Nigeria needs transparency, accountability in dealing with China, Prof. Bongo Adi

TOPIC: Nigeria and China Loans: Issues and Challenges

Date: 20^th of May, 2020

Programme: Business Morning on Channels Television.

Presenter: Chimezie

Preamble

The House of Representatives last week called for the review or outright cancellation of latest China loan to Nigeria on the principle of force majeure. The House is also to look into China- Nigeria loan agreement since the year 2000, with a view to ascertain their viability, regularizing and renegotiating them. China is at the forefront of Africa’s debt drive, making the Asian nation the largest bilateral creditor as it has given the continent loan worth about   $152 billion dollars in 18 years; that is between the year 2000 and 2018. To avoid unnecessary request for debt write-off, relieve or reprieve, the Chinese government had limited its African loan to infrastructural development by Chinese owned companies and in most cases Chinese neighbors.  With such huge loans, lot of critics are  concerned about how feasible it would be for African nations to refund the credits,  especially with the advent of the novel Corona virus. Joining me is a Senior Lecturer and the Director, Centre for Infrastructure and Policy regulation and Advancement at the Lagos Business School, Dr. Bongo Adi. Our total external debt as at 2019 December was $27.7 billion dollars and the Chinese component is about $3.2 billion dollars. This is less than 10%,  is this really something to worry about ?

A: Let’s get the data clear. As it stands now, I think our total debt should be about 31 billion dollars and if we add the new concessionary loan by the IMF and other Development Finance Institutions, we should be looking at anything about 36 billion dollars. Now,  regarding Chinese loans, I think the Chinese Exim Bank since the year 2002 seems to have advanced a total of $6. 5 billion dollars to Nigeria. So, that is quite significant. So, if you said that is just about 10% and asking that if that is something to worry about, I think we have to look at the total debt and our capacity to repay. Because,  it is not just about China, but all our various creditors. When we look at it, debt independent  revenue is about 95%, 96% actually. That has passed the critical threshold. What it means is that we lack the ability. We do not have the head room anymore. This mean that our independent revenue are being stressed and strangulated by the enormous debt that is hanging over our neck. So, increasing that Chinese loan is something that we really need to be concerned about . Why is that so? We have to look at the history of Chinese loan, not just in Nigeria, but in other African nations and in the entire developing world. That has come up in the last three years  from 2017. I know that the United States of America has taken up the Chinese on this . The US Representative at a point wrote to the President to intervene on what is called the Chines Debt Trap Diplomacy, using Finance as a weapon in many developing countries. Thus, out of the 63 countries that is hosting Chinese Belt and Road initiative project, about twenty of them had already  gone under debt distress and eight of them are about to lose their foreign debt sustainability if they should take any further loan.  If that were to be a good guide, it means that we need to really be careful when we are borrowing from China.

Q: Are you concerned that Nigeria can find itself in the same situation as Zambia where the  Chinese government had to take over some government assets?

A: That is it actually. We have to look at what is happening in other African countries. It is not just Zambia, we have Kenya, we have Elamo port in Kenya, that is about to fall into the hands of the Chinese authorities. Also, we know about Djibouti which is a small African country; more than 85% of their debt operation is in the hands of Chinese and we know that Djibouti occupies a very strategic anchor pointt in Africa in terms of shipping, so the Chinese in order not to leave anybody in any doubt as to their intention has established a Military base there. So, we have to put that into consideration. And, of course in Sri-lanka, we know what happens to the Amba Toto International Airport. It has to go under lease to the Chinese for 99 years, when the government found itself in default of increasing Chinese loan they used to build that Airport. So, we’ve seen this repeating cycle all over the world where the Chinese will advance infrastructural loans without asking questions and these nations not critically censoring or scrutinizing the Chinese intention and they kept up wrapping such loans until they find themselves in default. And, what normally happen is that the Chinese will begin to take possession and repossessing the Strategic infrastructure. So, that is what some people call Chinese Chop stick imperialism. We’ve seen that and so many researchers are also covering that. We know about George Ayitte, the Ghanaian who won the HMilkimh price in 2003 for his work . He has looked extensively at Chinese engagement in Africa and the rest of the world and the experience is not just pleasant.

Q: What would you make of the move by the House of Representative calling for a review and possibly debt relieve going by the reality that the Chinese has developed a strategy of tying the loans to infrastructural projects?

