Africa’s “Risk Premium” is a “Tycoon Tax”
The recent financial maneuvers by the Nigerian government, as articulated by Bright Simons, Honorary Vice President of IMANI Ghana, underscore the intricate nuances between economic decisions, external financing, and the ramifications for the continent’s wealthiest individuals, notably the shift in the title of Africa’s richest from a Nigerian to a South African magnate.
In navigating the economic challenges, Nigeria has entered into a deal with Afreximbank, securing an emergency dollar loan at an elevated interest rate of nearly 12%. Mr Simons argues that this reflects the country’s desperation to shore up its financial stability, raising questions about the efficacy of its financial management during turbulent times.
A critical point emphasized by Mr Simons is the reluctance of African governments, including Nigeria’s, to adopt stringent public financial management measures during economic downturns unless compelled by external entities such as the International Monetary Fund (IMF). This behavior, he further contends, has led to cycles of macroeconomic turbulence, eroding private wealth and contributing to the perceived “African risk premium.”
Additionally, Mr Simons argues against Nigeria’s resort to a “natural resource-backed loan” format to safeguard its USD reserve position. While oil serves as Nigeria’s primary economic weapon, the emphasis on leveraging it for loans poses challenges to domestic oil refining initiatives by the government. This raises concerns about the viability of projects like the refinery established by the former richest man in Africa – Aliko Dangote – potentially putting his fortune at further risk.
“What does Nigeria’s deal with Afreximbank to help it raise an emergency dollar loan at nearly 12% have to do with a Nigerian billionaire losing the top spot as Africa’s richest man? Quite a bit, actually.
“The unwillingness of African governments to considerably tighten public financial management during hard times unless forced to do so by an external party like the IMF has led to cycles of macroeconomic turbulence in recent years that have wiped away a lot of private wealth. Such conduct is the real source of the much lamented “African risk premium,” not groundless prejudice.
“Not surprisingly, the new “richest man in Africa”,a South African, makes and keeps a lot of his money in Europe, whereas the Nigerian who previously held the spot makes and keeps most of his money in Africa.
“Second, Nigeria is resorting to the “natural resource-backed loan” format in a desperate struggle to defend its USD reserve position. Oil is its only weapon in this fight. It will keep using it. But that also endangers efforts to refine more oil domestically. It almost guarantees that the refinery set up by the former richest man in Africa cannot operate viably for many months henceforth, putting his fortune at further risk,” Mr Simons posited.
