TESTIMONY OF AFRICA NETWORK FOR
ENVIRONMENTAL AND ECONOMIC
JUSTICE (ANEEJ) ON NIGERIA DEBT

Witnesses:  David Ugolor & Leo Atakpu (NIGERIA)

The Tribunal Chair, Ladies and Gentlemen, let me start by letting you know that ANEEJ is a Non-Governmental Organisation based in Benin City, Edo State, Nigeria aimed at promoting sustainable development through research policy dialogue, workshop, training, advocacy and activities like the one we are witnessing today.  ANEEJ works on debt, structural adjustments, finance development as well as monitoring World Bank and IMF policies.  ANEEJ is one of the leading organizations that make up the Nigerian Jubilee Campaign and it posts as the secretariat of the Economic Community of West African State Network for Debt and Development (ECONDAD).

HISTORY OF NIGERIA DEBT

Nigeria had little or no external debt prior to the mid-1980s and 1990s as it undertook limited external borrowing.  For example, in 1970, despite just having finished a 30 months civil war, external debt was less than a billion dollars.  By 1980, this figure had increased to almost us$9 billion as loans were contracted from both official and private sources.

Following the 1970s oil shock, which proved to be a boom to Nigeria reconstructing after the war, oil prices slumped in 1978 severely impacting government revenues and the budget which were highly dependent on oil.  While recourse to loans had begun before the drop in oil prices, the pace intensified in an unsustainable manner following the slump as investable resources became scarce and the Government sought to maintain the pace and level of investments which begun in the 70s. Environmental degradation and destruction of Niger Delta region - Ken Sarowiwa episode.

The underlying promise for the borrowings was the belief that the public sector had to provide infrastructure and create jobs.  By 1985, total external debt had climbed to about US$19 billion much of it on non-concessional terms.  Debt service had increased to about US$4 billion a year or 33% of exports of goods and services (against a recommended international norm of about 25%).

The economy was growing at a low 1% per annum as it was becoming clear that Nigeria could not sustain such high levels of debt service.  The regional congress resolution - Liberia and Sierra Leone) = N50 billion.  Government decided to seek relief in its official rescheduling, projected debt service continued to be unsustainably high relative to the capacity to pay.  In addition, Nigeria was unable to benefit from some of the new Paris Club debt initiatives such as Naples terms designed to assist poor countries with their debt burden.

There was relative success with the private and commercial debts as the government pursued a strategy of restructuring and buy backs in parallel with negotiations with the London Club of Commercial Creditors.  These negotiations were successful, leading to a restructuring of about US $6 billion of commercial debt into Brady bonds at a substantial 60% discount.  Nigeria has consistently serviced this restructured debt.  With negotiations for a more favourable treatment of its Paris Club debts at a standstill, Nigeria stopped servicing these debts and began to accummulate arrears and penalties and the debt ballooned to an estimated US $34 billion or about 100% of GNP.  For several years after this, the debt issue was pushed to the back burner except for restructuring of promissory notes, a small amount of debt conversions and some payments to non-Paris Club bilateral creditors.

With the advent of democracy, and improved data recording in 1999, the reconciled external debt stock thus far stands at an estimated US$28.9 billion of which Paris Club is owed US$20 billion.  Arrears on principal constitute 58% of the Paris Club debt while interest, including late interest is another 34%.

PROBLEM OF CONTINGENT LIABILITIES
AND THE ABSENCE OF A DEBT STRATEGY

One major issue that aggravated the Nigeria debt problem is that some of the debt service obligations were in the form of contingent liabilities, as outlined by Nigozi Okonjo - Iweala, that had to be taken on board but were unplanned for.  In the early 1980s for example, many state government or parastatals borrowed on the international capital markets for "so-called" developmental projects. (Annex 1).  The original idea was that many of these projects, would earn a rate of return sufficiently high to enable the borrowers to service the debt.  Due to mismanagement and wide scale corruption, this turned out not to be the case and the obligations fell on the federal government as explicit contingent liabilities in those instances where it had guaranteed the loan and implicitly where it had not.

Another batch of loan guaranteed by the Federal Government for states is the almost US$3 billion Africa Development Bank loans that were corruptly mismanaged. (Annex 2) .  These contingent liabilities were not well tracked or provisioned for and thus tended to have a destabilizing impact on the budget at the time of their recognition for debt service.  Some of the obligations were export credits guaranteed by the export credit agencies in the OECD countries and fell within the ambit of the Paris Club debt while others were outside this framework.

The second issue has been the long absence of a national debt strategy linked to an overall macroeconomic framework and a development strategy.  Such a debt strategy would have taken into consideration government's appetite for risk, its development objective, growth targets, expected financial gaps and capacity for debt service.  These were not factored in the domestic or foreign, official or private borrowings.

