Why China Refuses to Give Nigeria Additional Loans
Nigerian loans sourced from China may have become counter-productive as projects are now stalled with no hope of getting more funding.
Nigerian loans abroad are piling up, especially those sourced from China, which has been on an upward trend since President Muhammadu Buhari‘s tenure began in 2015. This has been a source of worry to many Nigerians.
However, Minister of Transportation Rotimi Amaechi feels there is too much noise around the Nigerian loans sourced from China. He said several infrastructural developments embarked upon by the administration, such as the Lagos-Ibadan rail line, would not have been possible without the loans.
While speaking during an interview on ‘Good Morning Nigeria,’ a programme on the Nigerian Television Authority (NTA) late last year, Amaechi defended the publicly condemned Nigerian loans, insisting that not all projects are funded with loans.
He had said, “I have repeatedly said this. When Nigerians talk about borrowing, how much are we actually borrowing? It is too much noise. When you hear the minister of transport announce that the federal government has awarded the contract of Lagos to Ibadan or the Lagos to Calabar for $11.1 billion, it doesn’t mean that we borrowed the money. Up till now, we are struggling to get the money for Lagos to Calabar.”
During the programme, he sought to clarify exactly how much had been borrowed and for which project:
“We raised funds from China to do the Lagos-Ibadan. Currently, we are doing Kaduna-Abuja from the budget, but we are yet to get the loan. We are still negotiating with China, and we hope that before March next year, we should be able to get the loan so that we can continue.
“What we have borrowed so far, I want to repeat, is $1.6 billion for Lagos to Ibadan. Of the remaining $1.4 billion, $600 million was paid by the federal government. $1.4 billion was what was borrowed; the $600 million on it was funded directly by the budget.”
Earlier this month, Amaechi, in an interview with the Guardian, said that the government had started to shop for funds from Europe as China was no longer forthcoming with loans to help finance some projects and, as such, this had caused delays.
According to him: “We are stuck with lots of our projects because we cannot get money. The Chinese are no longer funding. So, we are now pursuing money in Europe.”
How much does Nigeria owe China?
According to the debt management office, as of December 2020, Nigeria’s total public debt stood at N32.9 trillion ($86.3 billion). Out of this, N1.2 trillion (3.3 billion) is owed to the state-owned Export-Import Bank of China.
What is the Purpose of the Loans?
The Nigerian loans sourced from China are project-tied, which means they are directly meant for specific projects. The projects, a total of eleven, include Nigeria Railway Modernization Project (Idu-Kaduna section), Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project (Abuja, Kano, Lagos, and Port Harcourt), Nigerian Railway Modernization Project (Lagos-Ibadan section) and Rehabilitation and Upgrading of Abuja – Keffi- Makurdi Road Project.
Others are the Nigerian National Public Security Communication system Project; Abuja Light Rail Project; Nigerian ICT Infrastructure Backbone Project; Zungeru Hydroelectric Power Project; 40 Parboiled Rice Processing Plants Project (Federal Ministry of Agriculture & Rural Development); Nigeria Supply of Rolling Stocks and Depot Equipment for Abuja Light Rail Project; and the Nigeria Greater Abuja Water Supply Project.
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While many of these projects are at various funding levels, some, like the AKK gas project, Lagos – Calabar rail line, and Nigerian ICT Infrastructure Backbone Project phase 2, have been stalled due to China’s reluctance to release more funds.
The Port Harcourt-to-Maiduguri railway project, the Kano-to-Maradi line and the 1,525MW $4bn Mambilla power project are among projects that have all stalled.
A Baker McKenzie report in April 2021 says Chinese bank lending to African infrastructure projects has reduced from $11 billion in 2017 to $3.3 billion in 2020.
Why is China drawing back?
Although the terms and conditions of these Nigerian loans sourced from China have been queried by many, China has been exceptionally forthcoming with loans to Africa’s most populous nation and other African countries under its Belt and Road Initiative.
However, analysts believe that China now views Nigeria as being too exposed due to the huge loans. Viewed as an entity, Chinese authorities may have decided to reconsider just how much is too much.
Secondly, it would appear that Nigeria’s reliance on Chinese loans has gone on for too long. Chinese banks are beginning to rethink support for these expensive projects due to Nigeria’s inability to raise funds from other lenders such as the African Development Bank (AfDB), World Bank, and the International Monetary Fund.
The Chinese refusal is also a signal that there are concerns about debt sustainability and the availability of Chinese financial resources. Analysts say the funding difficulties also indicate a broader trend of Chinese banks becoming more risk-averse and looking to shield and protect their interests.
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Nigeria’s federal government needs to be creative in sourcing funding for capital projects. Many have pointed out that the level of the government’s borrowing may not be sustainable, and this ought to be a word of caution to the government as it continues to pile up burdens for the coming administration. China’s withdrawal may be a blessing after all.
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