petroleum production to servicing and repaying some loans, these may be the low-hanging fruit it should explore to raise its revenue, instead of the “punitive” taxation of Nigerians who are living from hand to mouth.
Something else: The Ministry of Petroleum Resources should accelerate the revival of the NNPCL refineries and encourage more private-sector petroleum refineries whose products can be sold locally or exported to earn more foreign exchange.
Thus, the government can increase its revenue by earning more company tax, excise duty from domestic productions and customs duty from exports of petroleum products. The icing on this is that Nigeria should be able to realise higher revenues from the sale of finished products than from raw mineral resources.
The newly minted Coordinating Minister of the Economy should live up to his billing by designing appropriate macroeconomic policies in concert with the ministers of national planning, industry, trade and investment, power, petroleum resources, solid minerals, agriculture and food security, works, and transportation.
But first, he must review and put more teeth into the Nigerian Industrial Plan 2025, which could serve as a base from where the Economic Management Team can tee off to develop policies to run a robust economy that can deliver higher revenue to the government.
But, of course, Nigerians must augment government revenue by paying their taxes.
X:@lekansote1, lekansote.com
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