Three months ago, the Chinese embassy in Nigeria was forced to deny plans to seize any of Nigeria’s national assets amid local debates over the possibility of “losing” sovereignty to China over bad debts.
It was an episode that finely captured the scale of misunderstanding of Africa’s debt commitment to China in the wake of the Asian giant’s deepened influence on the continent over the past two decades. As more African countries have looked to China for financing and technical support to rapidly boost infrastructural development, there have been loud musings about the scale of China’s lending to African countries as well as the Asian giant’s motives, which have been described in some quarters as “debt trap diplomacy.”
Meanwhile, Nigeria has obtained 17 Chinese loans to fund different categories of capital projects, and Nigeria will still be servicing the Chinese loans till around 2038, which is the maturity date for the last loans obtained in 2018.
The lawmakers’ concern is worthy to be considered. 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 used finance as a weapon in many developing countries.
Consequences of Chinese alleged Debt trap diplomacy
All Chinese loans are tied to infrastructural developments, This African nations vulnerable to china thereby forfeiting 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.
Example 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.
Nigeria’s Capacity to Repay it’s loan Remains in Doubt
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’s (AfDB) failed to show much interest in Nigeria during the recession.
But can Nigeria refund the loan? Experts think otherwise, as they argue that if care is not taken, the nation may fall into the Chinese Debt Trap.
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 refund 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 refund 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.”
