Debt Peonage: Effects On Nigeria
Peonage is a term coined from the word PEON. The English Dictionary refers to the phrase peon as a day labourer and a servant. It is most peculiar to some of the Spanish American countries. In other words, a debtor is held by his creditor in the form of qualified servitude to work out a debt.
Peonage is also called debt slavery or debt servitude. A system in which an employer compels a worker to pay a debt with work. The early Portuguese settlers widely practised peonage in the United States of America until it was outlawed and abolished by Congress in 1867. The peon gets conned into a master and servant relationship in economic terms that are hardly favourable to him. Chinweizu wrote in the London based Africa Magazine, July 1978, “the master smilingly offers you both money and goods, but on condition that you pledge to work off the debt on the farm which he had made out of what you consider your homestead. Once you agree to these terms, (and he has an excellent way to manipulate your ‘weakness’ your ‘laziness’ and your ‘greed’ until you agree) you become indentured sharecropper or peon on what you are permitted to regard as your land. And the massiveness of what you must buy from him, at prices which he dictates, is such that you cannot ever work off your ever-increasing burden of debt”. Put in its proper perspective, this tantamount to slavery.
In comparative terms, most colonial masters at the point of conceding independence to erstwhile colonies put mechanisms in place for considering themselves as masters, with measures for retaining their former colonies as peons. The instrument of the International Monetary Fund (IMF) stands as an arbitrator in negotiations between creditor and debtor nations.
The mechanism became the lot of several African nations tricked into debt trap peonage in the post-colonial era. Indeed, Chinweizu’s warning to African countries not to engage in large scale borrowing arose from Nigeria’s desire to borrow money from Western creditors by the Obasanjo led administration in 1978.
By 1983, Nigeria’s external debt was approximately $20 billion. Debt service rose to $5 billion. That was nearly one-third of Nigeria’s export earnings for the year. What seemed most disheartening in the circumstances was that our leaders harboured the notion that we were under borrowed. To them, it seemed there was a set minimum amount that a country ought to borrow. That erroneous mentality spurred them into acquiring debts for debt’s sake: a development which threw the gate open to the debt trap peonage.
Issues have been further complicated by new loans that have filtered into the country from China since the Buhari led administration came to office five years ago. The Chinese variant of lending is mind-boggling for several reasons. For instance, the terms are not clearly spelt out. Agreements are written in Chinese Mandarin Language and signed by people who do not know about what they are signing. The Nigerian experience is particularly worrying as loans meant for specific projects, are often diverted. In some other cases, many of the projects are left uncompleted or abandoned. New loans are still being acquired even in the light of facts that debt servicing has remained a significant burden for the struggling economy.
On June 16, 2020, former Vice President and recently Presidential candidate for the opposition party in the 2019 general elections, Alhaji Atiku Abubakar expressed grave concern over the state of the economy. NIGERIA’S FIRST QUARTERLY REVIEW of 2020 financial reports in the Medium Term Expenditure Framework and Fiscal Strategy from the Federal Ministry of Finance Budget and Planning showed that the country spent a total of N943.12 billion on debt servicing. Incidentally, the Federal Government retained revenue for the same period stood at N950.56 billion. The above Report is an indicator that the economy is on the verge of crashing. This correlation between the gross domestic product (GDP) and gross fixed capital formation (GCFC) is vital to the analysis of economic indices.
As at the end of December 2019, the country’s total foreign debt stock was $27.676 billion while China’s credit to Nigeria was $3.175 sourced under bilateral arrangements from the China Exim Bank Group. The Buhari led administration raised debt stock by more than doubling it from N12 trillion to N27 trillion in just five years. Consequently, the country’s debt service to revenue has risen above the World Bank’s 22.5 per cent. In comparison, the debt service revenue ratio prescribed is 66 per cent. Debt servicing would increase to over 80 per cent before the end of 2020, because of the administration’s insatiable acquisition of loans.
Not surprisingly, therefore, the House of Representatives in the first week of June 2020 had called for probe having foreseen that the debt burden could spell disastrous consequences for the country. The morbid fear is that the Buhari led administration may once again draw Nigeria into the dark days of debt burden which the past administrations of Obasanjo and Jonathan had settled.
As at the end of December 2000, Nigeria’s debt stock stood at $28.3 billion. It includes $14.7 billion and late interest of over $5 billion. In other words, the previous administrations of Babangida, Abacha and Abdulsalam owed about 75 per cent to official creditors. It is noteworthy that the bulk of the debts was accumulated in the 80s and 90s, at a time when the interest rate was low. In the late 80s interest rates increased from 4 to 14 per cent in the 90s. The unanticipated increase created a surge that our borrowers did not anticipate. Added to this was the fact that negligence to service outstanding debts further complicated the massive accumulation of debt service arrears.
Thus by 1990, Nigeria’s external debt had quadrupled. Coincidentally, there was collapse of oil price at the same time. Besides, the myriad problems of poor management of the economy and unfavourable loan terms rendered debt servicing difficult. In this circumstance, Nigeria could not meet up with debt servicing obligations, particularly to the Paris Club. In the light of the above, the debt rescheduling of 1986, 1989 and 1991 proved of no effect. Instead, mounting arrears made the debt crisis worse.
In the final analysis, servicing debt owed the Paris Club, which consisted of fifteen creditor European countries became a herculean task in all ramifications. From 1983 Nigeria’s indebtedness to this group rose steadily from 30 per cent to about 80 per cent of GDP. The trend shattered the national economy, and the bleeding it occasioned was so massive that it perpetuated poverty in the micro economy. As of December 2000, the debt stock stood at 75 per cent of GDP and 180 per cent of export earnings. Simply put, debt service due in 2000 stood at $3 billion. That was 14.5 per cent of export earnings. In 1999, for instance, while spending on Health stood at about 0.2 per cent of GDP, debt servicing was about 3.4 per cent (U.S 1.5billion) of the annual budget.
By the following year, statistics from the Federal Budget office showed that debt servicing swallowed a colossal $1.9billion. This amount for debt servicing is four times the Federal Government budget allocation for Education and twelve times that for Health. By 2001, statistics also show that debt servicing was $2.13 billion, amounting to 6 times funding to Education in the budget and 17 times allocation to Health for that same year. It is clear from the preceding that the debt trap peonage, Nigerian leaders carelessly plunged the economy into beginning from the late 70s had gravely compromised the general welfare of citizens.
This analysis becomes pertinent as the Buhari led administration has once again blindly set out on a course of borrowing that spells calamity for generations unborn. Now the current drift into more loans acquisition from China by African countries, (Nigeria included) is worrying. It points to a magnitude of debt servicing that could balloon into unimaginable consequences for the continent unless severe efforts are put in place before it becomes too late.
Vital points are arising from the above that should be noted by African leaders in the present scheme of things. First is that debt rescheduling triggers flawed fiscal policies with ripple effects on economic development. Also, it disrupts measures that are vital to mainstream economics as well as having grave consequences for the financial sector.