In traditional economic management nations build up foreign reserves to back up their currency. In the early stages of macro economic management gold was used as a standard to back up national currency. All that has gone. It is now how much reserve you have. Nigeria has been building up its external reserves and it has grown to some level that is comfortably above the global bench mark of at least supporting three months of import. But the critical issue is that the amount of foreign reserve is left in the hands of foreign banks and institutional investors to manage on behalf of the country with very minimal benefit.
The rational question is can this external reserve be used for the development of infrastructure to fast track the nation’s developmental efforts. Nigeria has been talking of public private partnership for years without any serious engagement with foreign investors who have the financial capacity to undertake massive infrastructural development in the country. What Nigeria needed to do is to assure these institutions of the safety of their investment and the sanctity of the contract they will enter into with the government.
The government if it has the will power to engage the private sector in infrastructural development only need to pledge a portion of the nation’s foreign reserve as a form of indemnity or bank guarantee. This will give such foreign institutional investors assurance of the seriousness the government attaches to the development of infrastructure in the country. It does not require a rock science to fix the nation’s power, roads, rail and others if the government transformation agenda is properly packaged and sold to foreign investors. Pledging a portion of the reserve is just a form of performance bond that the government will keep to the term of the contract it will enter into with such investors. Once government is faithful and committed to such contracts, the reserves remain Nigerias’.
Dr. Olusegun Aganga knows as an economist and investment banker that no matter how eloquent he is, no matter the number of countries he travels to with his investment sermons in order to sell Nigeria to foreign investors, the question he would always answer is how credible the government’s public private partnership policy in Nigeria is. He would always be told that Nigeria does not respect private property rights.
Fortunately, African Development Bank is proposing to raise funds from among Africa central banks foreign reserves kept abroad to finance infrastructure. The funds which will come in form of a bond will be issued to central banks in exchange for 5 per cent of their foreign reserves. President of African Development Bank, Donald Kaberuka, said that the funds would be invested in viable infrastructure projects, offering member states good returns on their investment, adding that the proposal would be put to members in Tokyo during the IMF meeting in October.
According to those close to the planning, it will be Africa’s first infrastructure bond to member nations to raise up to $22 billion for investments in projects such as ports and airports. The AFDB president will not mute the idea if it is not feasible. If Nigeria were not an import dependent country, she would have had a reserve close to a trillion dollars. Even as it is now the nation still boasts of $35 billion. This money is the amount the nation has surrendered to the Central Bank in exchange for naira. The amount is there only for those who want to buy goods in future from abroad. Other than that, the money is invested in western banks.
Nigeria as a country needs to mobilise huge amount of money to fund construction of roads, rails and energy generation projects. This can easily be done through the use of part of this reserve as guarantee to would be foreign investors to attract them into the critical area of the economy. African central banks have generally invested their foreign exchange reserves in northern hemisphere markets where they earn nothing or very little return. The AFDB plan funds raising would surpass by $3 billion the $19 billion that both the Tunis-based AFDB and the World Bank commit to sub-Saharan Africa every year.
The time has come for Nigeria to tap into the surpluses of emerging countries. That is where the money is. But charity begins at home. So, tap into our own resources. Central Bank of Nigeria must apply creative reasoning to use the nation’s foreign reserve to fast- track infrastructural development.