Who Is Afraid To Borrow?

Banks are the biggest borrowers and the biggest lenders. They thrive on those deposits we all make for onward lending to bigger customers. Essentially, when an organization stops borrowing, it stops growing and starts dying. Borrowing is the only plank that offers tomorrow’s opportunities and advantages at today’s low cost.

By Hon. Josef Omorotionmwan.

When we hear some Christians praying that God should make them lenders and not borrowers, we think they are short-changing themselves and restricting their chances to smaller opportunities, for in today’s world, most viable projects are financed on borrowed money.

Ours is a world of borrowing. Governments the world-over usually borrow by issuing securities, government bonds and treasury bills. Less creditworthy nations sometimes borrow direct from supranational organizations like the World Bank or other international financial institutions.

Government debt, known by several other names – public debt, national debt, sovereign debt, etc – is the debt owed by the central government.

The CIA World Fact-book, 2013 reveals that as at the end of 2012, the world’s public debt profile stood at US$56.308 trillion.

On the Table, the United States debt profile was $17.607 trillion, representing 31.27% of the entire world’s debt and 73.60% of the country’s Gross Domestic Product, GDP.

Japan was in the second place with a public debt profile of $9.872 trillion, representing 17.53% of the world total and 214.30% of the country’s GDP.

In the third place, China had a debt profile of $3.894 trillion, representing 6.91% of the world’s total and 31.70% of the country’s GDP.

Germany had a public debt burden of $2.592 trillion – representing 4.60% of the world’s total and 81.70% of the nation’s GDP.

The latest entry indicates that as at Tuesday, August 4 2015, China’s debt burden escalated to $23 trillion.

In the case of Nigeria, we rely on the former Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala while providing details on the N4.493 trillion 2015 appropriation.

“The Federal Government has raised its borrowing level from N570 billion to N882 billion to enable it meet its financial obligations to workers and contractors”.

She blamed the situation on the decline in oil revenue in late 2014, which accounted for 50% cut in the total federally collectible revenue as well as the low revenue receipts from non-oil sources.

She explains further: “About N380 billion came from external sources while the balance is from domestic borrowing.”

Banks are the biggest borrowers and the biggest lenders. They thrive on those deposits we all make for onward lending to bigger customers.

Essentially, when an organization stops borrowing, it stops growing and starts dying. Borrowing is the only plank that offers tomorrow’s opportunities and advantages at today’s low cost.

The defunct Bendel Development and Property Authority, BDPA, with this writer then, as Board Chairman, provides an illuminating case study.

In its burning desire to house its people, Bendel State found that it did not have even one kobo on ground. We quickly floated a N20-million bond.

From the subscription to the bond, we provided the Ugbowo Housing Estate in Benin City; the Igbudu and Ugborikoko Housing Estates in the Warri Metropolis; the Okwe Housing Estate in Asaba; and we expanded substantially, the Oregbeni Housing Estate in Benin City.

NET RESULT: BDPA Became the hub of government activities and became self-sustaining; we were able to amortise the loan at maturity; some of the houses we sold for N30,000 in 1984 now go for N10 – 20 million.

And even at the highest level of financial prudence, today you would need not less than N100 billion to approach the facilities we provided for less than N20 million then. That’s what borrowing does – it enables you buy into the future!

The Oshiomhole-led Administration has demonstrated, to the admiration of all, that it is not borrowing that matters, but the use to which you put the borrowed money.
Borrowers must develop sufficient absorption capacity for their loans – the loans must be put to appropriate uses; there must be willingness to pay back; and you do not embark on building sky-scrapers in the wilderness.

Is anyone still in doubt that the noise around Edo State Government’s request to draw-down on a loan already approved by the World Bank is absolute hog-wash?

Obviously, the World Bank is a reputable organization that does not throw its money in the trash can. It offers money to organizations only after due diligence checks.

Of the $225 million Development Policy Operation, DPO, the Edo State Government has already accessed the first tranche of $75 million under the 2012/2014 framework.

Having been thoroughly satisfied with the quality of work done under the first tranche, the World Bank had no hesitation, whatsoever, in approving the second tranche.

It smacks of criminal irresponsibility and idle-mindedness for the Edo State Chapter of the PDP to proceed, post-haste, to address a world press conference, demanding that the draw-down be rejected and, by implication, that the projects already embarked upon be abandoned.

Admittedly, if all a man has is the hammer, everything he sees would look like nail. Coming from a tradition of loan money as “kill-and-divide”, the PDP knows nothing else than seeing any loan as just another veritable source of slush fund.

Long after the rest of us may forget, the perpetrators can never escape being hunted by the sordid deal a few years back, when they took a World Bank facility of some $300 million for urban water supply but we are yet to know how many cups of water they provided before the loan money evaporated into private pockets.

In contrast, the Oshiomhole-led Administration has turned a once virtually comatose State into an Eldorado.

In 2012 the administration raised a N25-billion bond for the Benin City Storm water project. While the project execution progresses satisfactorily, Edo State Government has kept religiously to the terms of repayment – N520 million monthly – with the result that the project is nearing completion and the loan is nearing full liquidation. It’s a win-win situation!

Even in our twisted federalism, the Federal and State Governments are in the same quagmire, gasping for breath, seeking to make-up for the sudden short-fall in revenue.

What moral justification, then, would anyone have in stopping the draw-down on a loan already duly approved by the lending authority, when, indeed, other States are struggling to attain Edo State’s enviable level?

Hon. Josef Omorotionmwan is a public affairs analyst and Chairman, Board of Directors, Edo Broadcasting Service. He can be reached at: joligien@yahoo.com