Mr Kola Ogunleye is an international financial consultant and economic developer. He is of the view that financial recklessness and improper planning were responsible for the high debt profile in Ogun State, and blames the Federal Government for failure to question why many states, including Ogun, incurred such debts. He spoke to MUYIWA ADEYEMI (Head, South West Bureau, in Abeokuta).
Q. How will you assess the political economy of Ogun State under Governor Ibikunle Amosun?
A. I THINK the political economy of the state has been badly run in the last four to five years. And when you talk of political economy, you are talking about finance; you are looking at the budget; you are looking at projects and how they have impacted on people of the state. What we have had in Ogun State is a political economic situation that has not really impacted on the people: one that is characterised by brazenness and lack of planning, with uncompleted projects littering the state. It is what I can simply describe as financial recklessness.
It is a situation where budgets are not adhered to as passed by the House of Assembly; a situation where revenues are declared to be of a particular figure and what comes out later is different; where you don’t even have the correct revenue and debt profile or actual cost of projects being executed, and how much the debts being procured are in the prosecution of these projects, whether they conform with what is passed by the House of Assembly? Can we say that we have a situation where the Fiscal Responsibility Act and various budget laws are followed? There is so much impunity in Ogun State, right now. And this is very sad. There is neither accountability nor transparency.
Q. You said the debt profile of the state is not clear, but the government just requested that N55bn owed commercial banks be converted to bond. Is it not correct to put the state debt profile at N55bn?
A. I think the situation on ground, now, is that the N55bn that is being bandied around and presented at the National Economic Council meeting is a very wrong and inaccurate description of the debt profile of the state. Those are debts the state owed commercial banks, which the Central Bank and the Debt Management Office (DMO) have decided to package as Federal Government bond. Another N19bn owed workers in respect of illegal and unauthorised and unremitted deductions has also been slated to benefit from another intervention fund.
So, N55bn does not completely describe the debt profile of the state. There are all sorts of debts and loans from commercial banks. There are debts in respect of pensions and gratuities and deductions made from staff salaries that are neither remitted to the appropriate organs. There are also unfunded contingent liabilities in respect of ongoing projects in the state, and the best way to really look at that is to look at the kind of project profile in Ogun State that are not completed. We have schools started three years ago that are not completed. We have roads started four years ago that were not completed, and these are the projects that supposedly are in the budgets of various years. What has happened? The truth is that we seem to have been held captive in Ogun State by a government that is grossly insensitive and financially reckless.
Q. Don’t you think that with the loans converted to bond, the state will have enough funds to complete ongoing projects?
A. No, let me put it in proper perspective. You approached a bank to pick a loan of N2bn for a project and the cost of the project itself is about N10bn. That N2bn is incurring interest and the interest has constituted itself into an albatross around your neck; you cannot move forward. You, therefore, look for a way to convert that short-term facility, because it is like an overdraft, not a proper loan per se, with astronomical interest rates that are compounded each time the overdraft is rolled over.
This is not supposed to be; it is supposed to be serviced regularly. But because you are not able to service it adequately, it has accumulated. If it is so much today, it comes to nil by the end of the month, but once you cannot do this, you then look for succour at the federal level. Now, your N2bn loan is being converted to long term, to give you leg room, but do you know that you still need another N8bn to complete that project? Where will that money come from? The price of oil is falling, naira exchange rate is falling, and everything is on a downward spiral. Where will you get funds to complete the project? The loan you took has been restructured, as it were, but the main project is still there and you need money for its completion. If you want to do anything, it should be done holistically, considering the overall debt profile of the state, the revenue profile, as well as the potential of the economy of the state.
Ogun State once put its IGR at over N6bn per month. Besides, don’t you see some of the projects as regenerative in nature?
The question you just asked bothers on debt sustainability and economic viability of the projects. Ordinarily, most of the projects that have been embarked upon could be described as urban renewal, and should stimulate the economy of the state. I do not want to go into the polemics of urban renewal but let it suffice us to say that what we have in Ogun State, today, is that projects have not stimulated economic activity, as unemployment remains very high and the multiplier effects envisaged are yet to materialise. Government has embarked on road expansion projects in major cities and these projects are not targeted at economic zones.
When you want to spend this kind of money we have spent on road construction in Abeokuta, you need to tell us the size of economic improvement that can happen to the ordinary man’s life. What is the volume of traffic in the city? How would the average citizen whose house or shop was demolished be restored economically and socially? The word is restoration and not compensation, as it is commonly believed. What I can tell you, today, is that the projects are white elephants; they are not going to engender much economic development. But they are good enough to make the governor happy and gigantic enough to make some people smile to the banks. But they are not well thought out, to create lasting economic impact on the livelihood of the ordinary man in the state. That is the real tragedy of masses in the Gateway State.
Besides, costing of these projects leave much to be desired. It is not enough to tell me how much we are constructing a kilometer of road in Ogun State based on the governor’s pronouncement. The citizens need to know the contract document figures, and the process of choosing the contractors ought to be open, considering the sheer size of the contracts. In any case, that is the requirement of the relevant legislation, the Public Procurement Act. The public does not know these facts. But some of the research that we have done as economic developers indicates that most road projects in the state hover around N800m and N1.2bn per kilometre. Most of the costs have been revised once or twice, which means they were not well thought out in the first instance.
