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Published On: Sun, Sep 23rd, 2018

China and Nigeria’s debt burden

Nigerian President Muhammadu Buhari (L) and Chinese President Xi Jinping

By AYOOLA OLAOLUWA

Experts have raised the alarm over the continued foray of Chinese businesses and massive funds into Nigeria, saying it portend danger for the country. They argued that the nation risk falling into debt trap, joblessness, among other costs, as is being experienced by several Africans countries.

Available data indicate that apart from the huge loans the Chinese government had granted Nigeria through some of its agencies, such as the China Development Bank (CDB), Industrial and Commercial Bank of China (ICBC), China International Trade and Investment Corporation (CITIC), China Export and Credit Insurance Corporation (CECIC), Sinosure and the China Export- Import Bank, the Chinese government had also encouraged and supported its companies to increase direct investment in Nigeria and explore new cooperative modes of investment such as public-private partnership.

Some of the massive projects the Chinese companied are involved in include roads, electricity power, railways, airports, oil and gas, as well as communication, aimed at improving Nigeria’s economic development environment and helping the nation attract foreign investment.

According to a report by the China Africa Research Initiative (CARI) released in August 2018 obtained by Business Hallmark, Chinese government, banks and contractors extended US $136 billion in loans to African governments and their state-owned enterprises (SOEs) from 2000 to 2017.

The loan finance is varied. While some government loans qualify as official development aid, others qualify as export credits, suppliers’ credits, or commercial, not concessional in nature. Angola, Ethiopia, Sudan, Kenya and the Democratic Republic of Congo respectively, are the top beneficiaries of these loans, according to the CARI report.

According to the Debt Management Office (DMO) in a statement made available to BH on September 12, Nigeria’s external debt stock as at the end of June stood at about $22.083 billion as at June 30, 2018.

The DMO had earlier in a report released in March 2018, said that Nigeria had total indebtedness of $3.22 billion to China by the end of December 2017. This is in total contrast to available figures that Nigeria had received over $6bn from China alone in the last four years.

Nigeria received two huge tranches of aid from China: $3.1 billion in 2014 and $6 billion ($3.1bn + $6bn = $9.1bn or N3 trillion) for infrastructure in the last three years.

This simply means that each Nigerian, based on the current 198 million population estimate, owe China N15, 000, if the amount is divided equally.

In explaining the DMO’s lower figures, an economist, Deji Omotayo, of Wealth Builders, said it is possible that some of the loans could have been repaid. He however, doubted the possibility, since the nation was cash strapped due to the crash in the price of oil.

“The DMO should tell the nation where it got the money to repay the loans at a period that we were even borrowing to pay salaries”, Omotayo said.

Since then, however, more loans have been negotiated and were being drawn. A significant loan currently under negotiation is the $5.7 billion Mambilla Hydro Electricity Power loan.

More troubling is the fact that the Federal Government is continuously being lured into debt trap, with her increasing dependent on loans as fall-back position despite constant warning from experts who argue that Nigeria could be in serious trouble in the event that oil price crashes again.

They mentioned several African and Asian countries currently groaning from the negative effects of crushing Chinese debt trap.

A World Bank report in January indicated that forty per cent of sub-Saharan African countries are already at high risk of debt distress. “By having so much debt concentrated in the hands of a single lender, they are dangerously beholden to their supplier”, the bank argued.

Two cases at hand are that of Zambia and Sri Lanka. For example, 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 Zambia’s news reports, talks have commenced for a Chinese company to takeover Zambia’s power utility, ZESCO.

Also, Sri Lanka recently learned the hard way when it handed over control of the port of Hambantota to China over its inability to repay due loans, giving China a strategic foothold along a busy trade waterway.

Some Nigerians who reacted to the possibility of the country falling into another debt trap warned that there should not be any worry if the loans are appropriately utilised

According to Dr. Wale Bolorunduro, a former Osun State Commissioner for Finance, a large chunk of the loans is being used for projects which should not be invested in.

