Mrs. Zainab Ahmed, Finance Minister

By EMEKA EJERE

The fresh $500 million Chinese loan Nigeria is seeking may not be a reality anytime soon as recent developments indicate that the executive is struggling to convince the House of Representatives that the sovereignty clause in the loan agreement will not put Nigeria into China’s debt trap.

At the investigative hearing on external loans and commercial agreements, on Monday (August 17), the House Committee on Treaties, Protocols and Agreements, faulted the sovereignty clause in the loan agreement, describing it as dangerous. When obtained, the loan is to be used for the nation’s rail projects and the National Information and Communication Technology (ICT) Infrastructure Backbone Phase II Project.

The agreement was signed in September 2018 by the Federal Ministry of Finance on behalf of Nigeria. The lawmakers had raised eyebrows about a clause in the document which waives Nigeria’s sovereign immunity if it defaults in its repayment plan

The relationship between Nigeria and China concerning loans to fund Nigeria’s infrastructural projects suddenly became a matter of legislative intervention and public scrutiny late last month when the House of Representatives summoned the minister of Transportation, the minister of Finance, Budget and National Planning and the minister of Communications and Digital Economy to appear before it on August 17.  The ministers were to explain the controversial clause in the agreement signed between Nigeria and the Export-Import Bank of China with.

Among the members of the executive, who appeared before the committee were the minister of Transportation, Rotimi Amaechi; minister of Works and Housing, Babatunde Fashola; minister of Communications and Digital Economy, Ali Pantami; minister of Police Affairs, Muhammad Maigari; minister of the Federal Capital Territory, Mohammed Bello and permanent secretary (Special Duties in the Ministry of Finance), Aliyu Ahmed.

Chairman of the committee, Hon. Nicholas Ossai, who said Nigeria’s loan agreement with the Asian country was being governed by Chinese laws, regretted that despite the fact that the federal government in 2014 signed an Executive Order providing guidelines on waiver of sovereign immunity during loan and commercial agreement negotiations, Nigerian officials had been violating the order.

“The loan agreements we have seen so far show that government officials charged with the responsibility of representing Nigeria in these issues are more desperate to just take the loans at any condition, possibly using non-negotiated loan agreement templates rather than go through the rigour of diligent technical review of negotiating specific clauses with clarity and for national interest,” Ossai said.

The committee chairman noted that it was a common practice that most international loan agreements would adopt ‘sovereign guarantee’ and a neutral international arbitration centre.

He said, “Even in situations where countries, out of desperation and weak economic position, waive their national sovereignty in bilateral or contractual agreements, the immunity of sovereignty waiver clause will usually be clear and categorically state specific assets associated with the loans for takeover in the event of default.

“However, the immunity clauses in most of these agreements before us are not only ambiguous, but also very obscure and without recourse to the fact that the Nigerian government had issued a circular on the subject matter with Reference Number SGF/OP/1/S.3/X/1739, dated 11th August, 2014, which is an Executive Order, that provides guidelines on issues of waiver of sovereign immunity clause during loan and commercial agreement negotiations.”

The clause in question says: “The borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets.”

Calling for second look

The House of Representatives had in May mandated some of its committees to investigate all China-Nigeria loan agreements from 2000 to date. The intention of the green chamber was to ascertain the viability of the facilities, then regularize and renegotiate them, especially as the country is expected to slide into recession this year.

A member of the House, Ben Igbakpa, who moved the motion, had argued that the agreement should be investigated as there were global concerns about the alleged fraudulent, irregular, and underhand features of Chinese loan contracts with some African countries, which had resulted in a new form of economic colonialism foisted by China.

The opposition People’s Democratic Party (PDP) had seized upon the situation to proclaim that it has been vindicated because it has always argued that the mission of the ruling party, the All Progressives Congress (APC) has always been to mortgage the future of Nigeria. PDP presidential candidate in the 2019 general elections, Alhaji Atiku Abubakar, quickly added that Nigeria faces the risk of embracing the fate of Zambia with regard to Chinese loans.

Groups and stakeholders in civil society, including lawyers and the Socio-Economic Rights and Accountability Group (SERAP) have asked that all agreements ever signed between Nigeria and China should be brought forward and subjected to close scrutiny, just in case any government official either out of ignorance or incompetence has committed Nigeria to a debt-trap, to the disadvantage of future generations.

Findings show that at the moment, Nigeria has obtained about 17 Chinese loans to fund different categories of capital infrastructure projects in the areas of rail transportation, Information and Communication Technology, ICT, airport terminal expansion, energy, agriculture and water. The country will still be servicing the loans till around 2038, which is the maturity date for the last facilities obtained in 2018.

Nigeria owes China about $3.1 billion, more than 10% 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 (AfDB) failed to show much interest in Nigeria during the recession.

