How Nigeria Became So Damn Broke | JBS Ep. 08

Summary

In 2006, Nigerian President Olusegun Obasanjo managed to pay off $36 billion in extended debt, primarily owed to the Paris Club, by securing a 60% discount and paying $12 billion. Despite this success, Nigeria's debt crisis worsened under subsequent administrations. The country now spends nearly all its revenue on debt servicing, leading to economic decline, high inflation, and poor infrastructure. The current administration is criticized for excessive borrowing and lavish spending. The summary calls for reducing government expenses, tackling corruption, and prioritizing infrastructure to stabilize the economy.

Takeaways

• 📉 In 2006, President Obasanjo left office after significantly increasing Nigeria's foreign reserves from $5 billion to $42 billion, despite low oil prices.
• 💼 Nigeria faced heavy criticism for its $36 billion debt, mostly owed to the Paris Club, even with substantial foreign reserves.
• 🗓️ In April 2006, Nigeria made a bold move to become debt-free from the Paris Club after a 60% debt buyback at a discount.
• 📈 Post-debt relief, Nigeria's economy grew rapidly, stabilizing the Naira and leading to economic growth during subsequent administrations.
• 🔍 By 2015, Nigeria's economy was in turmoil, with the country reportedly using almost all its revenue to service its debt.
• 📊 Nigeria's debt profile has risen dramatically, with a total debt of $91 billion, including both domestic and foreign components.
• 💔 The country's debt servicing costs are unsustainable, with 80-96% of revenue spent on debt servicing in 2022.
• 📉 The Naira has significantly devalued from 197 Na to the dollar in 2015 to 381 Na at the end of 2020.
• 🏢 The current administration has been criticized for borrowing excessively and spending on non-essentials rather than infrastructure and capital investments.
• 🛑 The excessive borrowing for recurrent expenditures has led to a decay in infrastructure, poor public services, and a lack of investment in the economy.
• 💡 A potential solution could involve reducing government spending, improving the ease of doing business, and focusing on capital expenditures to boost the economy.

Q & A

What was the state of Nigeria's foreign reserves in 1999 and how did it change by 2006?

In 1999, Nigeria's foreign reserves were at a low of $5 billion. By 2006, they had significantly increased to about $42 billion under President Obasanjo's administration.

What was the average price of crude oil per barrel during President Obasanjo's administration?

The average price of crude oil per barrel during President Obasanjo's administration was $46.

What was the total amount of Nigeria's debt to the Paris Club in 2006?

In 2006, Nigeria's debt to the Paris Club was a significant $36 billion.

What significant action did Nigeria take in April 2006 regarding its debt to the Paris Club?

In April 2006, Nigeria, under President Obasanjo, declared that it would no longer owe anyone in the Paris Club, effectively paying off its big debt.

What was the Paris Club's proposal to Nigeria regarding its debt in 2005?

In 2005, the Paris Club proposed an unprecedented debt buyback at a 60% discount, which would cancel all of Nigeria's debt to them if Nigeria could come up with a cash payment of roughly $12 billion.

What was the impact of Nigeria's debt repayment on its economy and currency?

The debt repayment helped stabilize the value of the Naira and contributed to rapid economic growth, positioning Nigeria at the top spot in Africa temporarily.

What was Nigeria's total debt, both domestic and foreign, as of the end of 2020?

As of the end of 2020, Nigeria's total debt, including both domestic and foreign, was $91 billion.

How much of Nigeria's revenue was spent on debt servicing in the first 11 months of 2022 according to Bloomberg?

According to Bloomberg, Nigeria spent 80% of its revenue on debt servicing in the first 11 months of 2022.

What was the increase in local and external federal government borrowings in Nigeria between 1999 and 2021?

Between 1999 and 2021, local and external federal government borrowings in Nigeria jumped from 3.55 trillion Naira to 26.91 trillion Naira, an increase of 658%.

How did President Buhari's administration impact Nigeria's debt profile from 2015 to 2020?

President Buhari's administration increased Nigeria's debt from $7.3 billion in 2015 to $28.57 billion as of December 2020, a significant increase.

What is the main reason for Nigeria's rising debt profile according to the script?

The main reason for Nigeria's rising debt profile is the rising cost of governance, which includes both recurrent and capital expenditure, with a focus on overhead and personnel costs rather than infrastructure.

