President John Adams, an American Founding Father, made a strong assertion in 1826, “There are two ways to conquer and enslave a nation- One is by the sword and the other is by debt''. Nearly two centuries later, there are rumours that China may take over ZESCO, Zambia’s electricity utility company, after taking ownership of Sri Lanka’s Hambantota port earlier in the year as both countries face a debt crisis. This “China takeover” has raised scepticism on China-Nigeria economic relations, particularly our rising indebtedness to the Chinese.
Since 2000, Nigeria has borrowed about $4.83 billion from China, promoting them to the status of Nigeria’s largest bilateral financing partner - at present, 8.5% of the country’s external loans are from China. Although most of this borrowing is done through China’s Export-Import (Exim) Bank, which offers concessionary loans at low-interest rates and with long maturity periods, Nigeria’s debt servicing capacity is already significantly compromised. Currently, 60 of every 100 naira generated by the Government goes towards servicing debt, with interest payments exceeding capital spending since 2014. However, Your Nigerian Economist reckons that the unsustainability of servicing Chinese debt (and debt in general) is not the only serious concern- their strict terms, style of borrowing, and lack of transparency should be pondered on.
Unlike Western creditors and Multilateral Development Banks (MDBs), the Chinese are typically unwilling to negotiate friendlier terms during critical situations. China does not offer debt-relief except in special cases (non-interest loans maturing at the end of the year). In the case of Sri Lanka’s Hambantota, negotiations were centred on which Chinese company will have a stake in the port rather than easing the terms of the debt. This is after the initial loan of $307 million, offered at a rate between 1-2%, was renegotiated to a whopping 6.3% when the Sri Lankans were hard-pressed for more funding.
The strings tied to the funds provided, and the ripple effect, is particularly worrisome. The typical requirement for loans is that a Chinese company undertakes the project alongside employing Chinese workers, generating tons of revenue. For instance, the China Civil Engineering Construction Corporation Ltd (CCECC) is building the new terminal of Nnamdi Azikiwe Airport, as well as the train stations in Abuja and Kaduna as part of the loan agreement. Aside from smoothing the way for Chinese companies to gain access to resources, the Chinese government usually selects the local company (rather than award the contract through an open bidding process) which implies that pricing and other terms are not competitive.
Data from the China-Africa Research Initiative has led to startling revelations, at least for Your Nigerian Economist. Third only to Algeria and Angola, Chinese companies generate their highest revenue from Nigeria. Between 2000 and 2016, these companies have earned $34.2 billion from implementing projects in Nigeria, some of which are tied to loan agreements. On employment, about 64,500 Chinese workers are employed locally. With our undiversified revenue base and unemployment rate at 20%, we are forgoing alternative streams of income and jobs.
China’s opaque ways, as well as its desire to gain a more global influence, also raises suspicions around its financing. The heavy involvement of state actors in commercial arrangements by private actors blurs the line between China’s economic and political agenda. For instance, its ambitious Belt and Road initiative, which intends to build infrastructure in countries in Europe, Asia and Africa, is seen by many as a way to exert its influence on these countries. Moreover, the Chinese development cooperation strategy involves a negligible social development component as relatively less financing on education, health or civil society is put on the table. Being overly focused on physical capital projects leaves little resources for the development of our potentially large human capital. With Nigeria lacking serious social and welfare priorities, and its large population, vast natural resources, and hunger for financing, we remain an attractive market for Chinese financing.
But then again, if the Chinese don’t build it, who will? On one hand, local contractors are held back by low capacity, credibility and swiftness to deliver huge infrastructure projects. On the other hand, western creditors make us jump through hoops with the stringent conditions that come with taking loans, many of which border around public finance reforms that the IMF states are important in developing a formidable debt-servicing capacity. Moreover, there is a feeling of brotherhood between China and Nigeria considering that we are both members of the global South. The relationship is underpinned by mutual respect, one between two developing countries, unlike the vertical relationship between Nigeria and the West. Lastly, the financing priorities of the Chinese closely aligns with our national priorities considering the dearth of infrastructure.
The growth of debt in general, not only Chinese debt, should be worrisome. However, the changing characteristics of debt with China’s dominance poses new risks. While we may not lose assets in the transport and power sectors, their companies generate trillions in revenue and Chinese workers share in the few opportunities available. Going forward, these loans may lead to debt traps such that we have to take on more Chinese debt to repay existing debt. We also have to ask more questions in order that we protect our national interest and not shortchange ourselves: Are there certain projects, maybe those that border on national security such as seaports and airports that should be off-limits to Chinese investing? What kinds of tax breaks and other incentives are we offering Chinese companies? What exactly is our diplomatic stand with China? Your Nigerian Economist thinks it is crucial to join the growing global consciousness towards China’s rising influence and in some cases, interference.