Last week welcomed the 51st anniversary of Nigeria and China diplomatic relations. However, such an event was dampened following recent statements by Nigeria’s Transport Minister, Rotimi Amaechi, who implied there was a significant shift in a crucial aspect of the relationship–infrastructure finance. Indeed, Amaechi declared; “we are stuck with lots of our projects because we cannot get money. The Chinese are no longer funding. So, we are now pursuing money in Europe,” after two national rail lines, costing $3.2 billion respectively and $11.2 billion and had expected to be Chinese-financed, failed to materialise.
These comments led to a flurry of reports stating that China had cut back on lending over concerns with the continent’s rising debt. Of course, this is not the first time ‘debt crisis’ hysteria has bubbled up. Throughout the pandemic, there have been persistent claims of a ‘Nigerian debt crisis’ or that Nigeria is heading for a ‘fiscal cliff’. So what truth is there behind these narratives – is Nigeria indicative of a ‘weakening’ China-Africa relationship? Is China really cutting back finance due to debt concerns? Well, these headlines are not impartial – and they miss some essential nuances. First, before we dive into narratives around lending and debt, we must begin the conversation by looking at Nigeria’s infrastructure gap. Too often the media adopts a narrow focus on debt, and consequently, ignores precisely what this debt is trying to achieve.
The fact is, despite having the biggest economy in Africa, Nigeria has persistent infrastructure gaps that must be addressed. According to the Global Infrastructure Hub, Nigeria has an investment gap of $221 billion – equivalent to 51.2 per cent of its GDP. This gap is five times larger than Ghana’s, West Africa’s second-largest economy and can be broken down into sectors with infrastructure gaps for roads standing at $84 billion, energy ($61 billion) telecoms ($47 billion) and railways ($21 billion). Such challenges are reflected in the fact that 45% of Nigeria’s population still lack access to electricity, and as we note in our Africa Debt Guide, Nigeria would need to improve road infrastructure by 79 per cent to reach Chinese levels! This brings me to my second point – the increase of debt to finance these gaps is not necessarily ‘bad’, and Nigeria’s debt-to-GNI levels most certainly do not warrant hysteria over an impending ‘debt crisis.’
Whilst Nigeria’s debt levels have risen over recent years – reaching $54.8 billion in 2019, we must contextualise these figures to account for Nigeria’s strong economic performance. This is reflected when we examine debt-to-GNI – which, in 2020 stood, at just 16.9% – far from Nigeria’s peak debt-to-GNI levels in 1993 of 120.8% caused by rising interest rates following the 1980s oil shocks. The importance of debt contextualisation was reiterated just three months ago by Finance Minister, Zainab Ahmed. To tackle infrastructure gaps, the Nigerian government has proactively secured financing from a wide range of external creditors. However, we must not overinflate China’s role. It is often assumed that China is Nigeria’s largest lender – and therefore the primary perpetrator of said ‘debt crisis’. This is simply not true. In 2021, we found that 50 per cent of Nigeria’s creditors were from multilateral sources, followed by commercial bondholders at 37 per cent, with only 13 per cent coming from bilateral sources. And whilst China is Nigeria’s biggest bilateral donor – making up 11 per cent of this 13 per cent – this equally reflects what others are not doing.
As recent research by the Center for Global Development has shown, development partners often fail to align with African needs. For example, there are several Programs for Infrastructure Development in Africa (PIDA) projects – part of the African Union’s (AU) continental framework – that lack funding. For example, the 330 kV Nigeria-Niger-Benin/Togo-Burkina Interconnection project is part of the ECOWAS Master Plan for the Generation and Transmission of Electrical Energy and can facilitate electricity amongst four countries – Nigeria included, and could reduce electricity costs and increase access.
However, the project, with a cost of $698 million, has been in the feasibility stage since 2017. These are the regional projects that development partners could – and should – be supporting. Building on this, many reports have argued that Amaechi’s comments signal an ongoing trend of Chinese stakeholders curtailing finance to African countries following the ‘realisation’ of risky lending and an overall weakening China-Africa relationship. As my colleagues have stressed elsewhere, the Dakar Action Plan contains an explicit commitment to concessional lending with a commitment to establish 10 connectivity projects, which could easily surmount the ‘missing’ $15 billion – whilst the Plan also has reference to align with the AU’s PIDA. So, whilst Chinese lending will likely become more regionally focused, it is highly unlikely we’ll see China drop off the financing map completely.
All in all, infrastructure gaps need to be filled. We need to move the focus away from an ever-looming ‘debt crises to analysing how stakeholders can support African needs; the more players who are committed to filling this gap at accessible, concessional and fair terms which align and work with what African asks – the better.
Scarfe, the Project Manager for Development Reimagined’s Africa Unconstrained project sent this piece.
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