Outlines

00:00

📈 Nigeria's Economic Growth and Debt Struggles

The script discusses Nigeria's economic situation under President Obasanjo, who increased foreign reserves from $5 billion to $42 billion by 2006, despite low oil prices. It highlights the significant debt burden of $36 billion, mainly to the Paris Club, which was resolved through a 60% debt buyback in 2005. Nigeria's debt-free status was short-lived, as by 2015, the country faced a severe economic downturn, with debt servicing consuming 80-96% of its revenue. The script emphasizes the rapid increase in debt under President Buhari's administration, from $7.3 billion in 2015 to $28.57 billion by 2020, and the negative impact on the Naira's value and the economy.

05:01

💔 The Impact of Governance on Nigeria's Rising Debt

This paragraph delves into the reasons behind Nigeria's escalating debt, pointing out the high cost of governance, including both recurrent and capital expenditures. It criticizes the government's focus on lavish lifestyles for public officials instead of investing in infrastructure, leading to decay in public services and a decline in the economy. The script also addresses the consequences of excessive borrowing, such as a weakened Naira, high inflation, and the difficulty of meeting debt servicing obligations, which has led to a continuous borrowing cycle and a struggling economy.

10:03

🏛️ Mismanagement of Funds and the Call for Change

The script criticizes the current administration's handling of Nigeria's economy, likening it to a company that would have filed for bankruptcy. It condemns the misuse of funds for personal luxuries instead of capital investments, which has led to a lack of infrastructure development and a worsening economic situation. The script calls for transparency, accountability, and a reduction in government spending, suggesting measures such as tax holidays and improving the ease of doing business to attract foreign investment and stimulate economic growth.

15:03

🗣️ A Plea for Honesty and Action from Nigerian Leaders

In the final paragraph, the script makes a passionate appeal for honesty and action from Nigeria's leaders. It criticizes the government's propaganda and lack of trustworthiness, urging leaders to listen to the people's concerns and to stop ignoring their suffering. The script calls for a reduction in unnecessary expenditures and a genuine effort to fix the country's economic problems, emphasizing that the current state of the economy is due to poor leadership decisions rather than external factors.

Keywords

💡Debt

Debt refers to an obligation that an individual, organization, or government has to pay a sum of money. In the video's context, it discusses Nigeria's financial situation, highlighting the country's heavy debt burden, both domestic and foreign, which has significantly impacted its economy and foreign reserves. The script mentions Nigeria's debt to the Paris Club and the subsequent debt buyback at a discount, illustrating the country's efforts to manage this debt.

💡Paris Club

The Paris Club is an informal group of creditor nations that coordinate their positions on debt issues. In the script, the Paris Club plays a significant role in Nigeria's debt history, agreeing to a 60% discount on Nigeria's debt, which allowed Nigeria to become debt-free for a time. This is a key example of international financial cooperation in debt management.

💡Foreign Reserves

Foreign reserves are assets held by a nation's central bank in foreign currencies. The script describes how the Nigerian government built up its foreign reserves from $5 billion to $42 billion, despite the average price of crude oil during the administration. This increase in reserves was a significant economic achievement but was overshadowed by the country's debt.

💡Debt Buyback

A debt buyback is when a debtor repurchase its own debt at a discount. The script explains that the Paris Club proposed an unprecedented debt buyback to Nigeria, allowing the country to clear its debt by paying a significantly reduced amount, which was a pivotal moment in Nigeria's financial history.

💡Economic Rebound

Economic rebound refers to a recovery or improvement in economic conditions. The script uses this term in relation to Nigeria's economy post-debt buyback, suggesting a period of growth and stability following the clearance of the Paris Club debt.

💡Debt Servicing

Debt servicing is the process of repaying debt, including both principal and interest. The video script highlights Nigeria's current situation where a significant portion of its revenue is used for debt servicing, indicating a heavy financial burden on the country.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The script mentions the negative impact of inflation on Nigeria's economy, with the naira losing value and the cost of living increasing for its citizens.

💡Capital Expenditure

Capital expenditure refers to funds used by a business to acquire, upgrade, and maintain physical assets. The script criticizes the Nigerian government for not investing enough in capital expenditure, which has led to decaying infrastructure and a lack of development in essential sectors.

💡Recurrent Expenditure

Recurrent expenditure is the ongoing cost of running an organization, including salaries and operational costs. The video script points out that the Nigerian government is borrowing heavily to cover these costs, which is detrimental to long-term economic health and infrastructure development.

💡Economic Hardship

Economic hardship refers to difficult economic conditions that cause financial stress for individuals, families, or communities. The script discusses the impact of Nigeria's economic policies and debt on its citizens, leading to widespread hardship and a lack of basic necessities.

