According to a recent report, by the end of May 2024 Nigeria is expected to obtain $1.05 billion from an oil-backed syndicated loan to stimulate its economy and enhance the availability of hard currency in the foreign exchange market. Since the 2000s, at least 11 African nations have secured loans totalling billions of dollars by using their natural resources as collateral. Africa is at a critical juncture where failure to reimburse loans comes with dire consequences, including its ability to control and exploit its natural resources. Yet, little is done on the continent to ensure that loans serve their purpose (which is to create value for Africa and Africans), and are repaid dutifully. With our natural resources being used as collateral, this situation is even more alarming.
Consider the Nigerian case, for instance. Nigeria’s public debt history dates back to the colonial period, with a total debt of approximately £17 million by the time colonial formal rule ended in 1960. By 2004, Nigeria’s external debt had increased to an astonishing $36 billion. However, as of December 2023, Nigeria’s external debt has reached an all-time high of $42.5 billion. One argument in favour of government borrowing is often that the government needs a lot of money to address critical infrastructure. That’s true! However, the far-reaching implications of debt servicing are often downplayed. In the case of Nigeria, the debt servicing burden has become so heavy that funds for essential services and investment in infrastructure and social programmes in Nigeria have been dwarfed by the huge costs of servicing debt.
Nigeria’s high debt load has been attributed to many years of economic mismanagement. In a recent press release, the Socio-Economic Rights and Accountability Project (SERAP) raised concern “that many of the country’s 36 states and [the] FCT are allegedly mismanaging public funds which may include domestic and external loans obtained from bilateral and multilateral institutions and agencies.” According to the SERAP report, most of the states spend money from these “domestic and external loans to fund unnecessary travels, buy exotic and bulletproof cars and generally fund the lavish lifestyles of politicians.”
The story is the same at the national level. In 2021, a report from the Nigerian Senate Committee on Public Accounts disclosed that officials in the office of the Accountant General of the Federation had misappropriated $274.2 million from external loans. The report detailed how external loans are squandered, resulting in little impact despite the government’s substantial borrowing. The Senate Committee’s investigations exposed widespread corruption across all government ministries, departments, and agencies (MDAs) in Nigeria, with incidents of public funds being stolen regularly.
All of these may have necessitated the recent call by SERAP for the World Bank to suspend giving of loans to Nigerian states over misspending and for the state governments to account for the billions of dollars of loans they received by sharing details of the projects carried out using these loans, including information on the projects and their respective locations.
Misappropriation of public funds, part of which are from external loans, is not unique to Nigeria alone. In 2013, Malawi was shaken by the Cash Gate scandal, where public officials misappropriated $356 million in government funds, causing foreign donors to withdraw approximately $150 million in budgetary support to the country.
Both SERAP’s call for the World Bank to suspend loans to Nigerian states and the Malawian example have worrying implications. Western governments and financial institutions are expected to do the work that African institutions should do: hold our governments accountable for the use of loans. This is a dereliction of duty on the part of our institutions – a slippery slope to inviting foreign control over our resources and decision-making processes, as well as foreign supervision of African institutions which stubbornly reject accountability to their own people. Indeed, given Nigeria’s reputation for not effectively managing and efficiently utilizing past loans for their intended purposes, the danger of using natural resources as collateral should be obvious to all if the government fails to reimburse these loans as they are not used for the intended purposes.
It goes without saying that Nigeria, like other countries facing similar issues, ought to review its existing anti-corruption laws, ensuring that anti-corruption institutions and the judiciary are truly independent to foster a culture of transparency and accountability in the expenditure of public funds. African governments must have the political will to fight corruption, to a standstill, especially in public service.
Furthermore, Nigeria and other African countries receiving foreign loans must ensure that these loans are negotiated in such a way that their terms and conditions are not detrimental to their country’s welfare, economic interest and sovereignty. This is crucial because, according to some reports, there have been instances where those who negotiated external loans on behalf of Nigeria had worked with foreign entities and institutions to defraud Nigeria and its citizens in the past. Also, experts have cited cases in the past where, in carrying out chosen projects, the recipient country is required to hire consultants sanctioned by the lenders. As a result, over 50 per cent of the funds end up covering the consultants’ expenses, while the remainder is divided among corrupt officials in the recipient country.
Considering all these, it becomes imperative for the terms and conditions of present and future foreign loans by Nigeria and other African countries to be scrutinized by trusted African experts and institutions to ensure that such loans will be in the overall best interests of the people.
Most importantly, Africa’s natural resources must only be used as collateral for obtaining loans on the best possible terms. They should never be used as a means of repaying the lenders. African natural resources should remain under the control of Africans and not the lenders. Therefore, existing natural resource-backed loans in Africa, which were recently described as being badly negotiated on behalf of the African continent, ought to be urgently renegotiated in a very transparent and equitable manner.
Africa is indeed at a critical juncture. Our future depends on our ability to act decisively in the defense of our national and collective interests.
