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Nigeria during the Abacha Years (1993-1998)

‘Kunle Amuwo
Daniel C. Bach
Yann Lebeau

Nigeria’s External Debt: Evolution, mix and current issues

Nicole Chevillard
Translated by Pius Adesanmi

Full text

1Nigeria’s external debt is the biggest in all of sub-Saharan Africa in absolute terms and has already been rescheduled several times. Despite this refinancing by creditors who were either members of the Paris Club (governments), London Club (banks) or independent creditors, Nigeria meets a very negligible part of its external debt obligation today. Consequently, the arrears of this debt have accumulated inexorably, and is one of the major reasons why Nigeria is in the bad books of the international financial community. It also strains relations between Nigeria and her international partners, especially members of the European Union, and particularly three of her major creditors, Great Britain, Germany and France.

Nigeria’s External Debt in Perspective

Beginnings of the external debt

2Nigeria’s external debt (including short-term debts) remained low until the middle of the 1970s – US$ 1.5 billion in 1970, more than half of which was short term; and US$ 2.5 billion in 1975, of which US$ 1.35 billion represented short-term debts. The situation began to get out of control in 1977 when an outstanding growth rate in the country’s debt became manifest. The outstanding debt (in current dollar rates) tripled, reaching US$ 7.5 billion in 1979 and 8.9 billion in 1980, 3.55 billion of which represented short-term debts. Yet, the international financial community was not worried about this progression. It should be noted that the Nigerian economy appeared to be taking off at the time, exhibiting a GNP growth rate of 9 per cent. A record fiscal surplus of US$ 10 billion was obtained and about the same amount was secured as external reserves.

3In the following years, Nigeria’s financial decline launched the nation’s authorities on the path of debt Creditors, acting on the initial good impression, continued to lend despite accumulating debt figures, which ought to have made them a lot more circumspect. In fact, the total outstanding debt, according to the World Debt Tables of the World Bank reached US$ 19.55 billion in 1985 and US$ 23.40 billion in 1986. The first arrears on long-term debts began to emerge in 1984. These were either arrears on interest or capital payments which were all consigned to an indeterminate future.

Successive rescheduling

4The practice of rescheduling Nigeria’s debts (by category) quickly gained ground. The bankers were the first to be approached in 1983 for short-term loans. A rescheduling was agreed upon in July that year on the strength of an agreement with the IMF which should have stepped in at the end of the year to ratify the negotiations made in Lagos and London. In the end, this standby agreement was not signed on the expected date.

5Second in line were the creditors who operate independently of the export insurance agencies. They were mostly state contractors whom Nigeria’s new military authorities (the Buhari regime) accused of inflating their prices in the climate of the general corruption which prevailed under the previous regime of Shehu Shagari. Consequently, the new leaders refused to pay interests previous to January 1985 and asked the concerned companies to convert their claims to promissory notes. Nigeria had started to make attempts to negotiate a rescheduling with the Paris Club as far back as 1984. Political pressure was mounted on creditor-governments, especially those in London and Paris. Between 4 and 5 October 1984, the pressure yielded a preliminary agreement of the ‘Paris Club’ model. The conditions of debt liquidation remained in abeyance and the IMF consequently opposed the coming into effect of such a badly thought-out rescheduling (especially since no prior agreement on adjustment had been reached with it).

6The rapid progression of the debt service ratio on export debts has had the decisive effect of forcing Nigeria to accept concessions in order to gain due consolidation with the Paris Club. This ratio which was a mere 2.8 per cent in 1980 rose to 13.7 per cent in 1982, and 34.7 per cent in 1984, before settling at well over 40 per cent in 1985. The first rescheduling of bilateral debt was finally signed on 6 December 1986. It concerned a significant amount -US$ 2898 million – but offered only limited respite to Nigeria: 6 years with 2 years of grace. The cut-off date was fixed at 1 October 1985.

7At this period, it was already obvious that other rescheduling exercises with the Paris Club were inevitable, since this type of consolidation has the effect of increasing the debt stock while merely spreading debt servicing over time. Institutional creditors, however, insisted that henceforth, Nigeria would have to sign agreements with the IMF before restructuring any debt owed to them. The creditors, needless to say, relied on the IMF to ensure that Nigeria respected its agreements with them. Two other rescheduling agreements were negotiated from this perspective as follows:

  • The first on 3 March 1989 for US$4747 million (to be consolidated in 16 months); this amount was rescheduled for 9 years, with 4 years of grace.

