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ABSTRACT

The study sets out to interrogate the relationships between external debt and crisis of development in Africa within the period 1999-2007 in Nigeria. The aim of the research was to provide a framework that explains the effect of external debt on national development. The theory of post colonial state was adopted as the analytical framework to demonstrate that Nigeria has followed a developmental strategy dictated by the interest of the imperialists and their local allies among the indigenous population. The method of data collection used was the secondary sources of data. Three hypothesis tested were: there is no relationship between debt servicing and shortage of electronic voting machines in Nigeria; debt relief tends to have no effect on the rate of unemployment in Nigeria, and, debt rescheduling tend to deepen external dependence of Nigeria.The findings of the study revealed that there‘s no relationship between debt servicing and shortage of electronic voting machine in Nigeria in the 2007 election. Against the background of the national economic crisis, the study recommends that the international economic system should be restructured and unequal term of trade balance with fair economic trade relations so as to encourage enhance foreign exchange for national development.

CHAPTER ONE

INTRODUCTION

1.1 Introduction Anyone who observes the condition of Africa , comes up with so much confusion and perplexity. The average per capital national income in Africa is one-third lower than that of the world‘s next poorest region, South Asia. Most African countries have lower per capita income now than they had in 1980 or in some cases in 1960. Half of Africa 888 million people live on less than US $1 a day. African entire economic output is not more than $420 billion, just 1.3 per cent of the world‘s gross domestic product, less than a country like Mexico. African share of world‘s trade has declined to less than half of what it was in the 1980s, amounting to only 1.6 per cent ; its share of global investment is less than 1 per cent. It is the only region where school enrollment is fallen and where illiteracy is still common place. (Meredith,2005:682) It was expected that Africa would become the giant of other regions at least going by its human cum natural resources. But unfortunately, reverse is the case. After independence African leaders shifted the responsibilities of their development to other imperialist nations and consequently sought and acquired external finance for development projects. (Ake,2001: 18) According to Fasipe (1990:1), ―progress in the world is characterized and helped by interdependence of ideas and men, goods and capital‖. (Madavo 2003:91) stated that borrowing and therefore debt is neither an aberration nor peculiar to African countries. It is, in fact a legitimate part of everyday economic management. Hence most of the rich countries in the world today relied heavily on external finance to attain their present economic height.
Post second World War Europe especially Germany was reconstructed and rehabilitated through external borrowing under the aegis of the Marshal plan (ogbenovo,2005:2). African nations after the traumatic effect of colonialism resorted to external credit, this was expected among other things to be used to develop their economies and provide the social-economic needs of their citizenry.Unfortunately, this resort to external borrowing turned out to be the Westphalia treaty that settled nothing. This is not unconnected with their weak economic base, unfavourable terms attached to the loans, policy errors and mismanagement among others. Furthermore, the post colonial African states of which Nigeria is among, became unable to repay their debt and thus got entangled in the web of debt crises that bedeviled their socio-economic development. Africa‘s debt crises attracted global attention during the last quarter of 1982, series of prescription to get the continent out of its economic doldrums have been offered. Prominent among them is the restructuring of African economy in line with IMF-dictated reforms of deregulation, privatization and liberalization (Obaseki and Bello,1995:241). However, many debtor countries and their sympathizers prefer debt cancellation to release fund for the development and welfare of the countries of Africa since they were overburdened by excruciating debt service obligation. Nigeria for instance, prior to 2006 was expending US$2 billion annually on debt servicing which was nine times the annual health budget (Okonjo –Iweala et al,2003:8) When Obasanjo led democratic government came on board in 1999 the situation on ground made him to flag off an intensive campaign for debt relief/cancellation. This yielded positive result in April 2006 and 2007 when Nigerian major creditors-the Paris club cancelled 60 percent of the total debt owed to it by the country and also settled its debt to the London club. But the debt burden is far from being over as Nigeria present external debt stands at over $2.6 billion consisting bilateral and multilateral loans which have a grace period of ten years, attract yearly service charge of 0.75 per cent and it requires thirty and forty years to liquidate. As a direct consequence of external debt burden, this study investigates the causes(s) of the unabating debt crisis and assesses its impact on socio-economic development of Nigeria. 1.2 Statement of Problem
Nigeria after independence had a low ratio of external debt to gross domestic product (GDP) of 3.4 percent (Fajana, 1990:65). It was on this promising economic condition that Nigeria launched its first five years National Development Plan that was expected to usher in rapid development and emancipate it from the chains of colonial legacy.But partly because of the ravages of the civil war (1967-1970) and largely because of its burning desire for rapid socio-economic development, the Nigeria government resorted to development finance from public funds mostly from bilateral and multilateral lending bodies. Since the Five Year Plan of the early 1960 up to date, Nigeria had launched several Development Plans sourcing finance from the International Capital Market that is notorious for its high rates of interest and terms of repayment. Yet development seems to elude the country. Nigeria is classified as one of the severely indebted low- income countries that are greatly afflicted by underdevelopment, dependency, general poverty and external debt, in spite of its widely acknowledge oil wealth. Coupled with this, is the magnitude of capital flight from the country in the form of debt servicing payments that not only absorbed a major proportion of export earnings but also eat into the funds that could be used to provide essential facilities and improve the welfare of its citizens (Aja,2003:106). This tends to negate the past imaginative and generous efforts at finding solutions to the debt crisis.