💡Propaganda

Propaganda is information, especially of a biased or misleading nature, used to promote or publicize a particular political cause or point of view. The script uses the term to criticize the Nigerian government's communication strategy, suggesting that it uses misleading information to maintain a positive image while the economy suffers.

Highlights

In 2006, President Olusegun Obasanjo increased Nigeria's foreign reserves from $5 billion in 1999 to $42 billion despite the average crude oil price of $46 per barrel.

Nigeria faced criticism for a $36 billion debt burden, most of which was owed to the Paris Club, even with substantial foreign reserves.

In April 2006, Nigeria declared it would no longer owe the Paris Club, leading to a headline from The New York Times about Nigeria paying off its big debt.

The Paris Club offered Nigeria a debt buyback at a 60% discount, reducing Nigeria's debt to them to a cash payment of roughly $12 billion.

Nigeria's economy grew rapidly to become the top in Africa during the administrations of Obasanjo, Yar'Adua, and Jonathan.

By 2015, Nigeria's economy was unrecognizable, with the country reportedly using almost all of its revenue to service its debt.

Nigeria's debt profile reached 7.6 trillion naira in domestic debt and $7.22 billion in foreign debt, with a total debt service cost of 1.94 trillion naira in the first quarter.

Nigeria spent 80% to 96% of its revenue on debt servicing in 2022, indicating a severe economic strain.

Between 1999 and 2021, federal government borrowings increased from 3.55 trillion naira to 26.91 trillion naira, a 658% increase.

President Muhammadu Buhari increased Nigeria's debt from $7.3 billion in 2015 to $28.57 billion by December 2020.

The exchange rate moved from 197 naira to the dollar in 2015 to 381 naira at the end of December 2020 under Buhari's administration.

The cost of governance in Nigeria is rising, with the government borrowing heavily for overhead and personnel costs, neglecting infrastructure.

Borrowing for recurrent expenditures has led to a decay in infrastructure, poor management of hospitals, and a lack of investment in education and power infrastructure.

The fall in investments and increase in borrowing have led to reduced employment and stagnation of economic growth in Nigeria.

Nigeria's rising debt profile is causing a weakened naira, high inflation, and difficulty in affording basic household items.

The current administration has been criticized for borrowing excessively and spending on non-essential items instead of investing in the economy.

The transcript calls for Nigerian leaders to reduce government spending, improve the ease of doing business, and invest in capital expenditures to boost the economy.

The author questions the integrity and priorities of Nigerian leaders, highlighting the contrast between the people's hardships and the government's lavish spending.

The transcript emphasizes the need for transparency, trust, and honest communication from Nigerian leaders to address the economic crisis.