  • The second on 18 January 1991 for US$3023 million (to be consolidated in 15 months); depending on the category of the loan, the amount was rescheduled for 19 years, with 9 years of grace, or 14 years, with 7 years of grace.

8It is worth noting that in both cases, the benefits of debt reduction (the Toronto formula) envisaged for the poorest and most debt-ridden countries were not extended to Nigeria.

9By November 1987, the London Club which comprises creditors from the banking sector had to take a cue from the Paris Club by granting a consolidation of 21 months on the outstanding debt stock (short- and medium-term debts, rescheduled and non rescheduled debts). This amounted to US$ 4714 million rescheduled for 9 years, with 3 years of grace. More rescheduling exercises were to follow:

  • March 1989. This rescheduling concerned only short-term debts but the amount involved was significant (US$ 5671 million), since arrears on credits were taken into consideration; the rescheduling was for 20 years, with 3 years of grace.

  • January 1992, a London Club of the ‘Brady’ variety. The amount involved was US$ 5436 million, accompanied by a 30-year suspension of obligations (conversion bonds for debt exchange). The creditors could equally opt for a buyback formula accompanied by a 60 per cent discount. Indeed, 62 per cent of them did just that.

10Meanwhile, those who possessed promissory notes had to agree to a rescheduling of US$4.8 billion.

11The burden of external debt has remained generally heavy, and since 1985 – from General Babangida’s regime to the current one of General Abacha – the Nigerian authorities have formed the habit of fixing the maximum amount that would go into debt servicing at the beginning of the year. This has amounted only to an average of 20-30 per cent of the country’s export earnings.

Largest external debt in sub-Saharan Africa

12Nigeria now has the largest external debt stock in the whole of sub-Saharan Africa, comprising 15 per cent of the total debt of that region. Following Nigeria, with remarkably lesser debt figures are Cote d’Ivoire, Sudan, Zaire and Angola. It must be stressed that between them, these five countries represent close to half of the total sub-Saharan debt stock.

13Two reasons are given for this situation: first is the accumulation of payment arrears on debt servicing and the capitalization of interest; and then there is the contribution of new direct foreign investment (essentially in the petroleum sector). Nigeria was practically the only country in the sub-continent to witness this type of flow between 1990 and 1994: US$ 1.3 billion in 1993 out of a total of US$ 1.8 billion for the whole of the region and US$ 2 billion in 1994 out of a total of US$ 3 billion. The policy which Nigeria practices (giving back to petroleum companies part of their gains) has played a significant role in swelling this debt.

14The enormity of Nigeria’s external debt burden complicates negotiations with the country’s creditors. As far as the latter are concerned, cancelling even a part of Nigeria’s debt represents an important sacrifice and a dangerous precedence. Going by GNP per head indices, Nigeria has been in the category of the poorest and most indebted countries in the past 8 years. This should have enabled the country to obtain favourable consideration for her debts (the Toronto conditions and eventually those of Naples with regard to the Paris Club). The fact that Nigeria is a major producer of petroleum has, however, always been put forward by her creditors as a reason for not giving Nigeria such favourable concessions as granted to other heavily indebted African countries. The case of Algeria, another heavily indebted petroleum producing country is similar to that of Nigeria.

The Structure of Nigeria’s External Debt

Debt on the basis of size of loans

15Essentially private (commercial and banking) at the onset, Nigeria’s external debt progressively metamorphosed into a public debt owed mainly to official creditors: multilateral organizations and Western governments. Table 1 illustrates the increase in payment arrears. The principal reduction accorded Nigeria was between 1991 and 1992. It corresponded to the application of a Brady plan on the bank loans of the London Club. The debt owed to the creditors of the Paris Club, however, became the first preoccupation of the Nigerian authorities.

16A complementary analysis shows that Nigeria’s outstanding external debt is drawn up in the following foreign currencies:

17Dollars above 44 %

18Deutsche mark above 15 %

19Yen above 8 %

20Pound sterling above 11 %

21French francs above 11 %

22Various other foreign currencies form the balance.

