Experts warn Nigeria against Chinese debt trap diplomacy

Experts have warned Nigeria against falling into the debt trap of China as is being experienced by some Africans countries.

With more than three quarters of its total debts owed to China, Zambia is already on the verge of losing its second important national asset to China in view of its inability to service the loans.

According to the respected Africa Confidential magazine, talks have commenced for a Chinese company to takeover Zambia’s power utility, ZESCO.

And Nigeria, with increasing dependent on loans as fall back position in view of dwindling oil revenue and lack of economic expansion to meet large infrastructure gap is also being continuously lured into the trap. By the end of December 2017, Debt Management Office (DMO) disclosed that Nigeria had total indebtedness of $3.22 billion to China. Since then, however, more loans have been negotiated and were being drawn. A significant loan currently under negotiation is the $3.5 billion Mambilla Hydro Electricity Power loan.

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During the China-Africa Summit last week, another agreement of over $300 million was also signed for an ICT project.

A former banker, economist and Strategist, Dr. Obadiah Mailafia while speaking with Saturday Tribune in Abuja on Friday warned government against falling into the temptation of obtaining all manner of frivolous loans just because they appear cheap. He mentioned the $1.5 billion IBRD loan which Nigeria took from in order to rebuild the North East parts of the country ravaged by Boko Haram insurgency.

According to Mailafia, Chief Obafemi Awolowo, as Federal Commissioner for Finance during and immediately after the civil war, was able to prosecute the full scale war and the following reconstruction work without borrowing a penny in the process.

In a report titled ‘Bonds, bills and ever bigger debts’ published in its September 3 edition, Africa confidential observed that Zambia National Broadcasting Corporation (ZNBC) was already being run by the Chinese and disclosed that Zesco was also already in talks about a takeover by a Chinese company.

Through its now famous Belt and Road Initiative (BRI), an infrastructure financing plan for a 68 countries cutting across Africa, Europe, Asia and America, China also plans to bolster its key economic, foreign policy, and security objectives and rival the United States in international Diplomacy. As envisioned, BRI has a proposed investment outlay of up to $8 trillion for a vast network of transportation, energy, and telecommunications infrastructure linking the continents across the continents

At least eight countries have been identified as already fallen into the debt trap. Although Djibouti lies more than 2,500 miles from Sri Lanka, the East African country faces a predicament similar to what its peer across the sea confronted last year: It has borrowed more money from China than it can pay back.

In both countries, the money went to infrastructure projects under the aegis of China BRI. Sri Lanka racked up more than $8 billion worth of debt to Chinese sovereign-backed banks at interest rates as high as 7 percent, reaching a level too high to service. With nearly all its revenue going toward debt repayment, last year Sri Lanka resorted to signing over a 70 percent stake and a 99-year lease to the new Chinese-built port at Hambantota.

Djibouti is projected to take on public debt worth around 88 percent of the country’s overall $1.72 billion GDP, with China owning the lion’s share of it, according to a report published in March by the Center for Global Development. The country may face the possibility of handing over some key assets to China.

The former Deputy Governor of Central bank of Nigeria (CBN) said government should borrow externally only for projects with guaranteed return on investment that will be able to defray such loans. He cautioned especially against Chinese loans because the country will come with the loan while also bringing needed equipment and staff and as such are not likely to create jobs for Nigerians.

Also, Mr. Odilim Enwegbara, a development economist and Chairman/CEO Pan Africa Development Corporate Company Ltd. Advocated for the creation of Centre for Chinese Strategic Studies as a way of understanding the way that Chinese conduct business.

Enwegbara contended that as a country that has existed for 5000 years the Chinese are smart negotiators with a large proportion of nationalists.  “The Chinese are smart. They came with the notion of introducing projects with counterpart funding but in fact, what you bring as counterpart funding is already enough to complete the project.

“They inflate the project by as much as 1000 percent and know how to bribe government officials. They take government officials to China, give them wonderful treatment and make them look important whereas all they are doing is seek how to bribe the officials.

“Don’t also forget that in China, external corruption is condoned unlike the West where there are sanctions against their companies operating with opaqueness either in their countries or oversees”, he stated.

There are present concerns that cheap Chinese loans have the tendency to create a new wave of debt problems and an unfavorable degree of dependency on China as a creditor. Increasing debt, and China’s role in managing bilateral debt problems, has already exacerbated internal and bilateral tensions in some BRI countries, such as Sri Lanka, where citizens have regularly clashed with police over a new industrial zone surrounding Hambantota port,3 and Pakistan, where Chinese officials openly appealed to opposition politicians to embrace the construction of the China-Pakistan Economic Corridor (CPEC), BRI’s “flagship project” to bolster ties between Beijing and Islamabad.

Malaysia recently canceled Chinese-financed projects worth more than $20 billion, saying they were unnecessary and would create an unsustainable debt burden.

Also, deeply indebted Pakistan is also reportedly reconsidering some projects in the multi-billion-dollar China-Pakistan Economic Corridor that is a key link in the BRI.

Three months after coming to power, Mahathir Mohamad, Malaysia’s 93-year-old new prime minister, travelled to Beijing to negotiate the cancellation of the contracts..

Chinese-funded projects in Malaysia were packaged as part of China’s BRI. In Beijing Dr Mahathir said that Malaysia was cancelling the $20bn East Coast Rail Link, a massive belt-and-road project, as well as two oil pipelines in Sabah province because their costs were inflated and that  the deals were skewed in China’s favour.

Mahathir has also targeted a large, Chinese-led housing scheme in Johor state intended for wealthy investors in China. He has declared that foreigners would not be given visas to live there, complaining that most Malaysians could not afford to live in the new development.

Pakistan, which with yet a new prime minister, Imran Khan, is by far the biggest debtor to China. The China-Pakistan Economic Corridor, a collection of energy and infrastructure projects supposedly worth $60bn, is the biggest plank of China’s belt-and-road strategy.