Nigeria is Africa's first nation to clear debt to the West

Nigeria became the first African country to be free of its debt to the Paris Club of rich nations, following the transfer yesterday of $4.5bn (£2.5bn) under a debt-relief deal that should clear the way for billions to be spent on reducing poverty.

The landmark step is a sign of hope for Nigeria where 60 per cent of the people live in poverty despitethe country's oil wealth.

Olusegun Obasanjo, the President, persuaded the country's creditors in June to cancel $18bn of the total $30bn owed after arguing that the huge debt repayments owed from the military dictatorships of the past were handicapping his attempts to improve the infrastructure, education and health care.

Nigeria, Africa's most populous country, has not received any fresh loans since 1992. As a result, Nigerians have been paying out in debt repayments nearly six times the amount they receive in aid.

Because of its oil wealth, Nigeria was excluded from last year's deal to write off the debts of 19 of Africa's poorest countries. But Gordon Brown, the Chancellor of the Exchequer, strongly backed the debt deal agreed in June with the Paris Club, a group of 19 industrialised countries, under which Nigeria agreed to pay back $12.4bn. Yesterday's final payment was facilitated by the recent surge in oil prices.

Britain is Nigeria's biggest creditor and made debt relief and aid to Africa the centrepiece of its G8 presidency last year. Following yesterday's transfer, Nigeria will still owe about $5bn to other lenders, including the World Bank and the private sector, but the President said he intended to press on with reform to rid the country of debt.

Mr Obasanjo still faces a challenge in dealing with social and ethnic tensions in Nigeria.

He may also come up against difficulties in attracting foreign investment with a growing revolt in the oil-rich Niger Delta region, where rebels have been attacking oil facilities and kidnapping foreigners.

"The debt relief deal is certainly useful as part of a wider package, but I don't think it will persuade investors to rush in," said Alex Vines of Britain's Royal Institute for International Affairs. "Abductions of foreign nationals, violence, riots, issues of corruption, all of this makes business timid."

Mr Obasanjo has not yet said whether he would run for a third term in office in May next year, which would require a change in the constitution. But there is strong opposition in Nigeria to the move on the ground that it could create a civilian dictatorship in a country which spent more than a decade under military rule.

But the President's supporters are campaigning for constitutional change, saying that he should remain in office to lead reform. When he took office, Mr Obasanjo pledged to crack down on the corruption that has blighted Nigeria's development for many years, but only began tackling it seriously in the past year.

He acknowledged that "Doubting Thomases" had seen his debt relief campaign as an exercise in futility, saying that rather than being deterred, "it made us face the challenge".