INVESTIGATION: Nigeria to pay off $3.5bn debts to China 2047, loans to outlive 6 administrations



President Muhammadu Buhari

From 2023, the federal government, under seven elected presidents would require no fewer than 24 years to pay off the $3,593.42 billion loans Nigeria currently owes the China Exim Bank, majority of which life span ranges from a minimum of five to maximum of 20 years.

However, the terminal date for the repayment of the bulk of the debts would only remain feasible if Nigeria does not draw further loans from the Asian nation before the end of the life of the present administration and subsequent others.

Five new governments

Subsequent governments beginning in 2023, 2027, 2031, 2035, 2039, 2043, and perhaps that in 2047 will bear the burden of generating funds to upset the loans obtained to execute capital projects, which when completed and optimally operated, should generate enough resources to recoup both the capital and interests accruable to the loans and provide services to uplift the socio-economic well-being of Nigeria and Nigerians.

All the loans carry 20-year maturity period and seven years of grace-a period the borrower is allowed to gather itself, while each loan instrument attracts varying percentages ranging from 2.50% to 2.75% interest rates, based on the prevalent foreign exchange rate as at the time payment is made.

Total debts profile

Nigeria’s current debt stock is broken into five major categories namely: the multilateral, World Bank Group, bilateral, commercial and promissory notes. Based on the September debts profile released by the Debt Management Office (DMO), the multilateral subtotal is put at $3,469.45bn, next subtotal and the country’s highest debts owed the World Bank group is $18,284.09bn, an amount that is 48.17% of the total debts stock.

The data equally shows that the sum total of bilateral debts including those to China Exim Bank, India Exim Bank, France (Agence Francaise Development), Japan (Japan International Cooperation Agency), and Germany (Kreditanstalt Fur Wiederaufbua) stands at $4,398.56bn, which is 11.59% of the grand total.

Of this amount, debt to the China Exim Bank is $3,593. 42bn and represents about 87% of Nigeria’s bilateral debts. The commercial subtotal, according to the DMO, is $14, 668.35 billion and is 38.65%, while promissory notes subtotal takes the rear with $604.09 billion, a mere 1.59% of the $37,955.09 billion grand total of Nigeria’s debt stock profile as at the third quarter of 2021.

Our investigations revealed that if everything proceeds as planned, Nigeria would likely have finished paying off the $3.5bn bilateral loans debts it presently owed to the China Exim Bank by 2047.

Most of the debts have a 20-year maturity period with seven (7) years moratorium–period of grace clause-injected into the structure of the various loans agreement to repay the principal.

Data obtained from the DMO alluded to the fact that Nigeria’s public debt rose to a record N38 trillion in the third quarter of 2021.

The data further showed the debt profile has an increase of N2.54 trillion when compared with the corresponding figure of N35.4 trillion at the end of Q2, 2021.

Also, it indicates that Nigeria’s Foreign Direct Investment (FDI) plunged to its lowest in more than a decade in 2021.

The FDI nosedived to $77 million in Q2, 2021, a 49.6% decline from $154.7 million in the Q1of the year.

The development led to Nigeria being classified as a high-risk business environment which has continued to discourage foreign capital inflow into the economy.

DMO clarifies

According to the November 2021 publication of the DMO, Nigeria’s outstanding debts to China (Exim Bank of China) is $3,593.42 billion, an amount that is second only to the $11,569.51billion it also owed the International Development Association.

Clarifying on Nigeria’s debt portfolio to China, the DMO said loans from China to Nigeria at present stands at $3.59billion, and constitutes only 9.4 per cent of the country’s total foreign debt stock of $37.9billion.

“Nigeria’s total debt stock as at September 30 was $37.9bn; this figure comprised the external debt stock of the federal government, 36 state governments and the Federal Capital Territory.

“But total loans from China stand at 3.59 billion dollars, which is 9.47 per cent of the total external debt. The loans did not require any national asset as collateral; they were largely concessional,” Director-General DMO Ms Patience Oniha said.

In a document published on its website, DMO reveals that the debts consist of N22.43 trillion for domestic and N15.57 trillion external.

$1.4bn repaid

The DMO data analysis equally shows that various Nigerian governments since 2002 and up till 2019 had approached and secured loans agreements with the Chinese government totalling $6.1 billion (N2.50trillion) for 15 projects out of which $4.1 billion has been disbursed.

Records provided by the DMO listed full disbursement of loans sums obtained between December 2010 and July 2013 for the execution of Nigerian National Public Security Communication System project, Nigerian Railway Modernisation (Iddu-Kaduna) project, Abuja Light Rail project, Nigeria ICT Infrastructure Backbone project, and four Airport Terminal Expansion projects (Abuja, Kano, Lagos, Port Harcourt).

With the exception of the Nigerian Communication Satellite loan which has been fully repaid, the other instruments with 100% disbursement have had both the capitals and interests accruable there from repaid to varying degrees.

The lifespan of the Satellite loan secured in 2006 terminated June 29, 2018 with the full payment.

Also, the DMO data shows that Nigeria has repaid to China both the principal amount of $565.23 million as well as the interest of $477.98 million accruable to the loan. This leaves a balance of $3.58 billion being owed to China as at 2019.

Blueprint’s findings further show that eight (8) of the 15 major loans debts were obtained between 2016 and 2019, specifically to raise needed resources for the execution of capital intensive infrastructure basic to the industrial development of Nigeria.