23The depreciation of the dollar (the currency in which Nigeria’s petroleum exports are drawn up) has the additional disadvantage of automatically increasing Nigeria’s external debt by more than 50 per cent.

The importance of creditors in the Paris Club

24Accordsing to figures drawn from Nigeria’s budget in 1996, the debt owed to member states of the Paris Club amounted to US$ 21, 670 million on 31 December 1995. The is comprised of an initial debt of US$ 11, 379 million and almost the same figure in arrears, US$ 10,291 million. This category of debt represents 66.5 per cent of Nigeria’s external debt.

Table 1. Nigeria’s debts by category of credit (US$m)

Table 1. Nigeria’s debts by category of credit (US$m)

Source: World Bank (World Debt Tables) and NSE for figures for Nigeria.

25The Nigerian authorities also released a detailed table on the composition of debts owed to the Paris Club (table 2).

Table 2. Nigeria’s debts owed to the Paris Club (US$m)

Table 2. Nigeria’s debts owed to the Paris Club (US$m)

26Even though the secretariat of the Paris Club jealously guards the figures of loans owed by each of its members, we can infer from other reliable sources that the loans can be broken down as follows:

27United Kingdom 24 %
Germany 20 %
France 15 %
Japan 13 %
Italy 8.5 %
Holland 6 %
United States 3.7 %

28The above figures show clearly that Nigeria’s biggest creditors in the Paris Club are, in fact, member countries of the European Union. At present, the Nigerian government is trying to mount diplomatic pressure on them in order to obtain a concessional rescheduling of her bilateral debt. Among the strategies adopted is the recent decision by the government to undertake an in-depth appraisal of projects financed with loans from member countries of the Paris Club. Nigeria’s Minister of Finance claimed that the first report submitted to him showed that most of the projects financed this way have either been executed or partially executed, but the executed ones are not operational. These projects are:

  • • Ajaokuta Steel Mill

  • Kastina Steel Mill

  • Jos Steel Company

  • Delta Steel Company

  • Iwopin Paper Mill

  • Adiyan Water Project

  • National Identity Project

29Even if it is obvious that successive Nigerian leaders have contributed to the distress of these different projects over the years, this type of argument can play a certain political role. Conversely, it is noteworthy that the World Bank recently did an appraisal of all the projects it financed in Nigeria in order to verify that funds loaned to the country were judiciously used.

Debt servicing

30Despite the rescheduling agreements that have been reached, the sum of Nigeria’s debt service payments still oscillates between US$ 5 and US$ 6 billion as can be seen from the indices taken from the World Debt Tables of the World Bank (table 3).

31However, the character of this servicing has been highly modified in the past few years. On a general note, the Nigerian authorities only partially meet their external obligations. Nigerian sources estimate debt servicing for the 1996 fiscal year at US$ 5,271 million. Apparently, these sources do not take the totality of short-term loans into consideration. Their estimate in millions of dollars can be broken down as follows: Multilateral debt: 817; Paris Club: 3,761; London Club: 128; Promissory Notes: 254; Bilateral debt (unconnected with the Paris Club): 311.

Table 3. Composition of debt servicing (US$m)

Table 3. Composition of debt servicing (US$m)

Source: World Debt Tables

32As at 21 December 1995, however, the total arrears owed on debt servicing was put at US$ 11,280 million (probably higher in reality) by the Nigerian authorities. If we add up these two figures, the virtual amount needed for debt servicing this year (1996) will be as high as US$16,551 million, a sum well beyond the means of the country.

33In reality, the Nigerian government decided to allocate only US$2 billion to external debt servicing. This is approximately the average amount given each year over the last five years. The hierarchy established among debts is such that multilateral debts are the first to be serviced (as is the case with the World Bank and the African Development Bank on a lower scale), while the creditors of the Paris Club come second. Arrears owed to the latter (US$ 10,291 million on 31 December 1995, according to Nigerian sources) can be broken down, on the basis of 1994 approximations, as follows:

34United Kingdom 32 %
Germany 21 %
France 20 %
Japan 15 %
Holland 7 %
Belgium 25 %
Switzerland 1.3 %

35It would appear that all creditors do not receive the same treatment and this complicates relations with the big European creditors who believe that they are getting the ‘short end of the stick’. To worsen matters, Japan has received considerable payments since the 1994 figures used in this classification. Whatever the case, the debt insurance agencies of the countries in question have all incurred losses and have consequently placed Nigeria on their blacklist.

