by Alaba Olusemore
As a public policy analyst and credit specialist, I find the recent seizure of Nigeria’s presidential aircraft by a foreign contractor over a breach of contract by a sub-national government deeply concerning.
This incident serves as a stark reminder of the crucial need for the Federal Government to exercise greater diligence before agreeing to guarantee state governments’ foreign loans.
The repercussions of inadequate oversight can lead to national embarrassment and financial instability.
A Call for Rigorous Due Diligence
The Federal Government, in its role as a guarantor, must ensure the legality and viability of any project tied to a foreign loan. This involves a thorough examination of several critical factors:
Feasibility of the Projects: Before agreeing to guarantee a loan, the Federal Government should rigorously assess the project’s feasibility. This includes evaluating the project’s potential to generate sufficient revenue to repay the loan and its overall sustainability. The government must ensure that the project is not only financially viable but also aligns with the broader economic goals of the state and the nation.
Social Benefits of the Loan: The Federal Government must also weigh the social benefits of the loan against its financial implications. It is essential to determine whether the loan will contribute to the public good and improve the welfare of citizens. Projects that do not deliver tangible social benefits should be scrutinized carefully.
Capacities of the Parties to the Contract: The ability of both the state government and the contractor to fulfill their obligations must be assessed. This includes evaluating the contractor’s track record, financial stability, and technical expertise. The state government’s capacity to manage and oversee the project effectively should also be a key consideration.
Mediation Clauses: There should be provisions for the Federal Government to mediate in cases of disputes between the state government and the contractor. Such clauses can help resolve conflicts before they escalate into situations that could damage Nigeria’s reputation and lead to the seizure of national assets.
Examination of Loan Covenants: It is imperative to thoroughly examine loan covenants to ensure that neither the guarantor (the Federal Government) nor the state government is placed in an inferior position. The terms of the loan should be fair, transparent, and protective of Nigeria’s interests. Any clauses that could potentially lead to a loss of national assets or sovereignty should be renegotiated or rejected.
The Ogun State Contract: A Case for Urgent MediationuIn the particular case of the Ogun State contract, the Federal Government must act swiftly to mitigate the situation. Engaging a reputable mediator to negotiate with the foreign contractor is essential to prevent further escalation.
The seizure of Nigerian presidential aircraft is not only a national embarrassment but also a potential threat to the country’s financial and diplomatic standing. The Federal Government must take proactive steps to resolve this issue, ensuring that such incidents do not recur in the future. This situation underscores the need for comprehensive oversight and strict adherence to due diligence processes in all sovereign loan guarantees
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Conclusion
The seizure of Nigeria’s presidential aircraft is a wake-up call for the Federal Government to reassess its approach to guaranteeing state governments’ foreign loans. By implementing more stringent due diligence measures, ensuring mediation clauses in contracts, and carefully examining loan covenants, the government can protect Nigeria’s interests and prevent future national embarrassments.
As a credit specialist and public policy analyst, I strongly advise the Federal Government to take immediate action in this matter and to institute reforms that will safeguard Nigeria’s financial sovereignty in the long term.
