Nigeria And China's Debt-Trap Diplomacy (2)

In order to assess the impact of Chinese loans on the Nigerian economy, there is a need to understand the loans, why they are granted what they are supposed to do and how the loans were implemented and the conditions for repayments.

China’s sustainable finance policy is hinged on the need to promote investment in a wide range of assets including renewable energy especially railway development. Sustainable financing (loans) are debts funding for investments that draws a relationship between loans and sustainable practice that benefits the borrowers, investor and the lenders. Sustainable loans provide stable cash flow unless borrowers default on payments. Lenders too should be seen to be supporting sustainable economic activities such as the provision of services.

Western Financial Institutions are worried why China lends so much money to Africa. China’s capacity to lend money is large and between 2000-2019, China has committed over $153 billion to public sector borrowers in Africa. Chinese loans include concessional and commercial rates.

A critical phenomenon to understand is that Chinese creditors are preponderantly commercial-oriented. Sourced from the China Exim Bank, these categories of lenders can be identified. They include the Export-import Bank of China- which offers government subsidized concessional loans, the commercial lenders-China Development Bank which provides non-concessional loans and the Commercial Bank of China (CBC) which lends on commercial basis. Eighty-four (84%) of loans are given by the China Development Bank.

Under the Chinese loan regime, the resources-backed lending model persists. This model commits the future revenues to be earned from its natural resources export to pay loans secured from Chinese creditors. Whereas the resources-backed model assures the creditors of payment, it also ensures the uninterrupted completion of projects. Resources-backed loans also curb executive corruption.

The terms of Chinese loans given to Nigeria are undisclosed but what is central is that repayment is guaranteed.Ostensibly too, Chinese loans are mostly on infrastructure and other social sector like health, water, ICT, transport and energy. For China, infrastructure is king. Chinese loans have become sophisticated but they require a more elaborate safeguard for repayment. The provisions give the Chinese obvious advantages over the creditor. Chinese debt payments are never restructured.

In Nigeria, a good number of project-tied loans are concessional in nature.14Commenting on the nature of Chinese loans, the Financial Times in September, 2022 averred that “China lends to nations in economic crisis China has shelled out tens of billions of opaque “emergency loans” for at risk nations. The so called China “dept-trap” in Africa is a narrative imposed on Africa by China”.15By Sept, 2022, Nigerians bilateral debt profile from Beijing amounted to $4.09 billion, making China the largest creditor nation to Nigeria.It is on record that the Director-General of the Nigerian Association of Chamber of Commerce, industries and Agriculture reacted to Chinese loans by asserting that China loans to Nigeria may not be bad, but they have thrown up serious issues of accountability. This explains why people interrogate whether or not loans are judiciously deployed to implement the projects they are tied to. On the long run, the loans may jeopardize Nigeria’s bid for accelerated economic development.

Another significant question is the ability of government to commercialize the projects to recoup the stupendous amounts of loans.Essentially, China loans to Africa have higher interest rates as compared to other Europe money lending institution such as the World Bank. A study carried out by the United States indicates that the interest rates for China loans quadruple that of a typical loan with a repayment period of 10 years as compared to 28 years for other types of loans.One disturbing components of China loans agreement is the “confidentiality” clause, which prevents borrowers from divulging the terms of the loans. Nigerians are even forbidden for showing a loan contract exists. The implication is that it is difficult for any individual or institution to track the terms of loans.16Nigeria is the 6th most indebted African country to China.

As at 2021, there are 15 projects financed by China’s loans, totaling $7.26 billion. The projects include

• Idu-Kaduna Rail $500 million.
• Abuja Light Rail $657 million.
• ICT infrastructure $100 million.
• Zungeru-Ibadan Rail $984.32million.
• Lagos- Ibadan Rail $1.26 million.
• Greater Abuja Water $381.09million
• Nigerian Communication Satellite $200million.
• Abuja-Keffi-Maiduguri Road $460.82 million
• 40 Rice Processing Mills $325.67 million.
• 4 Airport Terminal Extension $500 million.
• Security communications system $399 million (These are Chinese loan - tied to projects in Nigeria)

Nigerians have every reason to worry about the controversies around Chinese loans. In the public domain, Chinese loans are perceived as a huge burden placed on Nigeria. There seems to be a consensus that Chinese loans to Nigeria are not sustainable. The loans have been made more complex because the loans have the “cross default” provisions that tie the various loans to one another. If the loans were easy to repay, Angola, Ethiopia, Zambia, Kenya and Congo Democratic Republic would not have defaulted.

The treatment given to defaulting nations is equally shabby. Sri-lanka is one of the first countries to default. Sri-Lanka borrowed over $1 billion from China for building her deep sea port and because it defaulted in payment, the facility was leased for 99 years to China. The Hambantota Port was constructed by a joint venture of China Harbor Engineering Company, CHEC and the Sino Hydro Corporation. The total cost of the Port was about $1.51 billion.Chinese companies own or operate terminals in 96 ports in 53 countries. This has given China enormous political power and economic leverage around the world. China has indeed spread her powers across the African continent, pushing her much coveted debt-trap diplomacy unchallenged.

to be contd.

Idumange is an expert in Sino-Nigerian Diplomacy

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