Chinese loans and the looming danger

Ongoing House of Representatives’ investigations into the loan agreements between Nigeria and China have raised concerns about the likelihood of the country losing some of her infrastructure to the Asian country unless she keeps faith with the repayment terms. SULAIMON OLANREWAJU reports.

AN investigation by the House of Representatives Committee on Treaties and Agreements penultimate Tuesday discovered that Article 8(1) of the commercial loan agreement signed between Nigeria and the Export-Import Bank of China had waived the sovereignty of Nigeria in the $400 million loan for the Nigeria National Information and Communication Technology (ICT) Infrastructure Backbone Phase II Project, signed in 2018.

The article states thus: “The Borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets.”

Although Transportation Minister, Rotimi Amaechi, tried to justify the inclusion of the clause, the investigation has brought in graphic relief the danger inherent in the Chinese loans.

The current administration has not hidden its plan to improve the nation’s infrastructure, which it believes will result in job creation and economic revitalisation, and has resorted to taking foreign loans to actualise this due to the dire financial strait in which it has found itself. Already, the Kaduna-Abuja rail project has been completed, new terminals have been built at the Nnamdi Azikwe International Airport, Abuja and Port Harcourt International Airport, the Lagos-Ibadan rail project is nearing completion, and many other infrastructure interventions are ongoing in different parts of the country.

However, the nation’s rising debt profile has been a source of worry to many Nigerians who are concerned about the nation’s propensity for amassing debts because the country owes so much that in the first quarter of the current year, as much as 99 per cent of the nation’s revenue went into debt servicing. Although the government has insisted that the country’s debt stock figure, which is about 23 per cent of the Gross Domestic Product (GDP), is sustainable, not many Nigerians are convinced because of the country’s low level of productivity.

Not too long ago, the Deputy Secretary-General of the United Nations, Mrs. Amina Mohammed, condemned the country’s seeming uncontrollable appetite for foreign debts. Mrs Mohammed, who served as Minister of Environment in the current administration before bagging the UN job, said Nigeria was steadily returning to its unwholesome past of heavy debt overhang, lamenting that while former Finance Minister, Ngozi Okonjo-Iweala, freed the country from a huge debt burden, the current leaders are accumulating debts. Similarly, Professor Kingsley Moghalu, a former Deputy Governor of the Central Bank of Nigeria (CBN), said that piling up debts by the country would only end in a sorry tale as history had revealed that reliance on foreign loans had not contributed to the growth of the nation’s economy.

Many Nigerians are particularly worried about the country’s rising indebtedness to China. Although some of the borrowings from the Asian country are done through the China Export-Import (Exim) Bank, which offers concessionary loans at low-interest rates and with long maturity periods, the concerns of Nigerians are rooted in the fact that unlike Western creditors and Multilateral Development Banks (MDBs), China does not grant debt relief when a debtor nation fails to meet the repayment terms. So, they are worried that Nigeria may lose some of her valuable assets to China as a result of payment default. Many experts have even referred to President Xi Jinping’s Belt and Road Initiative as a debt trap for vulnerable countries.

The International Monetary Fund (IMF) confirmed the fears of many Nigerians recently when it counseled Nigeria and other developing countries to be cautious of loans from China as a result of the unfavourable loan terms.

While acknowledging that capital flows, including those from China are critical for development, IMF, through its Financial Counsellor and Director of the IMF’s Monetary and Capital Markets Department, Mr Tobias Adrian, advised countries to take loans that conform to Paris Club arrangements, adding “that is not always the case of loans from China.”

The Debt Management Office (DMO), in its reaction to the IMF counsel, said the Federal Government opted to borrow from China so as to diversify the sources of its borrowed funds and in order to take advantage of a cheaper source of finance.

Also in its explanation for the Chinese debts, DMO said in a statement issued in June that the total borrowing by Nigeria from China was $3.121 billion as of March 31, 2020. This, according to the agency, accounts for 3.94 per cent of the country’s total public debt of $79.303billion at the end of the first quarter.

The DMO also explained that the loans were concessionary, with generous low-interest terms, adding that there was no serious cause for concern with regards to the Chinese loans. According to the debt management agency, the loans were taken on interest rates of 2.50 per cent per annum with a tenor of 20 years and moratorium of seven years.

It added, “These terms are compliant with the provisions of Section 41 (1a) of the Fiscal Responsibility Act, 2007. In addition, the low interest rate reduces the Interest Cost to Government, while the long tenor enables the repayment of the principal sum of the loans over many years.

“These two benefits make the provisions for debt service in the Annual Budget lower than they would otherwise have been if the loans were on commercial terms,” it said.

 

DMO also stated that the $3.121billion loans were project-tied.

