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Debt trap: Why Nigeria may lose some infrastructures to China –Experts

The Federal Government has been warned against over-borrowing from China and its increased reliance on external loans, which could adversely affect the country’s political and economic sovereignty. PAUL OGBUOKIRI reports that Nigeria could lose the country’s only deep seaport to China as the nation’s capacity to meet its debt servicing obligations wanes

 

Lekki deep seaport

A multi-purpose, deep sea port located in the Lagos Free Zone, Lekki Deep Sea Port will be one of the most modern ports in West and Central Africa, offering enormous support to the burgeoning commercial operations across Nigeria and the sub-region.

It is a joint venture enterprise owned by a group of investors led by the Lekki Port Investment Holdings Inc (comprising China Harbour Engineering Company Ltd. and Tolaram Group), the Lagos State Government and the Federal Government of Nigeria through the Nigerian Ports Authority (NPA).

The Federal Government has said that the Lekki Deep Seaport, which is expected to be completed before the end of the year would create about 170,000 jobs to boost Nigeria’s economy.

The project is also expected to bring revenues of about $201 billion to federal and state governments through taxes, royalties and duties as well as an aggregate impact of $361 billion in 45 years upon the commencement of operations.

 

Experts, who spoke to Sunday Telegraph on condition of anonymity said this is an asset that will attract the interest of China in the event of Nigeria’s default in its loan servicing obligation to the Asian giant.

Debt trap

Meanwhile, Nigeria has obtained 17 Chinese loans to fund different categories of capital projects, and the country will still be servicing the Chinese loans till around 2038, which is the maturity date for the last loans obtained in 2018.

Nigeria’s total debt to China is about 10 per cent of the $27.6 billion external debt stock. Minister of Finance, Zainab Ahmed, disclosed in February that the Federal Government decided to go for a $17 billion loan from China as the World Bank and the African Development Bank’s (AfDB) failed to show much interest in Nigeria during the recession.

But can Nigeria refund the loan? Experts think otherwise, as they argue that if care was not taken, the nation may fall into the Chinese Debt Trap.

Analysts said that there is the possibility of the country forfeiting key national assets to China if the country defaulted on its $3.48 billion loans.

They advised the Federal Government to properly review the loan agreements with China to save the country from facing a situation similar to that of Uganda and other countries that had to forfeit their key national assets to China after defaulting in servicing their debts.

 

The Chief Executive Officer of SD&D Capital Management, Idakolo Gbolade, said Nigeria might forfeit certain assets in the event of a loan default.

In an interview with Channels TV, the Director of Centre for Infrastructure Policy Regulation and Advancement (CIPRA), Lagos Business School, Dr Bongo Adi, explained that Nigeria lacks accountability, transparency, and responsibility to refund the loans. He noted that when it comes to loans, Nigeria has failed to implement the three factors in its engagement with the Chinese.

According to him, the Chinese Exim Bank has offered $6.6 billion to Nigeria and that is quite significant.

He said: “We have to look at the total debt and the capacity to repay not just to China but to our creditors. Our Debt to revenue is now about -12 per cent. That means for every N1 we earn, we need extra 12 kobo to be able to refund loans. That has passed a critical threshold.

“What it means is that we lack the ability and we don’t have the headroom anymore to repay because our independent revenue has been strangled by our enormous debt hanging over the Federal Government as it stands now.”

He also expressed concern that increasing Chinese loans is an indication that the nation has not considered the history of Chinese loans.

He said: “Out of 64 countries that host the Chinese Belt and Road initiative projects, 20 have gone under distress and 8 are about to lose their sovereign debt sustainability if they should take any further loan. If that were supposed to be a good guide, it means Nigeria needs to be very careful when we are borrowing from the Chinese.

“We have seen this Chinese cycle and need to be careful. What normally happens is that the Chinese will begin to take over infrastructure assets, which is what some call Chinese Chopstick Imperialism and the experience is not just pleasant.

 

Chinese strategically tie loans to infrastructure and that is with the intention of taking possession of the infrastructure asset if there is a default, as such asset became their collateral.”

