Nigeria must prioritise debt for infrastructure, not consumption

Nigeria must ensure that borrowed funds are used for infrastructure rather than consumption to achieve sustainable economic growth, Paul Alaje, an economic expert, said on Wednesday

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Mr Alaje spoke at the Business, Economy and Financial Reporting training organised by PREMIUM TIMES Academy in partnership with the Central Bank of Nigeria.

Mr Alaje, a senior economist at SPM professionals, highlighted that over the past 10 to 15 years, Nigeria’s borrowing has grown at an average of 20 per cent annually, yet GDP growth remained below 3 per cent, showing that borrowed funds have not significantly stimulated the economy.

“We must ensure that borrowing goes into capital expenditure projects that enhance production, such as roads, railways, and other critical infrastructure. Borrowing just to cover recurrent expenses does not stimulate economic growth,” he said.

He emphasised that debt servicing should not exceed one-third of government revenue, adding that current allocations often fund administrative expenses rather than projects that drive economic output.

Mr Alaje called on the National Assembly to ensure that any borrowing, at both federal and subnational levels, is directed solely to capital expenditure projects.

He noted that even within capital expenditure, administrative costs exist, but the majority of borrowed funds must be devoted to productive investments.

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“If we borrow and put it into critical infrastructure, we will see significant improvements. I have visited several states and witnessed progress, but this model has not yet been applied nationwide,” he said, urging governors to replicate development strategies seen in Lagos and Abuja, where coordinated construction activity has positively impacted economic growth.

Sectoral development

His key message during his session on the overview of Nigeria’s Economic System was the need to focus on Nigeria’s secondary sector.

He noted that the country’s economy has been heavily skewed towards trade and services, while manufacturing and industrial sectors remain underdeveloped.

“Nigeria’s economic miracle lies in the secondary sector. Until we strengthen manufacturing and industrial capacity, successive governments’ efforts will not produce sustainable growth. Countries like China and Brazil lifted millions out of poverty by focusing on industrialisation,” he said.

Mr Alaje explained that most of Nigeria’s consumption depends on imports, resulting in a weak industrial base.

“We are largely importing what we consume. To change this, we must convert agricultural outputs into finished products and encourage local production,” he said.

He recommended that regions prioritise specific production hubs to stimulate local economies.

For instance, the South-west and North-central could identify three to four focus areas for industrial development. Such targeted investments, Mr Alaje said, would generate a “positive explosion” of economic growth similar to patterns seen in China.

Election spending

With the next general election scheduled for 2027, preparations will ramp up next year, involving significant spending, particularly given politicians’ history of vote-buying.

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Mr Alaje warned that election spending, especially in foreign currency, destabilises Nigeria’s economy. He noted that large dollar inflows during elections deplete reserves and create exchange rate instability.

“The pre-election year often sees the highest economic growth, but immediately after, the economy starts to nose-dive. Politicians across all parties contribute to this instability. To address this, all election spending should be conducted in naira, and the EFCC must monitor compliance,” he said.

Indicators

Mr Alaje also highlighted other economic indicators, including GDP growth, inflation, and employment. He explained that while Nigeria’s official GDP growth might appear positive, factors such as inflation and high costs of living affect ordinary citizens differently.

“The key is to focus on metrics that reflect true economic well-being. If borrowing and investment are targeted at productive sectors, growth will be more inclusive and sustainable,” he added.

According to him, Nigeria’s future economic stability depends on disciplined borrowing, strategic infrastructure investment, regional production planning, and strengthening the secondary sector.

He warned that failure to act in these areas would perpetuate reliance on imports and constrain economic growth.

“If Nigeria can prioritise infrastructure, develop the secondary sector, and direct spending towards production rather than consumption, the country can achieve its goal of a $1 trillion economy by 2030,” he said.