Page 1 of 8
Journal for Studies in Management and Planning
Available at http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 01
January 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 43
Debt Burden: A Re-Examination of Its Effects on
Nigeria’s Nation Building
Dr. S. O. Soetan1 & Osadola Oluwaseun Samuel2
1 Department of History and International Studies, Ekiti State University, Ado-Ekiti Ekiti State
Nigeria, 08034299268
1
Post Graduate Student, Department of History and International Studies, Ekiti State University, Ado- Ekiti Ekiti State Nigeria, 08066825100,
1
layisoetan@gmail.com ,
2
osadolaseun@gmail.com
Abstract
Many nations in West Africa generated huge revenue majorly from foreign trade and investment
during the period of the economic boom of the 1970. These countries however embarked on projects
that could either not be completed or were of little benefits to their citizens. Most of the funds meant
for such projects were either embezzled or mismanaged due to high level of corruption among the
leaders. Hence, the fall out of crude oil in the 1980s, led to recession and economic deterioration as
manifested by fiscal crisis, foreign exchange shortage, balance of payment problems and external debt
crisis. These had enormous effect on the economies of West African nations. Indeed, beginning from
1982 and through 1984, the countries had become saddled with negative trends in economic growth,
as indicated by decline in Gross Domestic Products, persistent current account and budget deficits, as
well as a huge backlog of uncompleted projects. Thus, this research paper however discusses the
various causes of debt burden as well as its various effects on nation building in Nigeria. It also
examines the various debt management strategies and policies used by developing countries to control
the rising debt burden. This paper derives its strength from both primary and secondary materials.
Keywords: Debt Burden, West Africa, Nigeria, Nation Building
1
Department of History and International Studies, Ekiti State University, Ado-Ekiti Ekiti State Nigeria, 08034299268,
layisoetan@gmail.com
2
Post Graduate Student, Department of History and International Studies, Ekiti State University, Ado-Ekiti Ekiti State
Nigeria, 08066825100, osadolaseun@gmail.com
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Journal for Studies in Management and Planning
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ISSN: 2395-0463
Volume 04 Issue 01
January 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 44
Introduction
The forty eight countries of Sub-Sahara Africa
spend approximately $13.5billion (Adam,
2004) every year repaying debts to enrich
foreign creditors for past loans of questionable
legitimacy. These debt repayments divert
money directly from basic human needs such
as healthcare, education, and fundamentally
undermine African governments’ fight against
the AIDs pandemic and their efforts to promote
sustainable development.
Since their independent, most countries in West
Africa became indebted to international
countries through loans collected for political
and economic stabilities. The massive revenue
surpluses of oil money in Western Banks in the
1970s, made them to give loans with little
thought to their purpose or to their recipients
capacity to repay such loan. Many were made
to retain the loyalty of corrupt regimes and
much of the money went into the hands of
visionless and wasteful government.
In the 1980s when the shocks of the 1970s oil
crises rising interest rates and falling global
price for primary commodities began to take a
toll, the debt crisis in the developing world
began to unfold. (Sam, 2005)
Historical Background of Debt Burden in
Nigeria/West Africa
During the period of the economic boom in the
early years of 1970s, West African government
generated revenues which gave room for
infrastructural and developmental projects
which they could not complete due to
embezzlement and misappropriation of funds
meant for such projects. It was of no surprise
that the Nigerian Economy dropped in the early
1980s when the price of oil collapse in the
International market. This led to recession and
economic deterioration.
In Ghana for example, an average price of
$1,600 per metric tons of cocoa was used to
project export revenues over the 1989/1991
period. (Adam, 2004) However, in 1991, the
average world cocoa prices were below the
expected price. Due to plummeting world price
of coca, Ghana lost some $200 million in 1990.
This loss in export earning has made it difficult
for Ghana to pay back the large loans it has
contracted, while at the same time making new
loans that is much more indispensable.
