Share this:

Like this:

Like Loading...
" />
Published On: Fri, Aug 7th, 2020

Chinese loans and their benefits to Nigeria

Share This
Tags

GUEST Column by Lawal Sale Maida

From the outset, I wish to state that I am neither an economist by training nor am I party to the loan deals between Nigeria and China, but the hoopla the issue has generated triggered my interest in the subject sufficient enough to warrant this piece as a social commentator cum analyst on global affairs. The concept of Loan, according to Investopedia – “is when money is given to another party in exchange for repayment of the loan principal amount plus interest”. It further elucidates that “Loan terms are agreed to by each party before any money is advanced. A loan may be secured by collateral such as a credit card”. There is no doubt that with the above exegesis the term “loan” is addressed.
We should understand that a loan is different from a grant or gift. Before you are granted a loan, you must agree to the terms and conditions attached to it. Take for example a local bank loan; before bank ABC grants you a loan you must produce a guarantor or present collateral before the loan documents are signed by the parties and disbursement made. In the event that the party taking the loan defaults in servicing the loan, the bank reserves the right, based on the terms and conditions governing the to recover its money.
So also loans secured multilaterally, bilaterally or commercially to build infrastructure such as rail lines, roads, airports, dams and ports – these loans too are backed by collateral, meaning that debt repayments are secured by revenues generated from those infrastructures. You don’t take a loan to build a palace for a king or use it for parties.
All over the world, loans are given or taken based on specific terms with different terms and conditions of repayment. Thus, whilst some may be stringent, others are deemed flexible. The world’s well known and biggest lenders are the Bretton Woods institutions, the IMF and the World Bank, the Paris Club and of course lately the Chinese. Over the years, Nigeria had been known to secure different types of loans from these lenders, albeit of recent Chinese loans, especially tied to infrastructure, have become more attractive to Nigeria due to their low interest rates, flexibility and availability.
Thus, as at 31 March, 2020, the Debt Management Office of Nigeria has put Nigeria’s total indebtedness to China at $3.121 billion, representing only about 3.94% of Nigeria’s total public debt. Similarly, when considered in a basket of all external sources of funds, loans from China accounted for just 11.28% of the external debt stock. This represents a clear indication that whilst Chinese loans have lately been very attractive, China is not yet a major lender to the Nigerian government. It is, therefore, jejune that many Nigerians still believe that taking Chinese loans equates with ceding Nigeria’s sovereignty even after the public clarifications by the Minister of Transportation, Rotimi Amaechi, on Clause 8(1) in the agreement earlier signed between the Federal government and China EXIM Bank.
In a recent interview he granted the media, Amaechi reiterated that “waiving sovereignty” in that clause did not mean Nigeria is given up its sovereignty but is only a contract term, a sovereign guarantee that assures payback. He further clarified that “there is no contract without an agreement and that the agreement must contain some terms and one of the terms that this one contains is not that you’re signing away the sovereignty of the country”. No country will sign away its sovereignty, what you do is give a sovereign guarantee on payment, he added.
Therefore, the notion that Nigeria may end up like Sri Lanka or Zambia is totally wrong; this is because when Sri Lanka was unable to service its $1.3bn debt to China for the development of its Hambantota port, China did not take over the sovereignty of Sri Lanka or its critical assets, instead it entered into another deal that will benefit the two parties whereby the port was leased to China for 99-years with a pledge to shave off Sri Lanka’s debt to the tune of $1.1bn. This way, the Chinese will recoup their money as well as continue with their investments. In the end, the matter became a win-win partnership.
Nigerians need to correct the current misconceptions regarding the loans and its terms as government keep assuring the public, who have the right to know and understand the deal, that there was nothing underhand in the process. Data from the DMO showed that in ten years (2010 – 2020) Nigeria secured about 11 loan facilities from China state-owned EXIM Bank. It is important to note that most of these loans are tied to projects and in many cases the projects are the collateral.
Some of the finished and on-going Chinese funded projects are: the popular Abuja-Kaduna standard gauge rail line, Abuja light rail system, Four Nigerian airport terminal expansion (Abuja, Port-Harcourt, Kano and Lagos), National Public Security Communication System, Zungeru Hydroelectric Dam, Lagos-Ibadan standard gauge rail line, Upgrading of Abuja-Keffi-Makurdi road, ICT Infrastructure Backbone, Abuja water supply project, among others.
It is my considered opinion that If the nation has a standard debt repayment plan, then why the fear? All that is needed is transparency and accountability in managing the loans and by extension, ensuring the sustainability of the infrastructures that were built from the loan proceeds.
There is no gainsaying the fact that the nation is in dire need of infrastructure as underscored by a recent Mckinsey study on Nigeria’s infrastructure requirement gap which it said would require investments of well over $31 billion over a 10-year period to bridge. Given the huge amount required and the limited resources available to government, surely it is a welcome development that as the second largest economy in the world, China has deployed its financial muscle to come to the rescue of a friendly nation like Nigeria by assisting it in developing infrastructure to ease the livelihoods of its teeming population.
Unless there is investment in infrastructure now as vigorously pursued by the Federal Government with funding from the Chinese, Nigeria and indeed its citizens will continue to wallow in poverty and backwardness as these projects were not personal, but were initiated to benefit all and sundry. The trickle effect of the infrastructures will certainly benefit Nigerians in terms of employment generation, security and wealth creation.
Within the four years 2015 -2019, with funding largely from the Chinese financial institutions, the Federal Government of Nigeria had undertaken several infrastructure reforms be it in power, the ports, railways, roads and telecommunications with significant progress, though a lot still has to be done to achieve our pressing economic targets, especially when viewed against the backdrop of our burgeoning demographics of over 400 million people by 2050 and the need to continue to enhance our competitiveness in terms of ease of doing business.
It will be recalled that Nigeria was among the over 40 African countries that have signed the memorandum of understanding in Beijing in furtherance of the Belt and Road (BRI) partnership. Belt and Road Initiative is Chinese President Xi Jinping’s proposal to build a Silk Road Economic Belt and 21st Century Maritime Silk Road in cooperation with related countries. It was unveiled President Xi during his visit to Southern Asia in 2013.
BRI focuses promoting policy coordination, connectivity of infrastructure and facilitating unimpeded trade and closer people-to-people ties through a consultative process and joint efforts with the goal of bringing benefits to all. Nigeria has since started witnessing the benefits of the BRI through the many infrastructure built across the country.
Meanwhile recently in Beijing, the Spokesperson of the Chinese Ministry of Foreign Affairs expressed optimism on Chinese loans to Africa. In his remarks at the question and answer session, he said China is committed to enhancing investment and financial cooperation with African countries based on their needs to help them improve infrastructure so as to boost socio economic development.
By funding infrastructure and other areas that lag behind for short of funding, China has helped many African countries break bottlenecks, enhance their capacity for independent development, realize social and economic sustainable development, and improve people’s livelihood.
He further stated that such cooperation had delivered tangible benefits to African countries and peoples. In the process, China always gives full consideration to debt sustainability and seeks mutually acceptable proposals through equal and friendly consultations. This remains the sine qua non of the enormous popularity of China-Africa cooperation.
– Lawal Sale Maida is an Abuja based Global Affairs Analyst. (lawalmaida1@yahoo.com)

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

%d bloggers like this: