Eight dollars per person

From time to time I've talked about the debt cancellation deal, and about the Millennium Development Goals we are supposed to fund with the $1 billion a year the cancellation deal supposedly saved us. The future value of the $12 billion we paid out is equivalent to the $20 billion over 20 years we supposedly saved, so the net result was $0. And the "savings" of $1 billion a year comes out to $8.00 (eight dollars) per capita, assuming a population of 125 million, which is hardly sufficient to fundamentally change anything about Nigeria.

You might say that even if it isn't much, at least it is something. And you would be right. Indeed, a few citizens are actually enjoying some degree of benefit from Hajia Amina Az Zubair's MDG spending.

Do a search on youtube, and check out the sequence of videos titled "Eye on MDG" from the broadcast outfit ABNDigital. To a certain extent, the videos are hagiographic, a bit like a political campaign advertisement, designed to make you support a particular thing.

Let me give an example.

Oprah Winfrey spent $40 million of her own money to build and staff a single all-girls boarding school in South Africa. In 2007, when the school opened, it had only 152 students. A person could go and film that school, and film the students in that school, and put together a hagiographic portrait of the school. I am sure everything about the school is excellent, and I am sure it is giving the young ladies world-class preparation to be leaders of the future, so (the abuse scandal aside) the film would be heartwarming and uplifting, giving viewers a lot of hope for these girl's futures and for the future of the school.

Context is everything. There are millions of school-age children in South Africa (13 million according to this possibly out-of-date wikipedia page). The country as a whole continues to suffer the after-effects of 400 years of Apartheid, when the education system was deliberately designed to give "white" and "black" children two different standards of education. In 2010, there are still disparities on every input indicator related to education, and consequently disparities in education outputs as well.

The truth is, $40 million is not enough money to fix all of South Africa's education problems. The truth is, it is not Oprah Winfrey's job to fix all of South Africa's education problems. But, objectively and empirically speaking, if you did have $40 million to spend, and you wanted to make the greatest possible impact on education in South Africa, the biggest bang for your buck, so to speak, spending the whole thing on a single school to cater to 152 students out of 13 million .... is not very effective.

Nevertheless, I liked this particular video (below), because it begins with a vignette on an adult education programme targetting women. I will be blunt about it, and say the literacy rate for women in the northern states has long been a concern of mine, and anything that helps these women get the education they deserve (and should long have had) is something I wholeheartedly support.

Watch the video:



Perhaps unsurprisingly, the school depicted on the video is in the Federal Capital Territory.

With only $8.00 per person to spend each year, Nigeria is dotted with an MDG project here, and an MDG project there. For the beneficiaries, it is fantastic (and I am glad for them), but as an approach to fundamentally alter the nature of poverty and social welfare in the country, I can't say that the project is making that much of a difference. As recently as November, 2009, a federal minister estimated the number of child beggars in the northern states at 10 million.

If the MDG programme, which has been going on for six years, had made a dent in that depressing number, it would have been trumpeted to the high heavens -- everyone would have heard it. Even if we were just on course to lower the number, if there was at least a statistical trend toward reduction, the federal government (and the respective state governments) would have invested millions of dollars in self-praising advertisements across all forms of media.

It is too much to expect from a programme with an $8.00 per head budget. It is not even like it is new money really, just all tiers of government designating a portion of funds they were already going to spend anyway as "MDG" spending.

Now, I am not complaining without proffering a better alternative. Money follows money, and investors like to invest in projects that already have strong fiscal foundations. For example, a $12 billion investment in electricity generation, if used to leverage additional private sector investment would have a greater impact on economic growth across the board ... and this economic growth would do more to cut down on poverty and to improve all the social welfare indicators that the MDG programme is ostensibly directed toward. Better a rising tide that lifts all boats, that a top-down programme with a limited budget that benefits only a selected, statistically insignificant handful.

I picked electricity for a reason. I spent some time in Kafanchan in 2003, and got to talk to many young men and women who had big ideas for small and medium businesses that could transform their individual lives, and their town as a whole. These were young people about to enter a workforce that does not have sufficient white-collar and blue-collar jobs to employ them, young people who clearly realized that self-employment (with the possibility of becoming employers themselves) was the way to go. But these ideas were uneconomical without the necessary supporting infrastructure and policy environment. Kafanchan in 2003 was a town that went completely dark at night, because there was no electricity; I could always find my way back to my hotel, even in the dark, because it was the only place in town that had any electricity after sunset (thanks to a hardy generator).

