Borrowing insecurity is eating Nigeria economy up – Experts

The removal of subsidies also means that more revenue is staying in government coffers which of course is the reason why the distribution of FAAC revenue between the various bodies has improved significantly because the government has been able to retain significant revenue due to oil subsidy removal

 

Admin I Thursday, Feb. 08, 2024

 

LAGOS, Nigeria – Some financial experts have said that for Nigerian Government to reduce borrowing, it needs to address the issue of insecurity and focus on non-oil revenue sources, ABIODUN JIMOH writes

Mr. Wale Edun’s statement that the Federal Government was not in a position to borrow money at this time, finance industry experts have said that there are several alternatives to borrowing that the government can pursue to reduce its reliance on oil revenue.

Speaking to three leaders in the finance industry experts in separate interviews, where they adduced that it is important to develop non-oil exports.

Nigeria has several potential non-oil exports, such as agricultural products, solid minerals, and manufactured goods, according to CBN. Nominal GDP has contributed only about N9.9 trillion to the economy between 2018 and 2022.

Other alternatives include the promotion of tourism, support of the creative arts industry and increasing the pace of privatization of government entities.

They noted, however, that the government cannot pursue these alternatives without addressing the issue of insecurity adding that Insecurity is a major obstacle to economic development in Nigeria.

Edun who said that President Bola Tinubu’s administration inherited a bad economy with an unacceptably high rate of unemployment and skyrocketing inflation had assured Nigerians that the government would not rely on borrowing to raise funds to fix the country.

The Minister said that the emphasis will be on how to create a macroeconomic environment where both local and foreign investors would invest and increase production.

The Nigerian government has been relying heavily on borrowing to finance its budget deficit in recent years. This has led to a significant increase in the country’s debt burden, which is now at unsustainable levels.

What the financial experts are saying:

According to The Managing Director of Crane Securities Limited, Mr. Mike Eze who reacting to the development noted that there are other alternatives to borrowing the government should focus on which include non-oil products such as agriculture, tourism, art, and culture creative arts, sports etc.

“Nigeria has several potential non-oil exports, such as agricultural products, solid minerals, and manufactured goods. The government can provide support to businesses that export these products.

Nigeria is a tourism hotspot with a rich culture and history. The government can invest in infrastructure and marketing to attract more tourists.

Nigeria has a vibrant creative arts scene, which can generate jobs and foreign exchange. The government can provide financial support to artists and cultural organizations,” he said.

Eze noted that before those areas could thrive, the government needs to take steps to improve security to create a more conducive environment for economic growth. He also noted that insecurity discourages investment and makes it difficult for businesses to operate.

“No government can operate without borrowing, borrowing is not a problem but what the government will do with the funds.

Borrowing should be encouraged if it is channeled into a specific project that will yield returns. The finance minister has a good point, but they should ensure an enabling environment for the economy to thrive.

However, the government needs to address the issue of insecurity ravaging the country to be able to grow these segments of the economy so that it can compete with other countries of the world,” he said.

According to the former President and Chairman governing council of, the Chartered Institute of Stockbrokers (CIS) and the Managing Director, of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe also reacting to the development said the steps taken by the government regarding the oil subsidy removal should support the Federal Government decision not to borrow.

Amolegbe noted that a significant percentage of the borrowing by the government in the last few years was utilized for the payment of subsidies.

“Now that the fuel subsidy has been removed, the need for the government to borrow has also been reduced significantly because the bulk of the borrowing has been going to fuel subsidy.

The removal of subsidies also means that more revenue is staying in government coffers which of course is the reason why the distribution of FAAC revenue between the various bodies has improved significantly because the government has been able to retain significant revenue due to oil subsidy removal.

I believe that rate of borrowing will reduce in the short and medium term as mentioned by the minister,” he said.

Amolegbe urged the government to increase the pace of privatization of government entities which has been relatively slowed.

“If the pace of privatization increases it will encourage both local and foreign investors to participate in the previous government-owned enterprises that are to be brought to the market. “That will open up investment opportunities for both local and foreign investors,” he said.

Also, the Executive Vice Chairman, of Hicap Securities Limited, Mr. David Adonri said that what the minister has said is appropriate and is the right policy direction to follow especially when it is believed that the private sector is the engine room for the growth of the economy.

“The government is now going back to its primary responsibility of providing the enabling environment for private sector capital formation to drive the economy.

The statement by the minister is justifiable because it is needless for the government to continue to borrow to undertake projects for which the private is better suited.

Reduction in domestic public borrowing will make more investment funds available for corporate finance and reduce interest rates in the economy,” Adonri said.

He noted that security should be the first focus in creating an enabling environment for business to flourish.

“If all areas relating to security are taken care of. If firm order is established in the rural economy and all other production areas, then investment can be safely and profitably located in every area in Nigeria with the prerequisite success factors.

In which case investment can flow into every area of agriculture that is now under the stronghold of terrorists and into the petroleum sector where oil theft and pipeline vandalism is rampant,” he said.

Adonri said the federal government should also make fiscal and monetary policies that will make credit available at a lower-digit single interest rate and revive the primary market of the capital market, focusing on world-class infrastructure will make the investment viable, thereby attracting both foreign and domestic investors.