$3.7bn China debt: Whither Nigeria?

’s mounting debt continues to be a source of worry especially with the recent disclosure by the Debt Office (DMO) that the country owes $3.714bn. BENJAMIN UMUTEME looks at the implication for the country.

The issue of the nation’s debt continues to divide opinion among Nigerians, one thing that all seem to agree with is that the country’s debt is becoming very unsustainable in the face of dwindling revenue.

As a monolithic economy that is fixated on oil, has often been caught napping especially with the perennial volatility of the oil market.

Also, this was not helped by the devastation of coronavirus pandemic that grounded many economies including as both fiscal and monetary authorities battle to navigate their way out of the negative economic situation.

has had to borrow to fund its capital expenditure which has been abysmal over several decades.

The All Progressives Congress-led federal government with its determined to fix Nigeria’s has continued to borrow both from local and foreign sources. In this regard, has been the most willing to Nigeria’s loan request.

Between 2015 and the end of 2017, Nigeria’s debt moved from N12.6 trillion to N27.1 trillion at the end of 2019, and by December 2020, it had hit N 32.92 trillion.

According to the National Bureau of Statistics (NBS), in its recent report on Nigeria’s foreign and domestic debt, $17.93bn of the debt was multilateral; $4.06bm was bilateral from the AFD, Exim Bank of , JICA, India, and KFW while $11.17bn was commercial which are Eurobonds and Diaspora Bonds and $186.70 as Promissory notes.

Nigeria’s total public debt showed that N12.71trillion or 38.60 per cent of the debt was external while N20.21trillion or 61.40 per cent of the debt was domestic.

Painfully, while total revenue for 2020 was N3.93 trillion, representing a 27 per cent drop from the target revenues of N5.365 trillion; debt service for the year was N3.26 trillion, representing 82.9 per cent of revenue.

Despite the fact that the federal government has continued to boldly insist that Nigeria’s debt was within sustainable levels, experts have said the country has a debt problem.

Concerns over debt burden

Managing Director/Chief Executive Officer, Financial Derivatives Company, Bismarck Rewane noted that Nigeria’s total public debt raises concern.

According to Rewane, “It is vital to employ proactive measures to reduce the current debt level.”

Even private sector led think-tank, Nigeria Economic Summit Group (NESG) has said Nigeria’s borrowing has been significant.

“Debt service has become a significant portion of the expected revenue in 2020. It accounted for over 60 per cent of the government’s independent revenue in 2019.

“The total debt has been increasing ($85.39bn) but total factor productivity growth has been declining (-0.4%). This implies that the FG borrowings are hardly used for productive purposes. The debt service, after a while, becomes a burden on the government and its fiscal balance.”

DMO’s take

The Debt Office (DMO) in a document website showed Nigeria’s total loan obligations to at $3.714 billion at the end of 2020.

According to the debt agency, out of that amount $449.89 million has been repaid from the principal and $391.66 million as interest with an outstanding of $3.264 billion to the China Export/Import Bank.

The Nigerian Railway Modernisation (Lagos- Ibadan section) loan of $1.267 billion which was contracted on August 18, 2017, stood out as the single largest facility from the Chinese to the country.

The series of loans from China started with the Nigerian-Communications-Satellite (NIGCOMSAT) $200 million facility, which was signed on January 12, 2006, with 3 per cent and a grace period of five years.

The NICOMSAT loan with a maturity date of June 29, , has been fully repaid.

The country also took a $399.5 million loan in 2012 for the National Public Security Communication System with 2.5 per cent interest.

This has a grace period of seven years and 20-year tenor and will mature on September 21, 2030.

The entire $399.5 million was fully drawn down and the total payment of principal as of December 2020 was $92.19 million and interest of $89.04 million, leaving a total outstanding at $307.31 million.

The Nigerian Railway Modernisation (Idu- Kaduna section) loan of $500 million was similarly contracted in 2010, with interest rate of 2. 5 per cent and seven years grace period it is expected to mature on September 21, 2030.

It has been fully drawn down, with an outstanding payment of $384.62 million.

Similarly, the Abuja Light Rail loan of $500 million was contracted in 2012 with similar terms of 2.5 per cent interest rate, a grace.

Reactions trail debt pile up

In a chat with Weekend, construction expert Engr. Godwin Ubochi opined that there was nothing wrong in taking loans to address the country’s deficit.

According to him, the loan from China comes with a low interest rate making it attractive for many countries.

“There is nothing wrong when a nation strategically borrows for capital and infrastructural developments. The concessional loan from China no doubt comes with a very low interest rate of about 2.5 per cent, 20 years maturity and about eight years moratorium,” he said.

It’ll help address deficit

For Olamilekan Folarin, a political economist and development researcher, the loans from China would help address Nigeria’s huge deficit.

According to available data, Nigeria needs about $30 billion over the next 10 years to fix its infrastructure decay.