Although Ghana did not enter the Economic
Recovery Programme with serious debt
problem, she is currently in one. The country’s
total external debt has doubled in the course of
the ERP, from $1.5billion in 1983 to $3.3
billion in 1990. (Ayadi, 2003) Some two third
of the annual exports are required to keep up
repayment of principal interest. The greatest
beneficiaries of the ERP has been Ghana’s
external creditors and foreign companies with
Ghanaian operations whose affiliates are
subordinates and has been able to repatriate
profits and dividends, for many years. Pressure
of debt payment is a major obstacle to an
improvement in the living standards of the
masses of Ghana.
In Ivory Coast, a boom in cocoa and coffee
price in 1976 led to dramatic increase in the
country’s terms of trade from 77.9 in 1975 to
100.5 in 1976 and 140.2 in 1977. The
agriculture price stabilization fund kept
producer’s price stable during this period and
thus accumulated large surpluses for
government revenue (amounting to 16 percent
of GDP in 1977). The government used these
resources to embark on an ambitious
investment program, which was to have a
significant adverse effect on macro-economic
balances in the decade that follow. (Sam, 2005)
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January 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 45
Although not quite matching the earlier period,
GDP grew by 6.5 percent annually between
1975 and 1979 with strong growth in
Agriculture at 4.2 percent and industry at 13.4
percent.
The price boom was short-lived, between 1977
and 1980, export price fell by 30 percent, and
the country’s terms of trade declined from a
peak of 140.2 to only 98.1 percent.
Furthermore, the term of trade also declined by
38 percent in 1980. This single shock
dominated all macro-economic accounting in
Cote d’Ivoire during the 1980s. A major
destabilizing event toward the end of the 1970
was a dramatic fall in national savings from 25
percent of GDP in 1977 to only 10 percent in
1980 and 6.8 percent in 1981. (Adam, 2004)
This low level of savings, combined with the
poor export performances meant that; a large
proportion of the investment program had to be
financed through foreign borrowing,
particularly by the public sector. While external
borrowing scheduled under the program
amounted to CFA franc 327billion, public
sector external borrowing also amounted to
CFA franc 436billion. (IMF/World, 2004) This
accumulation of debt was to dominate
macroeconomic policy for the foreseeable
future.
In addition, back in the 1960s when shortage of
foreign exchange became one of the
bottlenecks to national economic development,
external borrowing became crucial to the
Nigeria economy. Perhaps, the country
attempted to rely too heavily on foreign
resources in the 1960s up to the early 1970s in
the construction and development of
infrastructural facilities. This explains why the
first National development plan anticipated that
50% of the funds for the total public capital
programme of 307.8million naira would come
from foreign financing. But the outcome was
very disappointing because at the end of the
plan period, external assistance actually
amounted to only 25% of realized capital
programme. (Izedonmi, 2012)
Hence, with these trends bedeviling West
African economies, the fear that their
governments would not be able to payoff their
debts became something to be worried about by
the western banks, who were desperate to
recover their capital from African leaders. To
prevent African leaders from defaulting, they
used the IMF and World Bank to intervene. It
should be noted that the IMF and World Bank
were exploitative in nature.
Why West African Nations were Debt
Trapped
One of the major causes of debt burden in West
African countries was the collapse of price in
the international oil market as well as the
decline in the volume of crude oil export. In
Nigeria for instance, price and production of oil
export fell from 2.2 million barrel per day in
1978 to around 1.0million per day in 1981-
1982. (Obademi, 2013) This effect was as a
result of over-dependent in crude oil export. It
was a period when agricultural production was
neglected.
Another notable cause of debt burden in West
Africa is the poor economic management
coupled with the misuse of resources and
colossal wastage of public funds. (Sam, 2005)
Africa countries debt servicing problem have
by and large been the result of low levels of
economic growth, particularly in national
income and exports, and high interest rate in
the face of low export revenues. The increase
in the interest rates also added to the debt crisis.
During the first oil price hike, the real interest
