Monday, 06 May 2019 12:46

Still On ‘Made in China’ -Alex Otti

Penultimate week, we had discussed the above issue which generated a lot of debate going by the number of mails I received from readers. While the debate continues, I will like to use this medium to deepen the discussion and publish some of the interesting feedbacks I received. 

 

Let me quickly go to this misleading commentary about my using the article to declare my support for more borrowing from China. That is far from what the write up was about. Readers would recall that I had consistently opposed plunging the country into unsustainable debts. I had argued that the reliance on debt to GDP ratio to justify more debt is, at best, misleading. At about 20% debt to GDP ratio, there is every tendency to rationalize more national debt given that our ratio appears lower than the average threshold of 42% for developing countries and the 56% benchmark for developed countries as contained in the IMF/World Bank Debt Sustainability Framework”. In my last thesis on debt, titled “Till Debt Do Us Part”, I had insisted that what was important was not the debt to GDP ratio but the debt service to revenue ratio which measures the part of our annual revenue that goes into debt repayment on an annual basis. At a debt service to revenue ratio of over 60% as at last year, it is clear that we are actually headed towards unsustainable levels.

There was also a lot of discussion around the ability of Nigeria to negotiate favourable terms with China. My response is that we do have a lot of experts in the country who can ensure that we get the best deals possible from lenders. There seemed to be a consensus from those that reacted that as a country, we are wired to put our worst foot forward. A lot of people who held this view, insisted that while governments all over the world would send their best team on missions like this, African governments have a penchant for not sending their best either for political reasons or self interest purposes. Well, what can I say to our people? As we continue to ‘garbage in’, so shall we continue to ‘garbage out’!.

Another issue that dominated the debate was technology transfer. The argument was robust over whether technology transfer is possible or not and this has continued unabated. I must point out that I  had also dealt with this issue in my previous columns and will direct interested readers to my column titled “Innovate, Adapt Or Die”. I will, however, weigh in to say that technology transfer is normally not part of a typical negotiation.  Even when that is made an item for negotiation, there is no guarantee that it will be delivered. Besides, it is difficult to determine at what point technology has been transferred. I had argued that technology should be indigenous to a people and should actually address the needs of the people.

Permit me to publish a detailed feedback from a regular reader and commentator, Mazi Udochukwu Uwakaneme. Interestingly, Mr. Uwakaneme, who turned 80 earlier in the year, is a 1966 Harvard MBA graduate and a consultant of global note.

“Your article, Made In China, is a very important document for Nigeria, as it is inevitable that she will increasingly engage economically and strategically with that giant country. You presented clearly China’s strengths and weaknesses in trying to excel in a highly competitive global economic environment. You went to great lengths to explain how China sees the world, and the foundations of their long-term strategies for conquering their rivals, dating from Mao’s Cultural Revolution through Deng down to Xi Jinping. Thank you for reminding us of what we as Nigerians could learn from modern China’s development history, particularly in terms of farsightedness and doggedness.

You noted that China is willing to adopt new ways in order to win. She shifted to a market economy, also embracing globalization. She is aggressive in competition when reaching out to Nigeria and Africa. China is succeeding through shrewd lending that exploits the other’s vulnerabilities, which often include ignorance and corruption. She is able to sense those who are starving for capital. Thanks for the quote reminding us that India and China are ‘starving’ for our jobs. 

Thanks for including in a constructive way, some convincing prescriptions for Nigeria on how to exploit the advantages of dealing with China at this time and in future.

We must ‘shine our strategic eye’ and not quickly jump from frying pan (of the West) to fire with the Chinese new ‘warm friendship’. Indeed, we have hard choices to make when considering investments on their own merit. There are no magnanimous permanent friends out there anymore.

Any new strategic relationship with China must not leave us with the short end of the stick at any point. We should negotiate well not only for funds on favourable terms but also for the Nigerianisation of labour and transfer of technology during project implementation.

There could be important new areas of mutual interest with China in future, such as when we can develop our natural resources in a manner that makes them attractive for export to them, especially where it gives them an avenue for reducing some of their choking obligations to the United States and EU.   .

Finally, I agree that “it is important that we use our clout to ensure we negotiate favourable conditions given how important we are to our partners in the global arena.” 

But the question is this. If we must depend on our “clout……given how important we are to our partners in the global arena”, where is this kind of clout going to come from in the foreseeable future? Let us consider some realities on the ground today. 

Without clear-cut results, that are fair and acceptable by all competing sides, when verdicts come from the sitting election tribunals and appeal courts, the continued escalation of violence and ugly atrocities in Nigeria after 2019 cannot be entirely ruled out.  Unfortunately, in the worst-case scenario, escalating violence would only further play into the hands of local war-mongers, arms dealers and foreign mercenaries. Remember the mess with horrible atrocities created by the Sierra Leonean civil war between 1991 and 2002 (lasting 11 whole years!)? Remember those greedy outside opportunists like Liberia’s Charles Taylor? Nigeria’s national credentials as an important democracy in the world are on very shaky grounds.