Why Chinese loans?

Providing some insights into reasons Nigeria was at home with Chinese loans at a media parley last year, Minister of Finance, Budget and National Planning Zainab Ahmed said this was because the World Bank and the African Development Bank (AfDB) had failed to show much interest in Nigeria, especially prior to and during the recession in 2016.

Also speaking in same direction, Senate President Ahmad Ibrahim Lawan said this had become necessary in the face of the dire need for infrastructural facilities and grossly inadequate funds available, occasioned by the oil glut between 2014 and 2016 and the dwindling prices of crude oil– Nigeria’s main source of funding.

He said this was the only way to generate the required funds for major economic driving projects.

He said: “Our options are really very limited as a country. First, we don’t have the necessary revenues. Nigeria is poor, we shouldn’t deceive ourselves. Nigeria is not rich, given the circumstances we live in, given the challenges we have; our resources are so low, our revenues are so low and therefore, the option of not doing anything because we have no money, we shouldn’t go for infrastructure development, is not even an option worthy of consideration. You cannot keep the economy stagnant.

“Two, you cannot, in my view and judgement, tax Nigerians further for you to raise the money for infrastructure development. Other countries do that, but we have a serious situation across the country, so you cannot put taxes on people.

“The other option is a public-private partnership. You need to create the environment to attract investors to come into our country because of the security challenges we face today. Not many investors would like to come to Nigeria. In fact, even those inside Nigeria may not like to invest properly in this sector of infrastructure development.

“So, the only option left is for us to borrow, borrow responsibly, utilise prudently and economically, and ensure that the projects are self-sustaining so that they can pay back the loans that the Nigerian economy will benefit from the implementation of such infrastructure development.”

Cheap interest rate

A tax expert and founder of the Sana’a da Ilmi Foundation, Amina Ado, said Nigeria has opted for these loans because of the cheap interest rate of the China Exim Bank loans compared to commercial loans from the international capital market.

Illustrating the benefits of loans from China, she said: “The current yield on Nigeria’s 2038 Eurobond is 8.5%. So, if Nigeria wants to issue a twenty-year Eurobond today, it will likely have to pay around 8.5% in annual interest. Assuming Nigeria borrows $1 billion for twenty years at 8.5%, with a bullet payment at the end of year 20, it will pay a total interest of $1.7 billion.”

“However, if the loan is from China for the same twenty-year tenure, Nigeria will pay interest of 2.5%, for a total of $397 million. That is a huge saving of $1.303 billion compared to a loan from the international capital market. Given these two options, Nigeria should have no difficulty choosing the Chinese option,” the expert further said in an article.

Economists believe loans from China to invest in key strategic public projects such as transportation- railways, ICT sectors which have six projects, each financed by loans from the Chinese bank, as well as energy, agriculture and water sectors, respectively, which equally have three and two projects tied to Chinese loans, could well be just the catalyst Nigeria needed to address the lingering chronic infrastructure deficit.

They also believe ultimately, when these projects are executed, it would guarantee the return of the economy to an appreciable annual real GDP growth rate over and above the current dismal rate of less than 2%.

The minimum growth rate Nigeria needed to keep per capita income rising and lift millions of Nigerians out of excruciating poverty, is at least 5%, according to a banker and tax expert, Umana Imowo.

Projects loans invested on:

  1. Nigerian-Communications-Satellite
  2. Nigerian National Public Security Communication system Project
  3. Nigerian Railway Modernisation Project (Idu- Kaduna section)
  4. Abuja Light Rail Project
  5. Nigerian ICT Infrastructure Backbone Project
  6. Nigerian Four Airport Terminal Expansion Project (Abuja, Kano, Lagos & Port Harcourt)
  7. Nigerian Zungeru Hydroelectric Power Project
  8. Nigerian 40 Parboiled Rice Processing Plants Project (Fed. Min. of Agric & Rural Dev.)
  9. Nigerian Railway Modernisation Project (Lagos-Ibadan section)
  10. Nigeria Rehabilitation and Upgrading of Abuja-Keffi-Markurdi Road Project
  11. Nigeria Supply of Rolling Stocks and Depot Equipment for Abuja Light Rail Project
  12. Nigeria Greater Abuja Water Supply Project
  13. Nigerian Four Airport Terminal Expansion Project Ancillary Project
  14. Nigerian Four Airport Terminal Expansion Project Incremental Project
  15. Nigerian ICT Infrastructure Backbone Phase II Project.

Of these, perhaps the Nigerian Railway Modernisation project (Idu-Kaduna section), Abuja Light Rail project, Nigerian Railway Modernisation project (Lagos-Ibadan section), Nigerian Four Airport Terminals Expansion project (Abuja, Kano, Lagos and Port Harcourt), and the rehabilitation and upgrading of Abuja-Keffi-Makurdi road project, have recorded visible performances.

Threat to national asset

On the threat that China could take over national assets should Nigeria default in payments, the DMO DG, Ms Oniha said there are loan agreements which both the lender and the borrower are required to strictly adhere to. She said: “the Loan Agreements provide that where there is a dispute between the parties, the first action is that the parties should resolve it within themselves and if that fails, they go to arbitration. In other words, a lender, in this case, China would not just possess an asset at the first sign of a dispute including defaults.”