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Buhari’s Ever-increasing Appetite for Borrowing
The Buhari administration has become well known to Nigerians as the ‘borrowing government’. Its penchant for foreign loans is legendary. After contracting $60 billion foreign loans, the government now wants to ‘borrow’ from Nigerians by taking over their dormant accounts and unclaimed dividends. The government has also been making deep-toned noises about ‘borrowing’ from the pensions of Nigerians. Nosa James-Igbinadolor looks at Buhari administration’s decision to access the accounts and dividends of investing Nigerians and the expansive distrust of the government and its policies
Broke and determined to grab monies from wherever it can lay its hands on them, the Buhari administration has decided to ‘borrow’ some N900 billion owned by Nigerians in unclaimed dividends and in dormant accounts.
Nigeria, as aptly captured by a 2019 Agusto Consulting report, “is currently in a dire fiscal strait and the numbers are quite grim. For instance, despite the positive spin about Nigeria’s benign debt to GDP currently around 20per cent, interest payments as a percentage of revenue are over 60per cent.
“Other fiscal indicators also put Nigeria at the bottom of the rung even amongst sub-Sahara African peers. Nigeria’s five-year average of capital expenditure as a percentage of nominal GDP is a meagre
2.1per cent which pales in comparison to Angola (7per cent) and Kenya (7.6per cent). However, with a projected budget deficit of N3.8 trillion in 2019, CAPEX as a percentage of nominal GDP could decline further to 1.1per cent this year. The implication of this burgeoning deficit is that in 2019, Nigeria will have to borrow to meet its obligatory spendings (interest payments, transfers and payroll) projected at about N5.4 trillion with a revenue of about N4 trillion. This implies a cash crunch for CAPEX.
“Thus, with this fiscal backdrop, macro reforms that will improve the revenue position of the government and pare back the deficit by cutting spending are non-negotiable.”
Nothing fundamentally has changed with respect to the state of the Nigerian economy since that report was released nearly two years ago. The state of the economy remains grim and ever more debilitating.
It was no doubt with this understanding in mind that the Federal Government using the 2020 Finance Act, which recently came into effect, decided to expand its financial chest by ‘borrow’ from Nigerians. For a government high on a blast of foreign borrowings, unclaimed dividends and dormant bank account balances of Nigerians unattended to for at least six years, were the new overdoing frontiers for garnering funds.
The funds are made available as a special debt owed by the federal government to the respective shareholders and the dormant bank account holders through the Unclaimed Funds Trust Fund contained in the Finance Act 2020, recently signed into law by President Muhammadu Buhari.
According to the Act, “Any unclaimed dividend of a public limited liability company quoted on the Nigerian Stock Exchange and any unutilised amounts in a dormant bank account maintained in or by a deposit money bank which has remained unclaimed or unutilised for a period of not less than six years from the date of declaring the dividend or domiciling the funds in a bank account shall be transferred Immediately to the trust fund.”
The operation of the trust fund will be supervised by the Debt Management Office (DMO) and governed by a governing council chaired by the finance minister and a co-chairperson from the private sector appointed by the president.
While the value of unclaimed dividends hit NGN158.4 billion at the end of 2019, dormant account balances constituted about 2.5 per cent of total deposits of banks, which stood at N29.5 trillion as at
September 30th, 2020, according to data from the National Bureau of Statistics. This means, that the amount of money in dormant account balances is about NGN737.5 billion. When combined with the NGN158 billion outstanding unclaimed dividends, the total amount of money that would be taken over by the FG would hit nearly NGN900 billion.
A retired senior civil servant and board member of an NSE-listed company told THISDAY that the federal government’s policy flies in the face of reason. “This voracious appetite for borrowing by this administration is now looking ridiculously untenable,“ he said, adding that, “what is needed rather, is for the federal government to sit down and design sensible ways of growing the economy. They have been borrowing tens of billions of dollars since 2015, and it has not had any impact on the economy. Taking the funds of Nigerians without their agreement will unlikely have any impact on the economy either. The problem is that this government is not thinking. They want monies but they do not want to think about how to create wealth. The truth is that these monies the government wants to forcefully borrow, belongs to people and not to the government.”
The severity of the economic recession in Nigeria since the beginning of the Buhari administration makes expanding access to the credit pool inevitable for the government as it seeks to pay its bills and finance infrastructure. The challenge with this policy however, is the fact that many see it as nothing but a heist of private property by the government. As noted by shareholders under the aegis of Independent Shareholders Association of Nigeria (ISAN), “dividends are private wealth of investors, either individuals or corporate entities. The idea of converting such private wealth to federal wealth negates the relevant provisions of the rights to own property as guaranteed by the 1999 Constitution. Our opinion is that S39 to the extent of its inconsistency with S44 of the 1999 Constitution (as amended) is null and void.