Debt servicing

Nigeria’s debt-service obligations are rising faster than revenue, pushing the country toward “high debt distress,” according to Bismarck Rewane, chief executive officer of Financial Derivatives Limited in Lagos. The country’s long-term debt is ranked B2 by Moody’s Investors Service and B- by S&P Global Ratings — both sub-investment grade.

The government generated N1.63 trillion of revenue in the first four months of the year, which was 49 per cent below its target and less than the N1.94 trillion needed to cover debt-service payments.

The country is missing oil-earnings forecasts because of widespread theft and pipeline vandalism, which are also keeping the country from meeting its OPEC+ quota, according to the government.

The excess crude account, where the government saves surplus earnings from crude sales, had only $376,655 left in June because the government has been unable to earn enough from oil sales to deposit into the fund.

Debt trap diplomacy

China is not only active in Nigeria but currently constitutes the largest overseas trade partner and also one of the largest creditors in many African countries. All through the continent, Beijing presents loans to nations for railways, stadiums and other foremost infrastructure initiatives.

Does China love Nigerians? Is China a nation without domestic issues that would require lending money to other countries? These questions arise because international politics, according to experts, is a game played with every country’s national interest at heart. They said that every nation carries out its foreign policy according to its needs, adding that foreign policy is the reflection of any nation’s domestic reality which begins with the identification and articulation of national interests. They asserted that foreign policy is inseparable from national interest and is a product of domestic political decision-making, which in turn, is a product of a country’s national interest.

Therefore, it is pertinent to keep in mind that no nation has ever carried out a foreign policy without its national interest in mind. Thus, Chinese loans to Africa can be considered as an extension of China’s foreign policy in Africa. And the loans could be detrimental to the loan recipient African countries.

Under the leadership of Harvard professor, Carmen Reinhart, a German-American team of academics dug through material and compiled a comprehensive analysis about Chinese foreign loans. The resulting picture does not do anything to assuage worries about the economic strength being exerted by Beijing. The information shows that China’s loans often include conditionalities, which are strongly orientated towards Beijing’s strategic interests and increase the risk that many developing countries plunging into a monetary disaster.

 

Some experts claim that China is present in Africa for the sake of China. China claims to be there for Africans. One thing is certain: China has an immense impact on Africa’s growth and economic development. And there is no change in sight.

 

Though it seems like a lot of the current debt of most African countries is not going to be profitable to China and China is keen on helping Africa, these loans allow China to take control over certain projects once the credit conditions are not met by the borrowing country. This tactic is known as “debt-trap diplomacy” and has been used by China in numerous instances. One example is Sri Lanka.

 

When the debt burden had become unsustainable in 2017, the authorities in Sri Lanka were pressured to transfer the majority control of the port of Hambantota as a replacement for the pending repayment. The port was passed over to Beijing for 99 years.

China’s loan trap under Buhari administration

In 2018, Reuters reported that China’s Exim bank would lend Nigeria $328 million to enhance the nation’s telecoms infrastructure. At the roundtable assembly of the Forum on China-Africa cooperation (FOCAC) in Beijing, attended by African leaders and Chinese President, Xi Jinping, President Muhammadu Buhari stated that Nigeria’s partnership with China has resulted in the execution of important infrastructure initiatives throughout the country, which have totalled to over $5 billion in the three years.

He further stated that Nigeria has addressed big demanding situations within the areas of infrastructure, human capability development, power, shipping, agriculture and humanitarian assistance. He named several successfully executed as well as upcoming projects such as the construction of the first urban rail system in West Africa, the upgrading of airport terminals, a hydroelectric power project, fibre cables for internet infrastructure, road rehabilitation, and water supply projects.

President Buhari said that the aforementioned projects had confirmed the great degree of consistency and dedication that China has proven and that it is boosting its relations with African nations under the umbrella of FOCAC.

Therefore, he claimed that: “Nigeria will continue to support the FOCAC initiative and also seek to key into the Belt and Road Initiative as an additional Chinese mechanism to build further cooperation in our quest for infrastructural and economic development. These vital infrastructure projects synchronize perfectly with our Economic Recovery and Growth Plan, and some of the debts incurred are self-liquidating”.

His comment seems to praise China’s imperialism in Africa, even though many indebted nations and scholars of economics and international relations have criticized Chinese activities in Africa.

 

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