The exchange rate moved from 197 naira to the dollar in 2015, to reach 790 naira to the dollar in 2023 (Shutterstock)
Recent reports have warned of the worsening debt of African countries, estimated by international institutions at about two trillion dollars, most of which accumulated in the first two decades of the current century, although its beginnings date back to shortly after independence.
About half of the countries of the continent are suffering from accumulated debt crises and their repercussions, and their effects on the lives and future of African people, in light of the doubling of the value of debt service and the economic decline.
Nigeria, which leads the continent's economy and is its leading oil producer, is at the forefront of countries facing a debt crisis. So what's the story?
A look at Nigeria's economy
Nigeria is the largest economy in Africa, the largest oil producer, and the largest population on the continent.
Its economy is classified as mixed, as it generally combines state-owned and private companies, and is considered emerging by international economic institutions. Nigeria belongs to the lower middle-income countries:
GDP reached $477 billion in 2022.
Per capita GDP: 2.33 thousand dollars.
Petroleum constitutes 90% of the country's exports.
The poverty rate is 40%, according to several economic reports.
Nigeria's debt story
A report published by the United Nations Economic Commission - Africa Office confirms that the debt crisis in Nigeria is not new today, but dates back to the beginning of the 1980s, when the country witnessed a major economic decline that negatively affected economic and social development indicators.
The Brookings Institution dates the beginning of Nigeria's debt servicing crisis to 1985, when the total external debt owed by the government to all creditors reached $19 billion. Since then, the government has paid creditors more than $35 billion, while borrowing less than $15 billion.
However, its external debt outstanding at the end of 2004 had risen to nearly $36 billion.
A group of Nigerian researchers wrote an analytical paper on the repercussions of external debt on the economy, concluding that the peak of the debt crisis was 2003, when external debt servicing reached $2.3 billion.
In 2005, the group of creditor countries of the Paris Club exempted Nigeria from $18 billion, representing 60% of its debt amounting to $30.85 billion, but the situation has not changed much.
Numerous reports by the Nigerian Debt Management Office indicate that debts increased by 658% during the period between 1999 and 2021, during which 4 presidents ruled: Olusegun Obasanjo, Umaru Musa, Goodluck Jonathan, and Muhammadu Buhari.
External debts increased during Buhari's era from $7.3 billion in 2015, when he took office, to reach $43 billion in 2023.
The exchange rate moved from 197 naira to the dollar in 2015, to 790 naira to the dollar in 2023.
External debt increased during the last six years of President Buhari’s rule by 291%, while domestic debt grew by 86.31%, according to analyzes that concluded that this government was the most borrowing, especially in the last term of government, for a number of factors that pushed it to do so, the most prominent of which was the Covid-19 pandemic, which caused a lot of confusion. Of leaves.
Reasons for Nigeria's debt accumulation
At the end of 2023, the International Monetary Fund warned of the crises hitting the Nigerian economy, warning of its repercussions, and said - in a report assessing the economic conditions in this country - that high inflation, the exchange crisis, weak economic growth, and business closures affect per capita growth, poverty, and increased food insecurity, and lead to... Exacerbating Nigeria's ongoing cost of living crisis.
A number of studies and analyzes agree on the reasons for debt accumulation, despite Nigeria’s creditors forgiving 60% of its debts in 2005, as follows:
1- Excessive dependence on oil
: which has become the only source of income and covers 90% of the national income, and with the decline in its prices, the percentage of its contribution decreased, in addition to the emergence of oil theft groups in the Gulf of Guinea and the Niger Delta, and their numbers reached tens of thousands, and they had a significant impact on the size of the output. Total raw material.
2- Corruption
: It is a widespread phenomenon in Nigeria and is almost the only constant in successive governments, according to analysts’ descriptions. Reports indicate that the country has lost about $400 billion since independence, because of it, and its impact has increased in oil and gas contracts.
Politicians own shares in oil companies, unequally distribute oil and gas revenues to states, and award contracts to their companies or interest groups linked to them behind the scenes.