The law expressly states that there shall be no forceful takeover of any private movable property of any Nigerian without due and appropriate compensation and or valid court order.”
For Choji Pwol, an Abuja based Economist, the FGs policy is a welcome development. “It all depends on what the government is offering? How will they structure the idle funds? Indeed, they are idle funds as they have been lying idle for years. Are the banks paying a premium for it? Why should the banks be the only ones to trade with the monies? So, for me I do not have any problem with the FGs decision as long as it is properly structured and as long the government provides enough time for accounts and dividends owners to access and claim their rights before any government action.”
Idle funds whether in banks or in dividends really serve no purpose for the economy? When money lies idle, the real economy suffers. Demonetised funds are really worthless unless they are put back into the economy as investments. Adam Smith in his magnum Opus, An Inquiry into the Nature and Causes of the Wealth of Nations, noted that, “It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.”
Idle funds and capital are replete across the Nigerian financial and economic landscape. PwC estimates that Nigeria holds at least $300 billion or as much as $900 billion worth of dead capital in residential real estate and agricultural land alone. The high value real estate market segment holds between $230 billion and $750 billion of value, while the middle market carries between $60 billion and $170 billion in value. These funds and capital need to be made productive for economic development to take place.
Alex Otti, a former Banker and Politician posits that, “There is a whole lot we can do with the money available to us rather than leaving them idle in the banks. We must ensure that our money does not become lazy. Beyond the low hanging fruit of agriculture are other infrastructural deficit areas. “Power is a very big deal in a country generating no more than 5000 megawatts of power for everyone.
Recognising the legislative challenges and the huge investment outlays required, there are yawning gaps in the area of renewable energy like solar, wind and bio mass. We believe that where to invest funds in a low productivity and densely populated country like Nigeria should not be a challenge.”
Here again, this government has a credibility problem. Frustration and discontent are fast spreading among the populace who have already been negatively impacted by the adverse economic consequences of extremely bad socio-political and economic management. Dr. Uche Igwe, a Visiting Fellow at the LSE Firoz Lalji Centre for Africa opines that, “five years into Buhari’s presidency, public trust in the Nigerian government appears to be in decline alongside a growing perception of lacking political inclusion. This is hardened by negative economic impacts caused by the pandemic, and a sense of undelivered political promises, which underscore the importance of collective buy-in for the country’s development aspirations”.
Stephen Onyeiwu, Professor and Chair of the Economics Department, Allegheny College, writing in 2019 for the South Africa based magazine The Conversation, rightly asserted that, “one of the main reasons newly-elected Nigerian president Muhammadu Buhari had been widely expected to lose his bid for a second term was the poor state of the country’s economy. Under his presidency, Nigeria’s unemployment rate more than doubled, from 10.4per cent in January 2016 to 23.1per cent in July 2018
“In his first four years, Buhari also failed to address poverty. Under his watch, Nigeria overtook India as the country with the largest number of people living in extreme poverty. About 87 million Nigerians, or half the population, live on less than US$1.90 per day.
“And economic growth has been lacklustre since his election in 2015. The country went into recession in 2016, with a negative 1.6per cent growth rate. There was a rebound in economic growth of about 2per cent in 2018. Nevertheless the IMF forecasts that growth will remain anaemic at an annual average of about 1.9per cent from 2019 – 2023”.
Despite borrowing some USD60 billion, the Nigerian economy under Mr. Buhari has nothing credible to show for these elephantine monetary acquisitions. As noted by the U.K based Economist Magazine, “the Nigerian economy is stuck like a stranded truck. Average incomes have been falling for four years; the IMF thinks they will not rise for at least another six. The latest figures put unemployment at 23per cent, after growing for 15 consecutive quarters. Inflation is 11per cent. Some 94m people live on less than $1.90 a day, more than in any other country, and the number is swelling. By 2030 a quarter of very poor people will be Nigerian, predicts the World Data Lab, which counts such things.”
Nigeria under Buhari is very much underperforming and unlocking dead capital is critical to stop this.
The problem is, the people do not just trust this government to do the right thing with their money. This is why the government’s decision to put idle funds to work seems like an attempt at grand theft to majority of Nigerians.