Transcripts

the year was 2006 president alusa baser

was preparing to leave office for the

final time he had worked tirelessly to

build Nigeria's foreign reserves from

his lows of $5 billion in 1999 to about

$42 billion in 2006 this was despite

crude oil selling for an average of $46

per barrel during his

administration but there was something

that kept weighing the Nigerian nirra

down even with $42 billion in foreign

reserves the obasan J's Administration

was facing heavy criticism and pressure

from all Corners because of this heavy

burden you see this burden weighed a

whooping $36

billion yeah that was how much Nigeria

owed in extended debt at the time most

of that amount was owed to the Paris

Club a group of major creditor countries

that included the United States United

Kingdom France and some other Western

countries then came April 2006 and obas

just said quote Nigeria will not owe

anybody in the Paris Club One

Cobo a few days after this bold

declaration there was this headline from

The New York Times saying quote Nigeria

pays off its big debt sign of of an

economic

rebound Baba had done it before this

huge announcement was made the president

olao Bas administration had been engaged

in discussions with the Paris Club on

this Nigeria's debt burden those

discussions yielded results when in 2005

the Paris Club proposed an unprecedented

debt buyback at a discount they agreed

to a 60% discount on Nigeria's debt that

would ccel

all of Nigeria's debt to them if Nigeria

could come up with a cash payment of

roughly $12 billion meaning the Nigerian

government only needed to pay 12 billion

of the 30 their old now with $1 billion

being written of then obas

Administration was able to pay the

balance of $12 billion and from there

Nigeria became debt free at least for

the timing this helped stabilize the

value of the Nara at the time and with

crude oil prices up during this time the

Nigerian economy grew rapidly to the top

spot in Africa a growth that continued

during the administration of Yara

through to that of good luck Jonathan

then 2015 happened and Nigeria's economy

became

unrecognizable now to show you exactly

how bad the situation is Nigeria is

reportedly using almost all of his

Revenue to serve his debt but how did we

get here come with me and I'll show you

Nigeria's debt profile 7.6 trillion

naara in domestic debt

$7.22 billion the country's de service

cost in the first quarter of this year

was 1.94 trillion Nara the Nigerian

government currently owes a total of $91

billion that is both domestic and

foreign debt

of that amount $42 billion is said to be

foreign now according to Bloomberg

Nigeria spent 80% of its revenue on debt

servicing in the first 11 months of

2022 the World Bank placed that figure

at around 96% for the entire year of

2022 but you know what's more worrying

spending 96% of your Revenue to PID debt

means you're borrowing Almost 100% of

your anual budget this is scary because

records show that it is getting worse

and not better between 1999 and 2021

local and external federal government

borrowings jumped from 3.55 trillion n

to 26.91 trillion n an increase of

658 between June 2015 to December 2020

bhari borrowed 7.6 trillion n president

Mohamad bhari increased Nigerian debt

from $7.3 billion in 2015 to$ 28.57

billion as of December 2020 this caused

the country's exchange rate to move from

197 na to the dollar in 2015 to 381 n at

the end of December 2020 we are talking

about one president increasing Nigeria's

debt by

173.04 in just 6 years in comparison

president good Jonathan Administration

met Nigeria's debt profile at 6.17

trillion n in 2011 according to a report

by the cable local debt amounted to 5.62

trillion Nara while foreign debt stood

at $3.5 billion the exchange rate at the

time was

156.000 Nara to $1 in 2014 towards the

end of Jonathan's Administration

external debt was $6.45 billion domestic

debt Rose to 7.9 trillion Nara while the

Nar fell slightly to

158.3 Nara to

$1 after the elections however

everything changed by the end of 2015

Nigerian foreign debt jumped to $7.3

billion while domestic debt increased by

8.4 trillion Nara the Nara crashed to

197 part dollar not even a year in

office yet bohari immediately gave

Nigerians a a clue of how his government

planned to carry its Affairs so far

bhari is the country's biggest borrower

increasing public debt that is the

federal government component by more

than

173% oh hang on there is tinubu now

whose administration has been acting

like a bunch of 5-year-old kids with

happy Christmas money in a candy shop

according to the Vanguard the federal

government under Tino borrowed 20.1

trillion n from domestic investors in

the first year of President U's

Administration

alone but why are they borrowing this

much what are they doing with all of

this money now the most apparent reason

for Nigeria's Rising debt profile is the

rising cost of governance this is simply

put any cost associated with the running

of government this includes recurrent

and capital expenditure while recurrent

expenditure talks about the amount of

money the government spends on overhead

and Personnel costs capital expenditure

on the other hand talks about government

expenditure in providing infrastructural

facilities the problem with the Nigerian

situation is that the government is

borrowing a whole lot of money to spend

on overhead and Personnel costs as a

result infrastructure is in Decay while

the people in power focus on buying

yacht Jets SUVs and building

Mansions the point I'm trying to make

here is spending billions of borrowed

funds to give public officials lavish

Lifestyles has reduced the amount of

money available for Capital expenditures

this means roads don't get built

hospitals are poorly managed some have

no light and others have collapsing

structures let's not even get into the

education sector there is literally no

money to improve our power

infrastructures lady to the National

power grid collapsing every four Market

Days the public transportation system is

a mess no Rail lines in major cities to

help solve the public transportation

crisis now all of these put together

have led to a fall in Investments

companies are running away which in turn

has led to a reduction in the level of

employment which ultimately led to the

stagnation of our economic growth also

to add borrowing a ton of money without

restraint is bad yeah pretty bad but how

you might ask well more debt means a