3- Economic mismanagement
: Economic mismanagement led to imbalances that had devastating effects on the country. Despite Nigeria being a rich country with many resources, administrative corruption led to the emergence of political protest movements due to the huge disparity between classes that became extremely rich and others at the lowest levels of the poverty scale. All successive governments have failed to curb corruption and equitably distribute wealth to the point that 63% are poor.
4- Weak infrastructure
: The Nigerian economy suffers from weakness and major imbalances in infrastructure, electricity, and fuel crises, even though Nigeria is considered the number one oil producer in Africa, while according to statistics, 40% of the people live without electricity.
5- Security challenges
: Nigeria has been facing major security chaos for a long time, but they have worsened greatly recently, especially after the emergence of the “Boko Haram” group and other unofficial actors who do everything the government does, but for their own benefit. This is an intractable problem that the government has not been able to solve. It will have major repercussions on the economy if it continues to spread and reproduce.
Debt-resource dualism in Nigeria
The gross domestic product grew by 3% on an annual basis - according to statistics from specialized institutions - at the end of 2023
Inflation recorded 29.9% last February, which is the largest in the country’s history
Unemployment reached 33% according to International Monetary Fund statistics.
Public debt reached about $113 billion. In 2023, according to the Central National Statistics Office, although the number according to data from the Debt Management Office reaches more than that, as the share of internal debt is about 70 billion dollars and external debt is about 43 billion, according to the African Development Bank Group.
The general budget deficit in 2022 amounted to about $6.5 billion, and according to official reports, the government spent the equivalent of 98% of its total revenues to service debts.
Statistics from specialized institutions in Nigeria indicate that the poverty rate reached 40%, and multidimensional poverty was estimated at 63%, with 72% recorded in rural areas and 42% in urban areas.
in contrast
:
Nigeria is the largest producer and exporter of petroleum in Africa and has the sixth largest global petroleum reserves, with a production of about 1.64 million barrels per day.
The country consumes about 483 thousand barrels per day after processing.
Exports of crude and condensates amount to about 1.9 million barrels per day.
The country's oil reserves amount to 36.89 billion barrels.
Nigeria imports 223,400 barrels per day.
It has large natural gas reserves amounting to 206 trillion cubic feet.
It produces 46 million cubic meters of natural gas.
It consumes only 18.8 million cubic meters.
It exports 27.5 million cubic meters, according to the American “Fact Book” website.
Major creditors of Nigeria
Public debt consists of the domestic and external debt stocks of the Federal Government and 36 states and the ACT, and the Debt Management Office indicates that more than 58% of the external debt stock is concessional and semi-concessional loans from multilateral lenders and bilateral lenders. It is as follows:
World Bank (International Development Association and International Bank for Reconstruction and Development).
African Development Fund: (African Development Bank, Africa Growing Together Fund, Africa Development Fund, Arab Bank for Economic Development in Africa, European Development Fund, Islamic Development Bank, International Fund for Agricultural Development).
Bilateral lenders
China (Export-Import Bank of China).
France (Agence Française de Cooperation).
India (Export-Import Bank of India).
Germany.
Sources of domestic borrowing
: bonds, Nigerian treasury bills, Nigerian treasury bonds, savings bonds, sukuk, green bonds.
Analysts note that Nigerians are their government's largest creditors, with internal debt being the largest.
Debt Management Office
Nigeria established the Debt Management Office in 2000 to centrally coordinate the management of its debt, which had hitherto been done by a number of institutions in an uncoordinated manner, leading to inefficiency.
Effects of the crisis
Numerous studies conducted on the relationship between mounting debt and its impact on economic growth in Africa have proven that debt burdens public budgets and depletes countries' resources in paying installments and servicing debts. The areas of impact of the debt crisis on the Nigerian economy can be summarized as follows:
Unbridled borrowing from foreign and local banks.
Absence of structural economic reforms.
Mismanagement of oil revenues.
Diminished ability to develop the non-oil economy.
High level of corruption in the Nigerian government.
Suspension of payments to the International Monetary Fund and the World Bank.
Debt accumulation.
Source: Al Jazeera