With enabling infrastructure and a supportive environment, ambitious Nigerians of all ages can do it for themselves, without having to repeatedly witness the spectacle of thousands of people fighting for a handful of opportunities available in the organized private sector, the already-bloated Civil Service, and fiscally limited top-down social welfare programmes. Trust is a scarce commodity, and capital/funding/revenue is just as scarce for many of the would-be self-employed; Nigeria is a country of citizens adapting their lives and decisions to ensure the least amount of reliance on lawywers, accountants and other branches of what should be a much bigger service sector. Nevertheless, so many of our graduates who seek to work for established firms could (in theory) be absorbed by offering back-office support to new business like the ones my friends in Kafanchan could have launched -- businesses of that size would definitely outsource their back-office operations.

There is so much you can do with a $12 billion in dormant capital, particularly if you consider how much more you can leverage with it. You don't even have to put it all in one place, provided there is enough of it to work as leverage, to inspire public-private partnerships. A more ambitious country would have found something to do with $12 billion. A political class with a better understanding of the bottlenecks holding back our growth would have been keen to use it in a different way.

Paying out $20 billion in future value over 20 years in exchange for $20 billion in "savings" over the next 20 years doesn't make sense, which is what we did when we handed $12 billion to our creditors in exchange for debt cancellation.

Saying that the deal gave us $1 billion per year to spend on social welfare doesn't make it better. The $12 billion lump sum was capital; the $1 billion in yearly spending isn't even "new" money, and will either do a lot for a statistical few (if you target a few, as we seem to be doing), or do next to nothing for everyone (if you target everyone).

Incidentally, the Fourth Republic is emulating the First Republic in terms of amassing debt at the federal and state levels. For the federal government alone, total debt is set to rise another $7.1 billion over the next year, from $31.4 billion now to $38.5 billion. I don't know if the NEXT reporter didn't express it properly, or if Abraham Nwankwo of the federal Debt Management Office didn't express it properly, but the best I could get from that article is that in the best case scenario our growing debt will be sustainable and in the worst case scenario it will not be (really?).

More important to the topic of this post is the fact that the much-trumpeted "savings" of $1 billion a year only exist if we stopped borrowing forever on the day that the debt cancellation deal was signed. Provided we continued borrowing, which was inevitable because in the real world ALL governments borrow, then our yearly debt service payments would progressively rise from the $0.00 it was after the debt cancllation. This rise would be proportional to the rise in our debt, until such a point as we were paying $1 billion or more in debt servicing, at which point the idea of "saving" anything by paying out a $12 billion lump sum would become academic and trite, but of no practical import.

Indeed, between 2005/2006 when we "cancelled" our debt, we have borrowed MORE than the $12 billion we paid out, and now owe MORE than $12 billion in new principal, as well as the interest on the MORE than $12 billion we have borrowed in the last four years. This is particularly interesting since a UN official has said two-thirds of the $36 billion we "cancelled" represented penalties on what had initially been $12 billion borrowed in the 1970s and early 1980s.

All this, and with the depletion of our foreign reserves to defend the Naira, and the depletion of the Excess Crude Account for federal, state and local recurrent spending, we are in no position to deploy a lump sum of $12 billion to leverage investment in any industry.

With the possible exception of Lagos State (and even there, the state government's borrowing has not been independently examined), I am not sure anyone can explain to me the point of the borrowed funds. Those infrastrucuture issues that could have been helped by $12 billion leveraging even more investment.

It is all recurrent expenditure. The government has spoken of transforming the Excess Crude Account into a Sovereign Wealth Fund, but that is only possible if the basic ideology of governance across our three tiers was geared to targeted long-term investments and not cash-in, cash-out expenditure of the kind that sees $12 billion shipped out in exchange for "savings" that don't really exist.

I blame the paucity of proper political debate. We argue about a lot of irrelevant nonsense, but nothing of substance is ever debated ... nor is anything ever decided by elections. We don't even have the right to use our votes to decide the irrelevant stuff we argue about.