Nigeria‘s external debt stock prior to April 2006 stood at US$2 Billion being expended annually on debt servicing so that between 1977 and 2005 for which record is available, the country had expended over US$31 billion on debt repayment of the actual US$13.5 billion. Olusegun Obasanjo during his regime implored fervently for debt cancellation cum relief so that he would channel the about US$45 Million that occur daily from the sales of crude oil to poverty reduction and socio-economic projects. In spite of the debt repayment to its major creditors Paris and London Club, Nigerians are yet to experience any fundamental change on their socio-economic lives. Notwithstanding one can categoricaly affirm that it is not yet uhuru since the country is still not only saddled with an external debt burden of over $2.6 billion and a staggering amount of N1.87 trillion domestic debt (The Guardian, 2007:16). These are made up treasuring Bills worth N754 billion, representing 40.40 per cent of the total debt, Treasuring Bonds of N413.6 billion accounting for 22.16 per cent of the stock and finally development stock made up of N720 million, which is 0.04 per cent of the debt (DMO, 2007). Despite this uninteresting reality, most scholars on Nigeria‘s debt crisis like (Oyejide et al, 1985:17) tend to ignore the implication of the large amount of domestic debt on the countries balance of payment capacity. Rather than dwelling on why all the debt management plans failed to address Nigeria‘s debt crisis, they prefer to dissipate their intellectual energy on celebrating a debt repayment that seem to be a waste of nation‘s resources. They also failed to probe the subsisting complementary interest of the countries ruling class and that of the international bourgeoisie with regard to debt repayment issue. The study shall attempt to fill this gap within the context of the questions stated below:
(i) Is debt servicing implicated in the shortage of funds for the implementation of the electronic voting system in Nigeria?
(ii) Is there any relationship between debt relief and reduction of unemployment in Nigeria?.
(iii) Does debt rescheduling resolve Nigeria‘s external dependence on the West?.
1.31.4 Objective of Study
The central objective of this study is to evaluate the impact of debt crisis on Nigeria‘s socio-economic development. However, the study is guided by the following specific objective:
(i) To examine if Nigeria‘s external debt servicing is implicated in the shortage of the funds for the implementation of the electronic voting system in Nigeria.
(ii) To find out the effect of debt relief on the level of unemployment in Nigeria .
(iii) To interrogate if debt rescheduling has resolved Nigeria‘s external dependence on the West.
1.41.5 Significance of Study
The significance of this study is at two principal levels: practical and theoretical. Practically, this study will be of paramount importance to policy makers of developing countries especially in Nigeria as it provides guidelines for not only tackling underdevelopment but also averting debt trap in their subsequent domestic and external policies and other African countries. In as much as many articles, seminars and speeches have been written and presented on the causes and consequences of debt crisis and underdevelopment in Nigeria, this study is simply another contribution in the explanation of debt crisis and underdevelopment in Africa. This of course contributes to knowledge as well as stimulates further studies. Also theoretically, this study explores and problematises external debt economic policy as a multi-dimensional process whose dynamic either impacts and transforms the lives of citizens , or impacts and escalates their living conditions. Thus, by interrogating the interface between external debt and crisis of development in Nigeria especially under Obasanjo‘s civilian administration, the study will be a good starting point for further studies in this sensitive but crucial area of international relations. Finally, by provoking and eliciting enlightened discourse, the study will not only join the on-going intellectual debate on the dynamics of international political, economic and social relations, but will also synchronize with existing inquiries to form a dependable pool of literature for scholars and policy makers alike.