weaken era the weaken era means Imports

of goods are more expensive and exports

bring in little value as a result a we

era also means crazy levels of inflation

like we are witnessing right now food

items are very expensive and people are

no longer able to afford household items

there is also the debt servicing we

talked about

Nigeria is currently using 96% of its

Revenue to service debt imagine working

for 30 days and you are paid 500,000 NAA

but then you have to use 480,000 n from

that amount to pay your debt how do you

survive on 20,000 n for another 30 days

it means you will have to borrow again

and again and so the cycle

continues but is there a fix for this

mess we are in when the current

president of Argentina was swor in back

in December 2023 his country's economic

situation was worse than

Nigeria's but what did he do well he

took measures to reduce government

spending it's not a magic trick all he

did was cut down on the size of

government block the stealing of

government funds attract foreign direct

investment through tax holidays and

improve the ease of doing business in

the country if you're broke you don't

need to go on his spending spree to

build a mansion and buy a jet and a

yacht and what not in in all honesty if

Nigeria were a company it would have

filed for bankruptcy by now and maybe

all the managers and directors could be

behind bars you see when the last

Administration was under a lot of

pressure to get money to run his

operations they went to the central bank

and turned it into a printing press

with every narra they printed the Nara

lost more value inflation soed and your

savings became what less than they used

to be the result of that recklessness is

still being felt today with the current

Administration even worsening the

situation with his borrowing and

spending like I said earlier the table

Administration has been acting like a

bunch of 5-year-old kids with happy

Christmas money in a candy shop they

know didn't work to end this money they

spending because of course these are

loans however they hellbent on spending

it all but not on

infrastructures not on Capital

Investments to help prop up the Nigerian

economy they tell you that the

government is taking some loans to run

these operations then you turn on the

news only to see that one of these

operations is a VP residence that cost

the country 21 billion n of money he

doesn't have imagine borrowing 21

billion n to build a mansion for your

vice president at a time like this are

you trying to show to the people you

borrow this money from that all is well

back at home because Nigerians know that

all is not well here so who exactly are

you trying to impress you see African

leaders are the only crop of people that

travel to Western countries with about

200 delegates spend millions of dollars

in fstar hotels to attend meetings with

their creditors whom they have gone to

beg for money my question to Nigerian

leaders is are you not ashamed of

yourselves when you jump on private jets

to take you around the world do you by

any chance meet politicians from other

countries with good economies if you do

can you tell us what your conversation

with them is usually like do you even

talk to them because

make it make sense here how do you

introduce yourself to the British prime

minister for example when you go to one

of these your

meetings tell me do you say hey I'm a

senator from Nigeria yeah I'm one of the

folks who sing a song of allegiance to

the president I should be holding

accountable I also try to warn people in

my constituency who by the way voted for

me against all forms of protest against

the hunger they are currently enduring

or do you say I'm minister of the

federal republic of Nigeria yes we know

the economy is terrible right now but

Nigerians just need to sacrifice while

we the people elected to serve them live

our best lives and to the governors how

do you live with

yourselves when you look into the mirror

who do you

see a father a servant of the people or

a wicked politician who doesn't care

about the plight of his people for those

who want to make Nigerians believe that

economic hardship is a trial from God

how do you live with yourself and to my

fellow

Nigerians you need to know the truth our

economy is bad because of the terrible

decisions of our

leaders when you take on loans as an

individual for example and use those

Monies to buy fancy clothes to wear and

oppress your neighbors you'd better have

a plan on how you're going to pay back

that money because when the time for

repayment comes and you have not

generated any income to pay back there's

bound to be trouble that is the trouble

we are in today most of the loans we are

taking are being used to finance

recurrent

expenditures only a tiny fraction is

used for capital

expenditure instead of investing in

things that can yield results for the

economy and help boost our GDP our

politicians are busy sharing money as

ptiv a year ago in 2023 tinu wrote to

the National Assembly seeking 500

billion n for pales July 2024 the

federal government is sending 740 rice

trucks to

States how many Nigerians will even see

these trucks not to talk of getting a

grain of rice from this bag

we all want Nigeria to work but there's

no magic to these

things we've relied on prayers for far

too long as a nation to fix

things now our leaders need to be more

honest with

us people can only support leaders whom

they

trust and how exactly do you build trust

well by listening to what the people are

saying for example

that's the first way you cannot say

you're listening to your people and that

you share in your suffering while

threatening them at the same

time you cannot tell the people that

there's no money and then you turn

around to spend billions on laundery to

make yourself

comfortable it's not done anywhere you

cannot keep ignoring the cries of the

poor and only dish out crumbs to them

whenever they're threaten to revolt

above all you cannot keep lying to the

people that you have it all figured out

when in fact all they have been seeing

is trial and error policies that have

all ended with big failures I've heard

of capitalist countries I've heard of

communist and socialist

countries but I've never heard of an

economy that runs on

propaganda Nigeria is a mess you know it

I know it so Mr President when are you

going to start cutting down on your

ridiculous expenditures and fix the

country for real

[Music]