There is room for variation in construction projects but those variations should be reasonable and in accordance with due process. It is inconceivable that a project that was originally put at N4bn (for instance) would now be revised to N6.5bn when there was no inflation at that time and the naira had not depreciated. What are the cost elements that are responsible? If you do not have a bridge in your original design and you then decide to include one, should it gulp so much? Where is the place of project management in all of these?
When Senator Amosun came into office, there was a lot of money coming in. Oil was selling at over $100. He felt there was so much money and embarked on all manner of projects without planning. And when oil price suddenly fell to $50 per barrel, he discovered that he had made mistakes of the highest order. Another issue here is that he has taken short-term loans to finance long-term projects and there is a mismatch between the tenure of the project being financed and tenure of the loan he has taken. It is the height of financial recklessness! No accountant, no economist will finance long-term projects with short-term loans, especially when you have access to long-term finance. It’s five-year money to finance a five-year project. That is how to do it. You do not take a one-year money to finance a five-year project.
Sadly enough, construction of the projects did not involve many people in the state. It was supposed to be a kind of stimulus package, but most of the people who made money on the projects are foreigners and their local collaborators. And that explained the unprecedented capital flight in the state.
Q. Are you aware that this bond arrangement is from the Federal Government, to give reprieve to many states groaning under the yoke of debts; are you blaming the Federal Government for this initiative?
A. I believe that the Federal Government was misled into taking some of its steps in respect of state debts. The Federal Government should have been more painstaking in looking at each state and ascertaining why and how they got into that financial mess. There is, now, a blanket provision for them without scrutinising how they came to such debts. Most of them are saying they cannot pay salaries. What happened to their prior allocations? Ogun State is not in that category. The governor kept saying he could pay salaries. Why is he availing himself to this long-term loan?
The mistake by the Federal Government was that it did not look at the uniqueness of each state and their financial profile. To me, it is as if the Central Bank of Nigeria and the DMO are trying to save commercial banks from an imminent crisis. It is no longer about the state; it is about our banking system that faces collapse. If you look at the quantum of money states owe these banks, they cannot pay.
Why did they take decisions to help those who through wrong decisions did not help themselves? Banks ought to take decisions strictly based on financial data and sound economic analysis because there is a Standing Payment Order (SPO) that these states have signed that of any money coming from the Federation Account, a certain amount should be deducted. What the government has done was to truncate that agreement, and that is wrong. The Federal Government has no sole power to take over state debts without the consent of the states and the National Assemblies, because it is part of the budget. The moment you tinker with the budget, you must go back to the Assembly and take authority that you want to transfer these debts to the Federal Government.
There are some laws that guide issuance of bond. The revenue profile and other accruals, including debts profile, must be presented, and also repayment plans.
Rating agencies ought to make pronouncement on states economy, and if payment will stretch beyond the term of office, the state House of Assembly and the people must know about it. You are looking at a situation of repayment that will take 15 to 20 years! We need to know what has actually happened. The Federal Government is acting in defiance of the law of the land.
The fact that the governors met and agreed on a soft landing for themselves does not mean the National and State Assemblies should not play their constitutional duties in this arrangement. And everything must be put on the table; not shrouded in secrecy. Publish the debts they owe banks and on what projects. There must be due process and that has not been done. We are looking at the bond that is condemning generations yet unborn to bondage.
So, what is happening today in the world economy suggests we have to be careful. Many states will now go back to incurring new debts from commercial banks because the initial one has been taken over as Federal Government bond, which will be highly rated. They have taken it off the banks’ books. The states are happy likewise the banks, except the people who are now in bondage. There is a moral hazard here. Nobody has been punished, nobody has been described as reckless, nobody has been told, ‘You shouldn’t have done this’. We shouldn’t sweep everything under the carpet of politics. We need to know what happened. Accountability is key, and it is lacking in this arrangement.
Q. President Buhari has spent over 100 days in office. Did he take off very well with the few decisions he has made?
A. My take on Buhari’s administration is very straightforward. I believe 100 days is too short for any realistic assessment of any administration. However, we can look at pointers or indicators on the direction of the new government, vis-a-vis the governing party’s manifesto. On the issue of security, Boko Haram, he is yet to deliver. A lot of efforts but no result yet. On his avowed plan to fight corruption, there is noise all over the place. I have not heard signals. When I hear and see signals, I will do my evaluation. If there would be good governance in this country, those who looted the treasury must be tracked down and charged to court without fear or favour. Trial and conviction must be all inclusive and stolen wealth must be retrieved. That process has not begun.
On the issue of economy, he has not started. No economic blueprint yet. The Federal Government has taken over the debts of states without any form of audit or review. Invariably the Federal Government has given them leeway to acquire more debts and you are converting them to bonds. These governors should be made to face the consequences of their choices and actions. Once people are not punished for doing wrong things and you give them a pat on the back, you are simply encouraging them to go and commit more sins. It is called moral hazard in finance.
Culled from Guardian newspaper