The history of Chinese loans, especially in Africa, is a growing concern. Several observers, including some of the United States representatives, have warned many nations on what they described as Chinese debt trap diplomacy, as the Asian nation allegedly uses finance as a weapon in many developing countries.

But sources sympathetic to China have argued that the established narrative about China’s “debt diplomacy” in Africa has been particularly trumpeted by the United States, particularly under the Trump administration. They maintain that in the face of its perceived dwindling influence across the continent in stark contrast to China’s sharp rise, the U.S. has argued that China’s posturing as a willing backer for expensive infrastructural projects is an elaborate ploy to entrap African countries in debt.

“It’s a sentiment that’s been supported by the reality that African countries, including Kenya and Ethiopia, are struggling with Chinese debt”, one of the sources claimed.

Paying for default

Since all Chinese loans are tied to infrastructural developments, some of the African nations have had to forfeit their stakes in the infrastructure, which they used as collateral, after they defaulted. For instance, $7.4 billion of Zambia’s total $8.7 billion foreign debt is owed to China, representing a large debt burden, given the relatively small size of Zambia’s economy.

It was reported in late 2018 that the Zambian Government was in talks with China that might result in the total surrender of the state electricity company ZESCO as a form of debt repayment since the country had defaulted on the plethora of Chinese loans for Zambia’s infrastructure projects.

Also, Kenya may soon lose its largest and most lucrative port, Port of Mombasa to its creditor (China) after it defaulted in the refund. This could force Kenya to relinquish control of the port to China.

One of the most cited examples of alleged debt-trap diplomacy by China is a loan given to the Sri Lankan Government by the Exim Bank of China to build the Magampura Mahinda Rajapaksa Port and Mattala Rajapaksa International Airport. The state-owned Chinese firms’ China Harbour Engineering Company and Sinohydro Corporation were hired to build the Magampura Port at a cost of $361 million, which was 85% funded by China’s state-owned Export-Import Bank at an annual interest rate of 6.3%.

Due to Sri Lanka’s inability to service the debt on the port, it was leased to the Chinese state-owned China Merchants Port Holdings Company Limited on a 99-year lease in 2017.

Call for caution

Little wonder many people have argued that if care is not taken, Nigeria may fall into the Chinese debt trap. 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 repay 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, 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 independent revenue is at 96% now. That means for every N1 we earn, 96 kobo is used to repay 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 strangulated by our enormous debt hanging over the federal government as it stands now.”

He also expressed concern that increasing Chinese loan 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 asset, which is what some call Chinese Chopstick Imperialism and the experience is not just pleasant. China strategically tie loans to infrastructure and with the intention of taking possession of the infrastructure asset if there is the default, as such asset became their collateral.”

A standard clause

But Amaechi, while speaking at the investigative hearing, described the controversial clauses as “standard clauses which, if you don’t add them, you cannot have a loan.”

He said, “I will like to call the attention of the National Assembly to the fact that we have never refused to pay our loans. If we don’t take these loans to develop Nigeria…when I got to Lagos on Saturday to inspect Lagos-Ibadan (rail), the number of people jubilating may not like me; they may not care about me if I walked on the streets but they were jubilating because of the fact that they can take transport from Lagos to Ibadan.”

Amaechi had while appearing before the House committee three weeks ago, said China will not approve Nigeria’s request for loans if the National Assembly continues to probe the loan agreements the country has with lenders, urging it to suspend the probe until Nigeria has secured the loan.

The minister had explained: “The waiving of immunity simply means in trade parlance that I’m not giving you this loan free. Just like if you go to take a loan from the bank, the moment you don’t pay, they go after the assets you put down. And people are politicising it. The Chinese can never come and take over Aso Rock and become president or minister.

In the event of a default, Amaechi stated that the lender can only go after and take back the same assets built with the loaned funds. “And if the assets you put down become depreciated, then you negotiate which assets they can go after. The Chinese will never take over what was not constructed with the loan.”

Also speaking at the hearing on Monday, Mr. Ahmed, the permanent secretary, who represented the finance minister, said, “Regarding the waiver of sovereign immunity, if you check most of the international commercial agreements these days, it is a standard clause in a number of international financial loans and commercial agreements worldwide.”

Meanwhile, China has maintained that there is nothing to worry about on the sovereignty clause in some of her loan agreements with Nigeria

“There is nothing like China taking over property. The inclusion of sovereignty clause is a common practice in many international commercial agreements”, Chinese Embassy in Nigeria explained in a statement.

“Our position has always been consistent that China is committed to enhancing investment and financial cooperation with African countries based on their needs to help them improve infrastructure and extradite socioeconomic development.

“China always gives full consideration to debt sustainability and seeks mutually-acceptable proposals through equal and friendly consultations.