“They included Nigerian Railway Modernization Project (Idu-Kaduna section), Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project 2 (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernization Project (Lagos-Ibadan section) and Rehabilitation and Upgrading of Abuja – Keffi- Makurdi Road Project,’’ the statement added.

It added that the procedure for obtaining the loans met laid down criteria and was fully transparent.

To assuage the fears of those who think the Chinese authorities might take over the country’s infrastructure in case of default, Amaechi, during a television interview, said, “Nigeria is already paying… So, it’s not that Nigeria doesn’t have the capacity to pay back. We’ll pay back. At 2.8 per cent, what other country would give you that loan? 2.8 per cent for 20 years with 7 years moratorium, why can’t you pay back? The repayment plan is not done by us, it’s done by the ministry of finance, but they are meeting the requirements. At any point in time that we need to pay, we pay.”

However, the minister, while addressing journalists at the valedictory press briefing to mark the end of President Muhammadu Buhari’s first term in office last year had said that despite his directive to the management of the Nigeria Railway Corporation to put up a sinking fund and an escrow account for the repayment of the $500 million loan taken from the China Exim Bank in accordance with the loan terms, the organisation had yet to comply with it.

According to minister, the Chinese had insisted during negotiation for the facility that the two accounts be opened for the purpose. He said China had requested that the repayment funds should go to the sinking account on a yearly basis while those for the running of the railway be domiciled in the escrow account.

The minister had disclosed that Nigeria had yet to commence repayment of some of the loans taken from China despite the commencement of full commercial operations on the Abuja-Kaduna rail corridor and an improved revenue generation of about 400 per cent recorded by the Nigerian Railway Corporation in 2018.

So, which version of the minister’s statements should Nigerians believe?

Although since his reappointment as the minister in charge of transportation Amaechi has not said anything about the management of the accounts, ministry sources revealed to the Nigerian Tribune that the status quo has not changed.

This, really, is why many Nigerians are afraid that the Chinese loans may turn out to be a snare.

According to Honourable Ben Rollands Igbakpa, (representing Ethiope East/West Federal Constituency of Delta State), whose intervention precipitated the House’s investigations into the terms and agreements of the Chinese loans taken by the country, “One will say China is not the highest creditor of Nigeria, but the worrisome part of it is that the way the Chinese bring these loans, there appears to be some under-the-table activities. The IMF has sounded it on their website that these Chinese loans are not Paris Club-compliant. It means that if there are disputes, there is no world-accredited body that will intervene. So, for me this is the kind of loan that we consider as black market loans.”

He added, “In some parts of Africa today, the Chinese have already set up their own structure to take over some infrastructure they constructed for these countries that cannot pay: talk about Sri Lanka, Zimbabwe, Djibouti, Zambia, Namibia and Angola, even in South Africa.”

 

Chinese loans go awry

As stated by Hon Igbakpa, some countries have had to let go of their national assets to China consequent upon their failure to satisfy the repayment schedule.

 

Sri Lanka

Former Sri Lankan President, Mahinda Rajapaksa, planned to improve the operation of Hambantota Port, and sought a loan for this from China. The Chinese authorities released the funds and the project commenced. Sri Lankan government later realised it would need more money to complete the port, it turned again to China to get more money. At the end of the day, it was indebted to China to the tune of $8billion. However, the port could not attract the kind of patronage that would make repayment of the loan possible. Then China piled pressure on Sri Lanka to meet its debt obligations. When the country could not do this, it had to hand over Hambantota, its most important port as well as 15,000 acres of land around it to China to manage for 99 years to recoup its money.

 

The Zambia example

Zambia owes a third of its foreign debts to China. Chinese funds were used to retune the Kenneth Kaunda Airport, the Zambia National Broadcasting Corporation, ZESCO, the electricity company, and many others. Failure of Zambia to meet its repayment obligations to China Exim Bank has resulted in some of the assets being relinquished to the Asian country for a period of time. China has already taken over ZNBC. Apart from the editorial policy of the network, everything else is managed by Star Times owned by Chinese interests. All cash payments that have to do with ZNBC are made to Star Times. Then Star Times is also in charge of the signal and has been empowered to license local operators. That arrangement will last 25 years to allow China recover the $273million it loaned the country to achieve digital migration. Discussions are underway concerning the eventual takeover of both ZESCO and the Kenneth Kaunda Airport by Chinese companies as the country has repeatedly defaulted on loan repayment. Pushed to the wall to repay its debts to China, Zambian authorities have been diverting donor funds meant for social sector spending to debt repayment, a situation that forced the United Kingdom’s DFID to suspend funding to the Ministry of Education.

So, unless Nigeria emplaces a water-tight system that will ensure repayment of the debts when they fall due, it may find itself in a situation where it would cede some national assets to China to offset the debts.

 

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