36Consequently, funds from Western countries are no longer forthcoming, but Nigeria can still count on some loans from multilateral sources. This explains why the country is expecting US$ 281 million from the World Bank and US$82 million from the ADB in 1996. These sums are, however, insignificant for a country of Nigeria’s standing. In 1995, the country was only able to rake in US$ 258 million from all its foreign sources.

Arrears owed foreign oil companies

37In order to preserve the autonomy of its oil policy, Nigeria did not sign agreements on production sharing with the foreign oil companies operating on her territory (except the recent granting of exploration rights in the deep seas). She only established joint venture agreements in which the national company, the Nigerian National Petroleum Corporation (NNPC) holds majority shares (between 55 % and 60 %). Consequently the NNPC is obliged to participate in the investment expenses of the joint ventures established with six major operators: Shell, Mobil, Chevron, ELF, Agip and Texaco.

38In reality, Nigeria finds it increasingly difficult to meet its obligations. At the end of 1994, the delayed payments of the NNPC to foreign companies reached US$1 billion. These companies consequently cut down on their investments: US$1 billion for Shell in 12 months against US$2 billion in a normal year. Petroleum operators would, however, prefer to increase their investments in exploration and production from a distance, demanding logically that their joint-venture capital be increased in return. The Nigerian government is opposed to this. It only agreed, a few years ago, to reduce NNPC’s shares in Shell Petroleum Development Company (SPDC) from 60 per cent to 55 per cent, Shell being the most important of the joint ventures. In all cases, the government refuses to give up its majority position.

39In 1995, the Nigerian government succeeded in reducing its outstanding debts to oil companies. At the end of 1995, these debts stood at US$ 200 million (N11 billion). In a parallel development, the NNPC was unable to finance as many investments as it had envisaged. Indeed, the SPDC, which had planned to spend US$1.5 billion in 1995, cut back its investment to just above US$1.2 billion.

40That same year, almost all the arrears owed by the NNPC were paid to petroleum companies at the end of the first quarter. However, in order to avoid a new wave of delayed payments, the NNPC announced its intention to reduce by 30 per cent its budget on joint ventures with the companies. Two billion US dollars was supposed to have been paid initially to its partners for the year 1996. According to the Lagos-based French Bureau of Economic Expansion, the management staff of foreign companies were much irked by this decision which compels them to undertake a disastrous reduction in their investments in exploration and exploitation, a situation that does not augur well for the maintenance of the current level of petroleum production in Nigeria.

41Indeed, the major companies would have preferred that investments reach US$4 billion in 1996, including NNPC’s increase from 55 per cent to 60 per cent. Their aim, which is also the aim of the Nigerian government, is indeed to raise the production of crude oil above 2.5 million barrels per day by the year 2000; and reserves to about 21.25 billion barrels. To achieve this, development and operation, investment ought to attain a minimum of US$8.3 billion in 4 years, from 1996 to 1999. To this end, the investments of each company from now till the year 2000 were programmed as follows: US$ 5 billion for Shell, US$ 2 billion for Mobil, US$ 1.85 billion for Elf and US$ 435 billion for Texaco. All these figures had to be reduced and it is uncertain whether Nigeria will be able to maintain her current level of production which stands at 2 million barrels per day.

42In the industrial sector, the NNPC is also accumulating payment arrears on two of its main projects: the new Port Harcourt refinery and the petrochemical plant at Eleme. By 31 December 1995, these arrears stood at US$ 366 million and debt servicing in 1996 on these two projects was estimated at above US$ 319 million, bringing the total debt to US$ 685 million.

43It is doubtful whether the NNPC will be able to meet its obligations with regard to the new Liquefied Natural Gas project at Bonny. The first phase of the project was" launched at the end of 1995, after numerous political and financial hurdles had been crossed. The body put in place to see to the successful execution of the project links Shell (25.6 % of the capital), Elf (15 %), and Agip (10.4 %) to the NNPC (49 %), which agreed not to insist on holding the majority of the capital, to reassure the bankers and its partners. A initial instalment of about US$2 billion was drawn from a deposit account to allow for the take-off of the project. However, it will be necessary to source the same amount to complete the project. It is not certain that the NNPC will be able to live up to its financial obligations in the next phase of the negotiations.

Debt Conversion Programme

44The debt conversion programme (DCP) was initiated in 1988 to convert Nigeria’s loans to investments or grants. The procedure is in three successive stages:

  • The purchase of a debt instrument in the secondary capital market – either promissory notes or bonds (obligations announced during the treatment of bank debts through the Brady approach) or restructured loans, or public loans treated at the last Paris Club.

  • The presentation of an investment programme (in existing companies or companies to be created) to the monetary authorities of the country.

  • Participation in an auction; the higher the debt conversion rights offered, the more the chances of converting one’s loans to naira.

45The investment operations under the Debt Conversion Programme by mid-1996 are presented in table 4.

Table 4. Investments under the Debt Conversion Programme

Table 4. Investments under the Debt Conversion Programme

Source: Bulletin d’Information Economiques et Commerciales, French Embassy, Economic Expansion Section, 1st July 1996.

Attitude of the Nigerian Authorities to the Debt

46Chief Michael Ani, who has been the Finance Minister for over two years, has not succeeded in defining a coherent strategy for negotiating the terms of Nigeria’s external debts despite repeated declarations. Since every negotiation with the IMF with respect to debt rescheduling has stalled, Nigeria risks remaining in its present debt trap, which has worsened and hindered external funding.

47In May and June 1996, the external affairs ministry sent two delegations to several countries to iron out debt figures with creditors but mostly to maintain contact with them. The first delegation went to Switzerland, Holland, Austria and Japan. The second went to London (ECGD), Hamburg (Hermes), Rome (SACE) and Paris (COFACE). To our knowledge, these moves were never conclusive. In many countries (especially Germany and Holland), the Nigerian delegation was not well received and in the others, a wait and see policy was adopted. It is well known that an agreement with the IMF is impossible owing to America’s opposition to such an accord especially in this transition period.

48Everybody is equally aware, in Nigeria, in the IMF or in Western capitals, that with such a colossal debt servicing, this country can only escape the debt trap through substantial debt cancellation. At the political and psychological levels, however, the attitude of the Nigerian authorities has not encouraged a solution based on reconciliation. On the question of debt, the present government, like its predecessors can only rely on the support of a good faction of the civilian society, which cherishes the notion of independence and national sovereignty. Thus, a well known Nigerian lawyer, Richard Akinjide, former chief justice of the federation and a one time judge of the International Court in the Hague, wrote in the weekly Newswatch at the beginning of 1996 that:

The efforts undertaken by the Bretton Woods institutions to justify their policy towards developing countries have failed. The arrogance with which these failed policies were defended constitute an insult to us and shows the level of their contempt ... The tragedy is that many countries in sub-Saharan Africa are yet to be free. Most of the countries depend on international aid like Ghana which is economically dependent. A dependent economy is an economy in chains and can only serve donors.

49Commenting on the Nigerian debt burden Akinjide remarked that:

Nigeria paid more than ten billion dollars on capital borrowing and interest, each payment lost in an ocean of recycled and rescheduled interests ...

50It is clear that the handling of Nigeria’s debt, especially in the Paris Club, leaves much to be desired. It is regrettable that creditor governments did not adopt the earlier British proposal to apply the Toronto terms to a Nigerian rescheduling. In fact, this question of rescheduling has tended to be ignored particularly now that it has become politically injudicious to support the Nigerian military junta.

List of illustrations

Title Table 1. Nigeria’s debts by category of credit (US$m)
Caption Source: World Bank (World Debt Tables) and NSE for figures for Nigeria.
File image/jpeg, 500k
Title Table 2. Nigeria’s debts owed to the Paris Club (US$m)
File image/jpeg, 196k
Title Table 3. Composition of debt servicing (US$m)
Caption Source: World Debt Tables
File image/jpeg, 372k
Title Table 4. Investments under the Debt Conversion Programme
Caption Source: Bulletin d’Information Economiques et Commerciales, French Embassy, Economic Expansion Section, 1st July 1996.
File image/jpeg, 266k


Pius Adesanmi (Translator)

© Institut français de recherche en Afrique, 2001

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