Former Chief Executive Officer of the Asset Management Corporation of Nigeria (AMCON), Mustafa Chike-Obi has offered three key suggestions to the Nigerian government on how it can raise funds to finance economic growth as it faces a fiscal crisis. He shared his thoughts during an engagement with financial journalists in Lagos.
Why it matters: Chike-Obi’s suggestions are timely and critical. Nigeria is cash-strapped and experiencing an economic downturn. Projected economic growth was recently downgraded by the International Monetary Fund as the country struggled to meet revenue projections, which has led to increased lending and budget deficits. Currently, Nigeria’s debt servicing takes up over 50% of its revenue according to the African Development Bank. An analysis by Forbes projected that “Nigeria’s general government debt is expected to rise to 292% of revenue”. Likewise, there has been a massive slump in the foreign direct investments coming into the country.
Chike-Obi’s proposed solutions:
One – Remove subsidies. Nigeria can effectively depioy the “savings we earn” from doing this into more productive activities, Chike-Obi argued.
Two: Debts should no longer be primary option of financing for the country. Chike-Obi proposed the use of “guarantees” for infrastructural financing instead.
- “Federal government guarantee to GDP today is about 10 per cent. I propose to move it to about 60 per cent. If an investor wanted to build a road, the FG will tell you bring 20 per cent of your money and I will give you guarantees for other 80 per cent, go and borrow the money from somebody else. If the project fails, you lose your 20 per cent and we will pay off the guarantees. Through that, we can get funding from everyone. FG guarantees to GDP today is about 10 per cent and I had proposed we move it to 60 per cent. In the USA, it is about 84 per cent. So, if Nigeria moves it to about 60 per cent over the next five years that will free up N30 trillion in funds.”
Three: Create enabling environment for foreign investors (eg. Remove power sector tariffs for investors and visa free entry).
- Chike-Obi proposed visa free entry to nationals of the world leading (G-8) economies and the removal of trade restrictions and speedy dispute remedy systems.
- “If we make the power sector attractive to investors, impose no tariff for 10 years, let investors build power plants and distribute electricity, the value we will get for having regular electricity is more than the profit they will take. After 10 years, you suspend it, if you do it, you will get surplus electricity and our power crisis will be over. So, these are policies that will fit into the capitalist building nature. We should have special court for disputes between foreigners and Nigerians and the court will be biased towards the foreigners. We need to be sensible about business.”
Go Deeper: Nigeria is going broke