The severe consequences of such borrowing are evident today (Annex 1 and 2).  The 1980s and 1990s borrowings were fraught with problems.  There were maturity mismatches with some short to medium loans directed to long-term development projects such as public hospitals and clinics and agricultural extension programmes under the various states' Agricultural Development Programmes (ADPs)

Loans for directly productive projects were also contracted on commercial terms and then went to waste due to lack of monitoring and outright corruption, as bulk of these loans ended in private offshore accounts.  In some cases, contracted shipments of equipments arrived but were contracted, drawn down, and simply disappeared into, perhaps overseas private accounts, without the projects materializing. (Annex 1 and 2).  There was clear absence of accountability or sanctions.

WHY NIGERIA'S DEBT SHOULD BE CANCELLED

The International Monetary Fund (IMF), the World Bank, the United States Government and the European Community must allow a level playing field for all indebted countries because the international community has not been fair to Nigeria on this issue.  First, there is no economic difference between Nigeria and the 22 countries that have already been approved for the Highly Indebted Poor Countries (HIPC) debt reduction.

A copious comparison was made between Nigeria and the 22 HIPC approved countries by Professor Jeffrey Sachs .  From his analysis, the World Bank's data stipulates that per capita income of the 22 HIPC countries is US$390 dollars per year.  But according to the same data of the World Bank, the average per capita income in Nigeria is US$300 per year.  It follows therefore that Nigeria is poorer than the counties that have already been approved for HIPC.  An adjusted GNP per capita income of the 22 HIPC countries is US$1,200 per person.  In Nigeria, it is $740 per person.  From the pedestal of poverty, Nigeria should receive debt relief ahead of these other 22 countries.

If we also consider social indicators, such as life expectancy, the average life expectancy at birth in the 22 HIPC countries is 52 years while in Nigeria, it is 53 years compared to 77 years of high-income countries.  If you take a look at the change in per capita income in real terms, between 1980 and 2000, on average for the 22 HIPC countries, there has been a decline of 0.3 of 1% of GNP each year between 1980 and 2000.  In other words poor countries are getting even poorer.  But Nigeria's decline has been more significant: 0.6 of 1% of GNP, on average each year between 1980 and 2000.

Also, according to the World Development indicators of the World Bank, for the 22 HIPC countries, debt relative to gross national income is 90%.  For Nigeria it is 91%.  It essentially means the same heavy burden.  So why the strange treatment to Nigeria by the HIPC debt initiative managers?  You all may be aware that at the commencement of the HIPC initiative in 1996, Nigeria was on the list, along with other countries.  It was later secretly removed from the list by the powers that be in Washington.  But the truth needs to be told:  Nigeria needs debt cancellation.  Its status is as bad as those of the 22 HIPCs.

There is one widespread belief that Nigeria is a rich oil nation and so our creditors and their allies in Washington feels that Nigeria can easily pay its debt with its "oil wealth".  This is also a wrong notion.  A simple arithmetic of Nigeria's oil production vis-à-vis its income makes this clear.

Nigeria produces about two million barrels of oil each day.  The average world price is about US$25 per barrel (not with the aftermath of September 11, 2001 terrorist attack at the World Trade Center).  Average daily revenues, therefore, is US$25 a barrel times two million barrels per day, or 50 million dollars a day for Nigeria.  But of course, foreign oil companies (America, Dutch, French, etc.) own part of that oil and there are costs of production that must be factored into this simple arithmetic.  What is left over, net of the foreign income stream and net of the cost of production, is less than US$50 million a day.  This amounts to a rough figure of US$30 million a day.

Assuming it is US$30 million a day, there are over 120 million Nigerians, we come up with 25 US cents per Nigerian per day.  If the amount is multiplied by 365 days, it comes to US$91.25 per year, per Nigerian.  And oil is about 95% of Nigeria's exports.  The argument that Nigeria is a rich country because it is an oil producing country is therefore, baseless and untenable.

Nigeria's debt have been rescheduled comprehensively three times between 1986 and 1991 and they all failed.  This shows that the debt managers still needs to do the right thing - cancel the debts and not reschedule!

There is yet another misgiving about Nigeria's debt that Nigeria has no economic reform.  With military dictators, yes, but the new democratic regime is trying to consolidate law, democracy, and economic reform with a new vigorous approach to poverty alleviation.  The changes are everywhere.  There is now an anti-corruption law.  The President has organized a national poverty eradication council and a series of initiatives targeted at poverty reduction.  The Universal Basic Education (UBE) is a major initiative.  A rollback malaria campaign and new efforts to put AIDS under control including the introduction of antiretroviral therapy in Nigeria.  The government is opening and privatizing the economy.  NITEL has been privatized, NEPA is on its way to private hands and the oil industry is being liberalized.  So it is not that there are no social and economic reform programmes.  Nigeria need debt relief now!