1.51.9 Literature Review
Attempts to arrive at a broad consensus meaning of the word, debt seem to be in a quandary as scholars and commentators from economics and political science are sharply divided over its meaning. The controversy generated by this scholarly stand off has resulted in a plethora of definitions that obfuscate rather than explicate its meaning. Hence most of the available definitions of the concept are underscored by an economic undertone to the extent that one is left to wonder if debts is strictly an economic issue.We shall however, in this study limit ourselves to the specific study. Nevertheless, the flood of economic definitions of the concept that has punctuated international economic system is so over bearing that it will amount to academic prejudice if they are not accorded their deserved attention in this study. For instance, debt and in specific term external debt is conceptualized by Mark Ellyn and Han Flinch (1990:15) as: ―the amount at any given time, of disbursed and outstanding contractual liabilities of residents of a country to non-residents to repay principal with or without interest or to pay interest with or without principal‖. This is a purely economic definition of debt, which concerns itself with interest to be paid in addition to the capital disbursed. The implication of the definition is that debt is an aspect of business transaction that is profit-oriented and uncharitable in nature. Another aspect of the definition that must not escape mention is its tendency to restrict debt transaction to only the residents of different countries thereby ignoring domestic debt that seem to be one of the predisposing factor to external debt. A major defect of this definition is its failure to include other non-economic liabilities, which appropriately qualify for debt added to this, is the fact that contractual liabilities are mostly carried out by states and even when individuals or residents of the state guarantees such transaction before carrying out such transactions it becomes a liability, a legal burden. It is in this connection that most Third World countries, particularly Nigeria were plunged into debt trap because of its unguarded guaranteeing of export credits. (Oyejide et al, 1985:17). Therefore, it will be inadequate if not misleading to limit contractual liability to residents in different countries only. Unfortunately however Oyejide et al (1985) adopt similar economic position with Ellyn and Flinch above in their conceptualization of external debt as:a repayable obligation that has either a maturity of up to one year (i.e medium and long term debt)…..owed to non resident and repayable in foreign currency.(1985:17).
This definition from all intent and purposes excludes domestic debt transaction, which is a major pitfall. As earlier pointed out, publicly guaranteed debt (i.e. an external obligation of a private debtor that is guaranteed for repayment by a public entity) is one of the three component parts of external debt. However , their latter definition of debt as ―the resource or money in use in an organization which is not contributed by its owners and does not in other way belong to them‖ seems more inclusive and useful to this study save for their utter disregard for non economic variables. This sheer omission or neglect of a more important aspect of debt renders their definition inconsistent with choices made in this study. Regrettably, many scholars adopt similar position in seeing debt generally as:any purchase or credit negotiated through government or voluntary agencies on terms more favourable than ‗normal‘ commercial terms. (see for instance, Akin Fadahunsi, 1977 :4). It is perhaps, this penchant for giving a purely economic definition to debt that might have rendered past efforts at addressing the debt crisis impotent since a lasting solution to a problem is contingent upon an impartial recognition and treatment of the problem. This actually informs our preference for Fadahunsi‘s conception of debt within the wider political economy context. In his exact words, debt is : Any negotiated transaction in kind or monetary –on terms more favorable than normal commercial terms between nation –states and other governments or agencies that are consistent with the national interest as then perceived by the parties to the transaction. The relevance of this definition includes but is not limited to its recognition of other non –economic variables such as foreign aid that is more or less political. Hence the transaction must be consistent with the national interest of the parties.