“I am personally concerned that we are not collecting the loans with a proper debt analysis. When you do a proper debt analysis then you know whether the debt can repay itself. Most of the loans we are collecting are being used to build roads and rail tracks in Abuja which is not actually where we should invest the money.

“I won’t be worried if these roads and rail tracks were built in Aba, Onitsha, Lagos, Nnewi or in Kano, or if we are borrowing this money to set up industrial parks; then it makes sense. But we are just borrowing this money to beautify Abuja. Abuja does not generate any income.

“When you borrow money like this, what should be at the back of your mind is where to invest this money and get return on investment. You can repay the loan and make a profit in terms of the services you can provide with the projects executed”, he said.

In his own reaction, the Managing Director of Pydenneks Offshore Services Limited, Mr. Kennedy Oikerhe, said that the loans have their merits and demerits.

“You will recall that the immediate past United States Secretary of State, Mr. Rex Tillerson, had during his recent to Nigeria, advised us to be careful when considering loan agreements with China.

“While alluding to the fact that the union could be beneficial, he harped more on the long-term implications. Nothing can be truer than this position. This is also true with the loans granted by the US and other western countries. However, we must realise that it has merits and demerits.

“Advisedly, we should officially analyse the total gains derivable from the contract and the financial risks involved and put in place appropriate policies and instruments to mitigate against default, which could have an adverse effect on the economy.

“Every contract agreement China signs (especially in Africa) creates direct and indirect business opportunities for Chinese companies. It also provides employment for Chinese workers at all levels.

“This development puts us in a disadvantaged position because our unemployment rate index continues to increase. It is essential that Nigeria should broaden its horizon by looking at human capital development skills and technology based business proposals”, he said.

Meanwhile, a former President of the Trade Union Congress (TUC), Hon. Peter Esele, said Nigerians should not worry as long as the loans were used for developmental purposes.

“I think there should be no cause for us to worry about Chinese loans. First, borrowing money outside the country is cheaper than borrowing money inside. It is always cheap to borrow money outside the country. Interest rate on such foreign loans may not be more than three to five per cent. But if you are borrowing money internally, you are looking at 20 per cent.

“Where the worry would be is what are you taking the loan for? If you are taking a loan, first of all, you want to use that loan for productive purposes. If a loan could enhance our productivity, improve our infrastructure; then that loan could pay for itself in terms of taxes at the end of the day. For an instance, if you are taking a loan to build a rail line from one end of the country to the other end, the loan will help the economy because companies will be moving goods from Point “A” to Point “B.”

“These companies have to pay to the railway line; the railway line has to pay taxes to the government and the people boarding the rail line will have to pay. At the end, you will see that when you take a loan, it becomes a catalyst for economic growth. If that is the reason we are taking the loan, then there is no need to worry”, Esele added.

It would be recalled that the United States government had recently warned African countries to be wary of Chinese government and its loan facilities.

A former United States Secretary of State, Rex Tillerson, while giving this advice, warned that African countries should weigh Chinese loans carefully, adding that Washington was not trying to keep Chinese investment away from the continent.

“We are not in any way attempting to keep Chinese ‘dollars’ from Africa, but it is important that African countries carefully consider the terms of those agreements and not forfeit their sovereignty. If a government accepts a Chinese loan and gets into trouble, it can lose control of its own infrastructure or its own resources through default,” Tillerson had said.

But the Chinese government, however fired back during the recent 7th Summit of the Forum on China -Africa Cooperation., insisting that China is helping Africa develop, not pile up debt,

“If we take a closer look at these African countries that are heavily in debt, China is not their main creditor,” says its special envoy for Africa. It’s senseless and baseless to shift the blame onto China for debt problems,” said Xu Jinghu, China’s envoy to Africa.

Apart from the threat of falling into a debt trap, BH findings also indicate that Chinese investors are quietly taking over strategic sectors of the Nigerian economy, making massive profits and displacing local businesses.