A: That is the step. That resonates with what I have said  about China and their interest in key strategic infrastructure in many emerging countries of the world. So, if they are tying their loans to projects,; that leaves nobody in any doubt of their intention , which means that if you are not able to repay, they take possession of those infrastructural asset. That becomes their collateral. Let’s make it clear. First of all, it is not bad to borrow. The house is saying that we should declare force majeure so that we can exonerate ourselves from repayment. We need to understand that Covid-19 is a temporary setback that will go away one day. It would not be there forever,  and when this happens, we find ourselves in a situation where we will need to borrow money again. So, if we act base on this to declare Force majeure and default on our loan. That would not be a good thing to do, looking at the future. So, my thinking is that we have to introduce accountability, transparency and responsibility in our engagement with the Chinese when it comes to loans. We need the loan definitely, but we do not have the right institutional structure to guaranteeing that when those loans are taken they will be judiciously used and that we can repay them. There are so may  solutions to all of these which I think we need to be looking at.

Q: So far the Abuja- Kaduna rail and a couple of others  have been successful but government seem to have suspended work on Lagos – Ibadan  Rail Project two months ago because of the coronavirus pandemic , what impact would this have on Nigeria’s debt to China ?.

A: When you said that the Abuja –Kaduna rail has been successful, it depends on how you want to qualify that success Yes, success in the sense that it has been completed and executed. But , when it comes to the economics of that, questions are being asked. I know that I have heard the Minister of Transportation in one forum talking about how government subsidizes almost 60% of that. Giving that all over the world,  the cry is about  government removing subsidy. Do you think that those projects would be sustainable if those subsidies  were removed and if that were the case, would we be able to pay back some of the debts taken in executing some of those projects. So, what is the impact of all of these? We need to be careful , that’s what I’m saying in terms of accountability, transparency and responsibility.  But, beyond that, before even taking any loan, I think there are various options. Even PPP, we shouldn’t be talking about PPP because even the World Bank has begun to change its stand about PPP. They now begin to talk about blended Finance. Blended Finance is  a strategic tool where you bring in development Finance with some philanthropic funds in order to activate private capital investment into infrastructural development. I think there are some solutions we have to be looking at so that we will know that we are doing the right thing and not jeopardizing our own sovereignty.

Q: Okay, let’s look at the Belt and Road Initiative, the hype around it seems to have subsided, what do you think is responsible ?

A: Well countries are still battling with Covid-19. So, we need to get ourselves out of the pandemic that we found ourselves before talking about other things. Moreover, why nobody is talking about it is not because that people have learned to live with it. It is because China is also under stress. I listened to the Chinese Premier the other day during the World Health  Assembly; people said he has been forced to actually address the world. In the  characteristic of China, he made another commitment of $2 billion dollars to support it, you know throwing money at all these things . When China has been called out, they have this practice of bringing out money. They are now facing so many questions about Covid-19 and its management from Wuhan. I think at the end of the day, after we are through with this, people will still be asking questions about Belt and Road initiative. Like I said earlier, out of the about 63 countries housing the Belt and Road initiative, 23 of them are in financial distress , not being able to repay those debts. If that were to be a guide , you will see that the Belt and Road initiative isn’t in the interest of the emerging economies.

Q: Looking at the financial outlay of the Belt and Road initiative, it  is in the region of $1 trillion dollars, is this not ambitious on both sides?

A: Yes, you need to understand what the Chinese intention is. Don’t look at the size of the loan; you have to look at the intention behind the loan. What is the Chinese strategic imperative? We are looking at a world, where China will begin to emerge as a global power. In the past, we have more or less the UNIPOLAR World dominated by the US. The Chinese has seen itself as an emerging power. Their GDP in the next few years will surpass that of the United States, the second largest economy in the world and in terms of their military power, they are also coming up, challenging the established order. You should also understand that Chinese became the manufacturing hub for  the whole world. And as a result, they needed the logistics to bring in the raw materials; to bring in inputs for their production and also exporting  all the finished products So, they need to protect the routes. When, you become an economic power, the next thing is to also become a political power. So, it is important for them to protect those routes. So, the  $1 trillion dollars being given out under the Belt and Road initiative is not just a loan ;it is part of the  Chinese strategy of protecting their dominance of the global economy right now .

Q: Overall, what is your view about Nigeria’s debt sustainability?

A: As I said ealier, our debt is high, independent government debt revenue available to service the loan  runs at 96%, which means for every 1 naira, 96 kobo is used for debt service. So, what is left. That is a very critical situation, that is a precarious situation for any nation to be. Should we because of that stop borrowing money?. Like I said, we have very  many smart people in Nigeria, we have very smart experts  even within government that knows how to structure good deals, so, what is require is accountability, responsibility and transparency. We have to move away quickly from the whole thing about public -funded infrastructure, because government has demonstrated the lack of capacity and competence in managing projects and making them work and economically viable. There are so many solutions we have to explore. I have talked about the blended finance. There are so many structural mechanism and framework  that we can put in to ensure that  we get the loans and put into good projects that is able to repay by itself.

Culled from Channels Television...