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4 major reasons Nigeria continues to borrow money (Check the List)

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President Buhari and President Xi Jinping

Henry Ford once said that it is inevitable that anybody that can borrow freely to cover errors of management would borrow rather than correct the errors.

Well, nobody can tell if that is applicable to Nigeria’s economic situation but the federal government has claimed that it borrowed money from several sources to solve the dire shortfall in infrastructure.

And even President Muhammadu Buhari recently justified that his government took loans in the interest of the country.

Meanwhile, Senate President Ahmad Ibrahim Lawan has described Nigeria as an impoverished nation, noting that it has no option but borrow to fund its infrastructure development.

Speaking about the Senate president’s claim, the director-general of the BOF, Ben Akabueze, said Nigerians must admit that their country is poor and only potentially rich.

Akabueze explained further that the country must keep borrowing to spend its way out of recession.

No doubt many Nigerians must have been lamenting and complaining about the country taking loans as the only means of running its affairs despite all the natural resources it endowed with.

Techeconomy.ng, as part of its major goals of educating the masses on national and economic issues, will be dissecting four major reasons Nigeria continues to borrow money to solve the dire shortfall in infrastructure in this article.

Take note that this is not an opinionated article rather it is a compendium of what Nigeria’s authority and well-respected personalities have said over a period of time.

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 Below, however, are four major reasons Nigeria continues to borrow money from foreign countries:

1. Collapse of the oil market: The development is the number one reason for Nigeria to continue to take loans to fund its infrastructure development.

President Buhari recently noted that the challenges posed by the collapse of the oil market and the decision of the government is to abide by the reduced oil production quota allocated by the Organisation of the Petroleum Exporting Countries (OPEC).

Nigeria greatly relies on revenue from the production and sale of oil. The production of the natural resource is government owned, and earnings from exports comprise 70 percent of all government revenue.

In December 2019, oil sold for $60 per barrel, but one year later it only sells for $48 per barrel. In April 2020 the price had plunged to $18 per barrel, and for a time it was actually sold at a loss due to a lack of storage capacity. With daily production output usually at 2 million barrels per day, it has now been cut to 1.4 million barrels per day.

2. Cost of governance: The former Anambra State Governor, Peter Obi, recently urged President Muhammadu Buhari to slashed the cost of governance to have enough funding for critical sectors like education and health.

Obi explained that Indonesia is investing $50 billion in education annually, and they are 250 million while Nigeria with a population of over 200 million is not even spending $2 billion on education.

The former Anambra state governor explained that the cost of governance in Nigeria is unacceptable anywhere in the world, claiming that he was sure about that as former governor of Anambra.

3. Insecurity: This has been dampening Nigeria’s economy a long time ago and because of the government’s inability to profer a permanent solution to it, the country has become an unsafe place for foreign investors.

For the greater part of the past four to five years no week has passed without some horrifying insecurity experiences and calls by various stakeholders on the federal government to seriously improve the security of life and property in the country.

Suffice to note that the persistent issue of insecurity in Nigeria has been fingered as a major reason behind foreign investors pulling out their investments from the country.

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A report recently claimed that over N1.77 trillion foreign investments have been divested from the country in the last two years as a result of insecurity.

The Nigerian Exchange Limited reported a total of N99.94bn was pulled out by foreign investors from the Nigerian stock market in the first four months of this year, 2021.

Techeconomy.ng gathered that the foreign portfolio investors injected N 78.31bn into the market from January to April this year.

4. Forex scarcity: The Lagos Chamber of Commerce and Industry (LCCI) noted that foreign exchange scarcity has significantly impacted the operating costs of businesses in Nigeria.

Investment analysts attributed foreign exchange (forex) scarcity and repatriating funds out of the country to reduction of Foreign Portfolio Investment (FPI) in the stock market.

They explained that investors are scared of investing in climes where forex prices are managed and not market reflective.

Analysis of the figures on Foreign Portfolio Investment (FPI) participation in the equities market, showed that foreign investors contributed paltry 22.21 percent to total transactions (N676.53 billion) during the period under review.

On his part, Ali Khalpey, CEO, EFG Hermes Frontier, said that uncertainty around the exchange rate and the possibility of repatriating dollars out of the country still serve as challenges.

 

 

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