THE ILLEGITIMACY OF NIGERIA'S DEBT

Most of Nigeria's debt were irresponsibly contracted by military dictators who plundered the nation's resources including external loans for selfish ends.  From the overthrow of democratic government in 1983 by Major General Buhari (1983 - 1984), through General Ibrahim Babangida's eight year rule to Late General Sanni Abaca's five year tyranny (1993 - 1998) and General Abdulsalami Abubarkar's regime in (1998 - 1999), the nation was under military siege with serious human rights abuses and widespread corruption, yet the western world kept on lending to these dictators.  Before the military took over in 1983, Nigeria's external debt was US$8.93 billion and rose dramatically to US$19.55 billion in 1985 and ballooned to US$34.1 billion in 1995. (See Chart 1)

The debt is illegitimate and most of it was frittered away to the oversees and offshore accounts of the dictators and their cronies.  Some of the money did not enter Nigeria.  Hence, it is "odious".  The legal doctrine of odious debts was given shape by Alexander Nahum Sack  who posited that, "if a despotic power incurs a debt not for the needs or interest of the state, but to strengthen its despotic regime, to repress the population that fights against it, etc., this debt is odious for the population of all the state."

The debt, Sack says, "is not an obligation for the nation, it is a regime's debt, a personal debt of the power that incurred it, consequently, it falls with the fall of this power".

The reason advanced by Sack why odious debts cannot be considered to encumber the territory of the state, is that such debts do not fulfill one of the conditions that determine the legality of the debt of the state in International Law, that is, the debt of the state must be incurred and the funds from it employed for the needs and in the interest of the state.

The western world knew there were dictators and widespread corruption in high places in Nigeria between 1983 and 1998, but they kept on lending.  We are saying these debts are "dette odieuses".  They are illegitimate and as such should be cancelled!

"During the 19th century, international tribunal held that states were not bound by ultra vires contracts (contracts made by someone without the proper authority) with foreigners.  When the Venezuelan President Pàez had his New York Consul improperly enter into contracts that fell within the legislature's authority, the contracts were later declared ultra vires and claims under the contracts were rejected.

Perhaps the best-known case absolving states of responsibility for debts involved the government of Costa Rica and Great Britain.  In that case, President Tinoco, a Costa Rican dictator, had made a sweetheart deal with a British Oil Company, granting it a concession through a contract authorized by him and approved by the chamber of deputies.  A Costa Rican constitution, a contract involving a tax provision, as that one did, required the approval of both Houses of Congress.  After the Tinoco government fell, the new government repudiated the contract on the grounds that it was ultra vires".  The new government also challenged odious debts entered into between the Tinoco government and the Royal Bank of Canada.  The Law Costa Rica passed to renounce both of these dealings, The Costa Rican Law of Nullities, was heard before Justice Taft of the United States Supreme Court, sitting as an arbitrator.  The challenge failed, and the law was upheld in Justice Taft's ruling in 1923.

In 1989, Poland escaped from decades of tyranny to become a market-based democracy.  Poland had a huge debt, about the same size as Nigeria's - about $30 billion.  Poland said it needed debt cancellation for a fresh start after communism and half of Poland's debt was cancelled in 1994.  Poland escaped from its debt.   Fifteen billion dollars was cancelled and it became one of the fastest growing countries in Europe during the 1990s.  This again is why we seek the cancellation of Nigeria's debt.  Nigerians deserve to be free of the debt crises, democracy needs to thrive in Nigeria and the international community must not look the other way.

THE STOLEN WEALTH PERSPECTIVE

ANEEJ has in the past few years, championed the call for the repatriation of stolen wealth stashed in vaults of foreign banks and offshore countries.  It is believed that over US$55 billion belonging to Nigerians are kept in these vaults by ex-dictators and their accomplices who also include foreigners.

The campaign had made little progress given the Western conspiracy against moves by the new Nigerian Government to repatriate illicit wealth to develop the country.  Until the unfortunate incidence of September 11, the United States and her allies for instance, did not see the need to check illicit money in the global financial system.  Since September 11, tracking down terrorists and their funds has become a priority on the international agenda.  Names are being published, accounts identified and assets frozen.  This is exactly what we expect in the case of Nigeria's stolen wealth because the global financial system now provides hiding places for dirty money.  It is our belief that the system has to be reformed to meet the genuine aspirations of the international community.

In ANEEJ, we believe strongly in the speech of President Olusegun Obasanjo at the 54th Session of the United Nations General Assembly that "Nigeria and many African countries would be able to pay off large portions of their debts if only they could recover some of the capital illegally stashed abroad"

My Lord Jurists, here we are faced with a three way traffic out of the Nigeria debt crisis - understand our socio-economic difficulties in giving us a fair hearing and cancel our debt, see our debt as illegitimate and "odious" or if you like repatriate our stolen wealth.  This is my submission believing that whichever way our creditors and their Washington allies take, Nigeria will be better for it.  On this note my Lord Justice, I rest my case.

ANNEX 1

CONTINGENT LIABILITIES: SOME EXAMPLES OF STATE LOANS
ASSUMED BY THE FEDERAL GOVERNMENT (Click the link to view the chart)

Leo Atakpu is the Director of Information of Aneej