According to findings, Chinese businesses are taking advantage of the nation’s lax laws and expansive market by unleashing its horde of investors on the trading, manufacturing and agriculture sectors to the detriment of local businessmen.

From oil and gas to construction; power to Information and Communications Technology (ICT); manufacturing and agriculture to education; healthcare to hospitality; transport to aviation; textile to defence and trading and general merchandising, China is spreading in Nigeria.

Available data show that over 1000 Chinese companies are currently operating in various sectors of the Nigerian economy. The activities of these companies have seen the volume of trade between China and Nigeria grow from less than $2 billion in 2000 to $18.1 billion in 2014, according to the Chinese Ambassador to Nigeria, Mr. Gu Xiaoji.

The nation’s commercial capital, Lagos, has its own ‘Chinatown’, as do other cities, such as Kano and Abuja. BH observed during a visit to the China Town, Ojota, Lagos that the volume of cash that exchanged hands was massive. A driver with one of the companies in the town said that he travels every other day to Abia State to deliver container full of clothes, shoes, belts, antiquities, housing utensils and cosmetics imported from China.

“What we supply cannot but sell. They are what people need everybody. As long as you live, you must wear clothes and use shoes,” he said.

Checks at China town’s administrative office revealed that a shop space goes for N700, 000. Many prospective tenants were waiting during the visit to pick forms to get a place at the complex. Exclusive, gated hotels and restaurants, serving only Chinese food, are being built all over the country. They include Zenith Water Margin, Marco Polo Chinese Restaurant, Prime Chinese Restaurant, Pearl Garden, Oriental Garden, Jade, Saipan Restaurant and Bar, Wan Tan Fusion, among several others.

African cloths sold in markets across the country are now almost always imported, bearing ‘Made in China’ labels. In Kano State, local traders in textile materials are up in arms against their Chinese competitors. The traders, who alleged that the Chinese are on the verge of bringing down their business, as they allegedly did in ruining the country’s once-thriving textile manufacturing industry, said that the Chinese have infiltrated the famous Kanti Kwari Market.

From the market which attracts customers from all northern states and neighbouring countries like Niger and Chad Republic, the Chinese are alleged to be reaping a fortune to the detriment of local traders. More than 70 Chinese companies are estimated to have established their sales outlets at the market.

Among the Chinese textile factories that have opened shop at Kanti Kwari are NBTS, Chitex, Seinfeire, KFM, Golden Euro and WYFX. The Chinese, it was learnt, have formed a body tagged the Chinese Union at the market to champion their interest there.

Lamenting the situation, the Chairman of the Tofa Group of Companies, Alhaji Isyaku Umar Tofa stressed the need for government to address the situation.

“It is unfortunate that the Chinese have taken over the distribution of textiles in Kano. They import the textile materials from their country, rent shops here in Kano and they are retailing the materials themselves. This is not good for the country’s economy because they are doing this at the expense of our economy,” he said.

Chinese herbal medicine and electromagnetic therapy are also gaining ground across the nation among all generations seeking for the secrets of longevity and everlasting youth. The influx of cheaper Chinese products in Nigeria’s domestic markets is very evident despite questions raised about the quality of the products.

In the GSM Village, Ikeja, Lagos, as well as several other markets, checks reveal that most mobile telecom shops are overflowing with Chinese-made products ranging from phones to laptops, bluetooth devices, headphones, hands free devices, among others. A shop owner at GSM village, Ikeja, Lagos, Chidinma Orji, narrated how easy and beneficial it is to sell Chinese products.

“It is usually more expensive to buy products from western countries like the US, England, Germany and Spain, but that is not the same for China. Most of us here can now go to China ourselves and buy products under very flexible terms and conditions,” he said.

Buyers share the same feeling about buying Chinese products.

“If you compare the Chinese smart phones with those from Europe, there is little or no difference at all. And the Chinese ones are even cheaper. So why should I spend more money on something equivalent to this one?” asked Bose Oladiji at the SLOT shop at No 2B, Medical Road, Ikeja Lagos.