Another area of interest in the definition is that it also recognizes that agencies are also engaged in the negotiated transactions. Our argument however, is that whether the transaction is in kind or monetary, the recipient becomes a debtor of gratitude or obligation and by virtue of the fact that ―he who pays the piper dictates the tune‖ the negotiated transaction in whatever complexion but with terms attached may turn out to be Greek gift-a Trojan horse-that spells doom for the receiver. It is probably in the light of this that one wonders why most if not all the negotiated transaction either in kind or monetary should result in debt crisis and becomes a burden to the receivers‘ development contrary to the purpose of incurring the debt in the first place. For instance, separate and collaborative works of erudite scholars in debt such as Bahram Nowzad (1990:9), Oyejide et al. (1985:14), Falegan S.B (1978:9) Akintayo Fasipe (1990:1) Graham Brid (1989:2), Callsito Madavo (2003:91), Ngozi Okonjo-Iwala (2003:169) and Chukwuma Soludo (2001:29), etc, all share pervading perspective of linking debt to development. This could be seen from the assertion of Madavo (2003:1) that borrowing and therefore debt is a legitimate part of everyday economic management. To him, external debt does not constitute a burden when contracted loans are optimally used and the return on investment is enough to meet maturing obligations, while the servicing of the domestic economic is not undermined (Ojo, 1994:15). The implication of this is that the debt crisis in Africa is a product of poor economic management, and especially, the mismanagement of contracted loans by inefficient public enterprises. External factors such as decline in commodity prices, increases in world interest rate and collapse of world trade are absolved of debt crisis in Africa. But this the usual ―blame the victim‖ approaches by the Western World and international lenders that only obfuscates the actual cause of the debt crisis. As aptly argued by Ake (2001:70) the foundation for debt crisis in Africa was laid soon after independence when the new leaders of Africa settle for economic development. In any case: With sparse resources of their own to work with, they looked to foreign powers to finance their aspirations and reintroduced in the economic context some of the issues of dependence that they had settled in the political context. Ake‘s observation is timely because it helps in revealing that debt is a shared responsibility between the countries of Africa and their creditors. But the creditor countries should take the larger share of the blame since it was their activities in Africa during the colonial era that actually weakened the structure of Africa economy and left the emerging leaders at independence with no option but to foist the burden of development on other countries (S.Ibi Ajayi;2003:105). Ake elaborated on this further when he lamented that the consequence was what has become as dependent development because the conditions attached to the foreign loan /aid took for granted the validity of the inherited economic structure (Ake,2001:19).
It is perhaps in the fight of this that the OECD had to caution that development finance should be made to achieve ―acceleration in the process of development in the less developed nations‖ (See Freund,1965).This however, can be possible when the fund according to Woods (1966:206-215) is released ―on terms more appropriate to the facts of life in underdeveloped countries‖ This advice is necessary because since borrowing was engendered by the need to fill the resources gap in African countries in other to enable the public sector provide infrastructure, create assets and investment in productive enterprises that would create jobs imposing unfavorable terms would definitely produce contrary results as is the case presently in most of Africa (Okonjo-Iweala, 2003:169). Nevertheless, the lenders have a contrary intention which is that loan is never meant as a development finance. Rather, it is a huge trap for the recipient countries with the ultimate aim of ensuring that they remain firmly within the sphere of influence of the lenders. In other words external borrowing to underdeveloped countries is a ploy for the perpetuation of the economic domination of the borrowing countries through high interest rate and unfavorable terms. This is why the claim by other authorities (See Palmer, 2005:550) that the debt crisis occurs because ―the capacity of underdevelopment countries to utilize outside capital is extremely limited‖ should not be taken seriously. Assuming the claim is true then it is an open acknowledgement that the colonial despoliation of Africa economy weakened its base and , therefore renders it incapable of servicing the loan and at the same time ―carry out any development project either of macroeconomic nature or to finance transitory balance of payments deficits‖ (Soludo , 2003:29). Therefore why not disputing the fact that ―in many respects the taking on debt is an entirely rational and welfare enhancing activity representing an inter-temporal redistribution of living standard‖ (Bird ,1982:2),such loan should be devoid of any strings so that it would be used to finance high –return investment and enhance the availability of resources in the future. It is strongly believed that it was the none adherence to this tenet that paved the way for the debt crisis, which Hope (1996) describes as:

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