In ten years’ time or less, there will be no usual leverage from Nigeria’s oil, since other new sources of oil have been found in recent years even in Africa, while the Americans with vast new reserves of gas will continue to depend less and less on Nigerian oil. As a matter of fact, should there be a violent conflict among parts of this country tomorrow (God forbid!), as in the last civil war, no part can anymore use oil as a bargaining chip to attract international support to itself from any of the big economic powers, simply because Nigeria’s oil in particular is no longer of much strategic interest anywhere.

Large size of population was once a strong factor of Nigeria’s international competitiveness, because it allowed for achieving major economies of scale. But that was when good infrastructure allowed for easy movement and distribution of raw materials and goods from factories and farms to markets. Today, the decayed infrastructure in roads, rail, education, health and housing is now too far-gone to be able to save the fragile and dwindling economy.

Flight of capital continues. The present regime was late in recognizing the need for creating meticulous enabling conditions for attracting investments to this country and for preventing fresh flights of capital.

The economy of the country is producing unemployment faster than before and is degrading a whole youth generation, simply because remedial entrepreneurship development schemes launched in the last four years have not been robust enough, and have been coming too little, too late.

Before 2005, Nigeria had an external debt stock of US$36 billion, largely accumulated during previous military regimes back to 1985. Then Nigeria negotiated successfully with Paris Club to bring all obligations then to zero; also bringing down total external debt to only $3 billion, while domestic debt fell to only N1 trillion. But the national debt burden went up again to US$73.21 billion, as at June 30, 2018, according to the Debt Management Office (DMO). Since then, I have not read that the debt burden is sustainably dropping. Therefore, since more borrowing is still expected, which could further deepen the obligation hole, how will this already restrictive yoke be borne, while at the same time trying to rescue a fragile and dwindling economy? Those IMF’s fears, are they not somewhat founded?

Nigeria’s security forces are facing too many overwhelming internal security challenges that will likely last a long time. Hence, the days are gone when Nigeria could step in militarily and assist other sub-Saharan countries restore peace.

Sheer incompetence and callousness in governance with extreme avarice at the centre, and in almost every State, have contributed to pushing the entire country near the bottom of the poverty index among all countries of the world. Nigeria is now home to nearly 90 million people who live below the poverty line, and in 2018 overtook India as the poverty capital of the world. In the same year, the UN General Assembly at its 2018 autumn meeting projected that by 2050, if African countries continued the way they are going, they would become home to 80% of the world’s poorest people. Two African countries, Nigeria and DRC would contain half of such people. Thus, with all of 40% (half) to itself, Nigeria alone would still remain the poverty capital of the world by 2050, if things remain as they are!  

My further contribution is that, as a national collective, the people of Nigeria are today very low in fighting spirit, which we had at independence but simply do not have now, but which we require henceforth to effectively face a hostile and highly competitive outside world.

If Nigerians can hope to enjoy sustainable economic growth in a highly competitive world tomorrow, Nigeria’s leaders must shed the mentality of captains of a cruise ship and adopt a more appropriate spirit of captains under attack, who are firing back from a hunter-attacker battleship – and have cast iron resolve to win!”

I must thank Senior Citizen Uwakaneme for his profound insight and the discipline to put down his thoughts and send for our enlightenment. While I share a lot of the sentiments raised in the intervention above and had taken similar positions in the past, it is instructive to note that the DMO had since published the country’s debt profile as at December 31, 2018. The total national debt stock had risen from over $73b as at June 2018 to circa $80b. This figure is sure to rise further, given the deficit in the recently approved 2019 budget. Anyhow we look at it, we are in a serious dilemma. Our current revenues are too low and  there is no indication that they will rise soon enough. It is crucial that something is done to push them up. This is imperative if jobs are to be created and if productivity has to increase. Because of acute infrastructure deficit, productivity is very much below installed capacity. New industries and businesses are not being set up. It therefore follows that something must give. 

In my own sincere view, one of the first things that must happen is a drastic reduction in  the cost of governance. We can explain it away the best way we can, but it makes no sense to consume over 70% of our budget and deploy less than 30% to capital expenditure. This is the biggest problem we are facing. We must sit down and discuss how to address this dangerous trend. Do we really need a bicameral legislative system? Can we just have the Senate and reduce the number from 109 to less than 60? Can we prune down the size of the executive in like manner? Can same be done in the states and the local governments by reducing their number? Can we start by saying that we will spend no more than 30% of our budget on recurrent expenditure? 

I believe that if we are committed, we can achieve all these and more. It is only when we have done so that we can be sure that our borrowing will make sense and go straight into areas that can generate enough income not only to service our loans, but to make the required impact on the economy. To the extent that we are borrowing to pay salaries, we are sure headed to another debt trap in the very near future. Having said that, it is interesting to point out that most of the Chinese loans are tied to infrastructure. We will discourage loans that are aimed at financing budget deficit as most of it ends up financing big and inefficient government.

I cannot end this piece without pointing out one of the key success factors of modern China. It is summarized in the following comment reportedly made last month by Jimmy Carter to President Trump: “Since 1979, do you know how many times China has been at war with anybody? None. And we have stayed at war. Over its entire 242 year history, the US has only enjoyed 16 years of peace….. We have wasted, I think, $3 trillion on military spending. China has not wasted a single penny on war and that’s why they’re ahead of us. In almost every way”. There is profit in creating a peaceful, safe and stable society. Let that be food for thought for us all!

 
 
 
 
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