Beside the Falomo Shopping Centre area in Lagos is a shopping complex where most shops are owned by Chinese selling cheap jewellery, clothing and substandard Nigerian fabrics.

Some Chinese traders were seen at the Balogun Market in Lagos hawking their wares. Others also hawking their goods were spotted in the Apapa area.

The nation’s minerals and metals sector is also dominated by Chinese to the detriment of millions of jobless Nigerians.

BH findings revealed that many Chinese quarries have a high number of expatriate employees while the companies provide little or no safety precautions for local workers.

An official in the Ministry of Solid Minerals who did not want his identity revealed because he was not authorised to talk, informed BH that most Chinese and Indian mining operations in Nigeria fail to meet the minimum employment targets for Nigerians which includes having higher number of locals employed in expatriate companies; safety precautions for workers on site; proper salary structure to protect the rights of local workers as well as proper tax clearances to ensure federal government gets its due.

“If the Chinese can close their doors and give only a handful of visas to their own country, then it is high time we shut our doors to their invasion. A reasonable percentage of our imported materials and goods come from China. What are we exporting to them?” he asked.

Companies from China are also supplying the much-needed infrastructure projects, such as roads, bridges, railways and trains. Many state governments are now turning to Chinese firms for help at a time many indigenous construction firms are lamenting low patronage.

President of China Institution of Contemporary International Relations (CICIR), Mr. Cui Liru, said recently that the volume of trade between Nigeria and China is now in the neighbourhood of $22.3billion.

Liru added that over 452 construction projects have been completed in Nigeria by Chinese as at November 2017. Most of them were executed by China Civil Engineering Construction Corporation (CCECC).

The Chinese also have a huge investment in the nation’s oil and gas industry. In 2006, Chinese President Hu Jintao visited Nigeria. He got four oil drilling licences for his country. In return, he pledged China’s investment of $4 billion in oil and infrastructure development projects in Nigeria.

A huge loan has also been granted by China for building of three refineries in Nigeria. In 2005, Nigeria agreed to supply Petro China with 30,000 barrels per day (4,800 m3/d) of oil for $ 800 million. In 2006, CNOOC purchased a share for $ 2.3 billion in an oil exploration block owned by a former defence minister. These moves have consolidated China’s access to crude oil for its energy needs back home. Unconfirmed reports said China is now the second largest buyer of Nigeria’s crude oil.

In transportation, Chinese workers have been engaged in rail projects across the nation, amid protests from local railway workers. A visibly angry railway worker, Segun Ojo, told BH that Nigerian workers would soon be out of job from such huge projects.

Several Chinese brands such as Viju Milk, Huawei, ZTE, Techno, Alcatel, Golden Gate Lagos, Oasis Bakery, dominate the nation’s landscape and enjoy tremendous patronage.

A source in the Nigerian Immigration Service (NIS) said that over 100,000 Chinese are resident in expensive estates in the commercial cities of Lagos, Port-Harcourt, Kano and Aba.

Magodo Estate in Lagos plays host to a sizeable Chinese population. Residents of the estate who spoke complained that rents have skyrocketed since they started arriving.

“Getting accommodation here now is tough. The Chinese are ready to offer triple whatever Nigerians offer the house owners”, Toyin Alege, a resident lamented.

A visibly troubled Dr. Benjamin Dada, of the Lagos State University, said that Nigeria may ultimately regret its lopsided relationship with China.

“When they make a loan they don’t demand that African countries follow their policies, although they do immediately demand that African countries support mainland China and not the Republic of China – Taiwan. China considers Taiwan a breakaway province, while Taiwan regards itself as a sovereign state”.

Dada also said that like in Nigeria, it is increasingly common in countries like Angola, Mozambique or Zambia, which benefit from Chinese loans for infrastructure, to see Chinese trucks and workers.

“The Chinese do often insist that their equipment is used and often also their people. Workers from rural areas of China, who would otherwise be unemployed in China, now come and work on these projects,” he said.

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