“The implication for the economy is that the loan tied to infrastructural development would positively on transportation sector and open it more for investment leverages,” Folarin told our correspondent.

Information from DMO alarming

Conversely, while speaking with our correspondent, the MD/CEO SD&D Capital Limited, Idakolo Gabriel Gbolade, said the information from the DMO was alarming.

He noted that the terms of the agreement for repayment should even worry the country more rather than the amount it owed.

“The DMO information on Nigeria’s obligations to China is alarming to say the least. The major areas of worry for Nigerians should be the wording of the various agreements to this loan. Nigeria having an exposure of $3.714 billion to China means that the government is gradually mortgaging the future of Nigeria to the Chinese.

“The fact also remains that based on dwindling revenue by government, there are tendencies that the government might not be able to meet up with the loan servicing and repayment obligations to various international agencies (China inclusive) this can lead to re-colonisation by china.

Nigeria needs to retrace its steps as regards loans from china and if we must take their loans ensure that the agreement will not lead us back to slavery,” he added.

In the same vein, Folarin noted that “payment and servicing the loans remains a terrible affair on our shrinking revenues.”

Obnoxious conditions

The construction expert explained that it was not a bad idea to take loans to develop infrastructure, however, the obnoxious conditionality attached to the China loans is what people are sceptical about.

“Chinese companies are mandated to execute the contracts. Of cause trust the Chinese, they come with their managerial and middle manpower and sometimes even the labourers. Creation of jobs for the citizens as one of the major reasons for the loan is defeated.

“Most Chinese loans are tied to the infrastructure which they use as collateral. Should you default in paying back the Chinese will take over the infrastructure assets.

“We have corrupt government officials that lack integrity, , competence and capacity to put the country first before self. The projects are selected with such bias that their economic benefits are poorly considered hence, cannot generate the revenue to pay back the loan.

“With reduced revenue due to drop in price of oil, Nigeria’s debt revenue ratio is increasing by the day which is a warning sign that Nigeria may default in her debt servicing obligations to her creditors.

“So with more loans from china, and without accounting properly what we have done with the earlier ones, Nigeria is heading for an economic doom. I sincerely hope that Nigeria does not become another Zambia or Kenya or Sri Lanka in the hands of China, where some of its National Assets will come under negotiations with China for control and management,” he told our correspondent.

Speaking further, Gbolade expressed his fears that if care is not taken, Nigeria might fall into the trap like other countries that took the China loans.

“According to reports, some countries in East Africa are already bearing the brunt of Chinese loans with their tricky agreements that stipulates the takeover of state assets if the countries fail to repay the loan as agreed.

“The major implication for Nigeria is that most of the loans availed to Nigeria by china is used to fund major infrastructures like railways and roads, this implies that by the agreements that failure to repay these loans could lead to a takeover of these major assets by the Chinese government,” the CEO further said.

Similarly, “We must recognize the fact that the loan is very different the neoliberal ones from IMF and World Bank and others. As this China’s loans are tied to infrastructural project such as roads, rail ways and airport. However, the fear of most Nigerians is the consequences of failure to pay back.

“It should be of interest to also consider the quality and sustainability of the projects. Again, the experience of fellow African countries such as Zambia and Kenya comes to mind. Poignantly, many regard China’s aggressive way of recovering their loans as blatant disregard for the sovereignty of a nation,” the political economist said.

Looking ahead

Efih, in a telephone conversation with our correspondent, opined that Nigeria can escape the debt trap if it allows ‘private capital’ to do some of these projects rather than collecting loans.

He said: “I believe that some of the loans by the federal government are not necessary. There are private capitals that are willing to come in and execute these projects, what they need is the enabling environment.

“If the investors are allowed to carry out the BOT models, I am confident that billions of dollars would have been saved by the federal government.”

The DMO has stated that debt raised for infrastructure projects by the federal government must generate enough revenue to service its debt.

Speaking at the 5th Budget Seminar organised by the Securities and Exchange Commission (SEC) in Abuja, the DMO Director-General, Mrs Patience Oniha, said there was need for projects raised for debt to be able to finance itself, citing debt securities like the Sukuk, which is still serviced by the federal government.

At the seminar with the theme: “Financing Nigeria’s Budget and Infrastructure Deficit through the Capital Market” Oniha noted that, “They (the debts) are not being serviced with revenue from those sources (infrastructure).

“I think that when we are talking about those innovations like revenue, bonds and all that, we should be talking about policies to ensure that the projects that we financed generate revenue.”

On his part, Prof Uche Uwaleke, Nigeria’s first professor of the Capital Markets, has said: “Regrettably, there is no evidence to suggest that the bulk of the borrowing has gone into self-liquidating capital projects.

“The way forward is to make conscious efforts to have multiple streams of income, including through embracing the private sector to develop the enabling environment for this to happen.”

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