Analysis: Is Nigeria’s gamble on billion-dollar Chinese loans worth it?

The Third Belt and Road Forum for International Cooperation that was convened in Beijing, China has put the spotlight on the economic viability of Nigeria’s billions of dollars in loans from China.

This week, two dozen leaders including Kashim Shettima, Nigeria’s vice-president, and more than a hundred delegations, came together for a packed schedule of forums and bilateral meetings revolving around Chinese leader Xi Jinping’s signature Belt and Road Initiative (BRI) – the global infrastructure drive that has cemented China’s place as a major international player since its launch a decade ago.

It was unveiled by China’s President Xi Jinping during his visit to South Asia in 2013. “Belt” refers to overland routes connecting China to Europe through Central Asia, as well as to South Asia and South -East Asia; while “Road” denotes a maritime network linking China to major ports through Asia to Africa and Europe.

Beijing touted this as an economic win-win – it told other countries these investments would stimulate development, while at home it sold the BRI as a way to help Chinese companies boost the economy and burnish the country’s reputation.

“It’s about Chinese state-owned enterprises going abroad to help facilitate the flow of resources that China needs,” Jacob Gunter, a senior analyst at the Mercator Institute for China Studies, told CNN. “It’s also about expanding and developing export markets as alternatives to the liberal developed world.”

Recognising the opportunities in China’s global infrastructure drive, Nigeria joined the BRI in 2018 at a summit in Beijing. Since then, Africa’s biggest economy has borrowed billions of dollars from China to finance infrastructure projects, including roads, railways, and power plants.

BusinessDay’s findings showed Nigeria’s debt to China has grown to $4.7 billion as of June 2023.

But that’s not all. China has indicated its readiness to refinance and complete the Abuja-Kano, and Port-Harcourt-Maiduguri railway projects following a request by President Bola Tinubu.

“China had agreed to provide 85 percent financing for the construction of the Abuja-Kano and Port-Harcourt-Maiduguri railway projects, while Nigeria which had the duty of paying the balance 15 percent paid its part of the funding from the inception of the project through appropriations,” Stanley Nkwocha, senior special assistant to the president on media and communication, said in a statement seen by BusinessDay.

“The crucial infrastructure also termed a legacy project has the China Civil Engineering Construction Corporation as the contractor named to execute the project,” he said.

Nigeria has had its fair share of many infrastructural projects over the years as the government is rapidly engaging the Chinese.

Data from the Debt Management Office (DMO) showed completed projects and ongoing ones in Nigeria including the Nigeria Communication Satellite project, Nigeria National Public Security Communication System project, Nigeria railway modernisation project (Idu Kaduna section), Nigeria railway modernisation project (Lagos-Ibadan Section), Nigeria Abuja Light rail project; and Nigeria ICT infrastructure backbone project.

Other projects include four airport terminals expansion project, Nigerian Zungeru Hydroelectric project, Nigerian rehabilitation and upgrading of the Abuja-Keffi-Makurdi road project, Nigeria ‘Greater Abuja Water Supply’ project, Nigeria National ICT infrastructure backbone phase II project, E-border installation for Nigeria immigration service, Lafia road bypass and dualisation of Enugu-Markurdi Road and Nigeria Supply of Rolling Stocks and Depot Equipment Project.

How it’s playing out

BusinessDay findings showed the Chinese loans for Nigerian infrastructure projects have been controversial, with some arguing that they are necessary to boost the economy, while others warn that they could lead to a debt trap.

Chijioke Ekechukwu, an economist and former director-general of the Abuja Chamber of Commerce and Industry, said he doesn’t have any problem with Nigeria borrowing from China.

“The only problem I have with Chinese borrowing is that the entire funds will eventually be repatriated to China. This is so because when the Chinese Government gives you loans for infrastructure, they will insist that only Chinese companies handle the construction,” Ekechukwu said.

Enang Udah, associate professor, Department of Economics, University of Calabar, said getting Chinese loans is not actually a problem, but where the loans are channelled to is the major issue.

“Is it infrastructural development or services that can pay back for domestic consumption?” Udah said.

A Bloomberg report in August showed the $823 million Abuja Light Rail project from Chinese loans — the first of its kind in West Africa — was closed in March 2020, ostensibly to slow the spread of the coronavirus. Since then, it’s remained shuttered, and there’s been scant progress toward a resumption of service on the 27-kilometer (17-mile) line.

Meanwhile, Nigeria is spending $50 million a year paying down the project’s $500 million in loans from the Export-Import Bank of China.

“The current situation is a mystery for the next minister to unravel,” said Nasir El-Rufai, who as minister in charge of the capital area signed the contract to build the railway 16 years ago.

“The line basically avoided where people are, where people live, where people go”

The line was intended to be the first of a half dozen in a 290-kilometre network that would connect the city to the satellite towns where many workers live.

“Instead, it’s become a lesson in how not to create a mass transit system,” Mohamed Lawal Shaibu of Envicons Teams Ltd., an urban planning consultant in Abuja, told Bloomberg.

“It has been very terribly executed,” he said. “The line basically avoided where people are, where people live, where people go.”

Is China’s modus operandi a source of concern?

An Associated Press analysis of a dozen countries most indebted to China — including Pakistan, Kenya, Zambia, Laos and Mongolia — found paying back that debt is consuming an ever-greater amount of the tax revenue needed to keep schools open, provide electricity and pay for food and fuel.

Experts predict that unless China begins to soften its stance on its loans to poor countries, there could be a wave of more defaults and political upheavals.

“In a lot of the world, the clock has hit midnight,” Ken Rogoff, Harvard economist, told AP. “China has moved in and left this geopolitical instability that could have long-lasting effects.”

A case study of how it has played out is in Zambia, a landlocked country of 20 million people in southern Africa that over the past two decades has borrowed billions of dollars from Chinese state-owned banks to build dams, railways and roads.

The loans boosted Zambia’s economy but also raised foreign interest payments so high there was little left for the government, forcing it to cut spending on healthcare, social services and subsidies to farmers for seeds and fertilisers.

In the past, under such circumstances, big government lenders such as the US, Japan and France would work out deals to forgive some debt, with each lender disclosing clearly what they were owed and on what terms so no one would feel cheated.

“But China didn’t play by those rules. It refused at first to even join in multinational talks, negotiating separately with Zambia and insisting on confidentiality that barred the country from telling non-Chinese lenders the terms of the loans,” Rogoff said.

Another AidData report around the same time suggested that many Chinese loans go to projects in areas of countries favoured by powerful politicians and frequently right before key elections. Some of the things built made little economic sense and were riddled with problems.

In Sri Lanka, AP findings showed a Chinese-funded airport built in the president’s hometown away from most of the country’s population is so barely used that elephants have been spotted wandering on its tarmac.

BusinessDay