3 Ways Chinese Loans Could Hurt Nigeria
The Forum on China-Africa Cooperation, FOCAC summit just rounded off in Beijing. The major highlight of that summit was the announcement by Chinese President, Xi Jinping of an additional $60 billion loan available to African countries.
China is bullish on Africa so much so that an analyst recently joked that Africa risks becoming an appendage of the Peoples Republic of China.
From Nigeria to South Africa; Ethiopia to Zimbabwe, Chinese influence across the continent is growing rapidly and quite strongly.
Just this morning, there was a story that the Nigeria Port Authority, NPA is planning to borrow 72 billion naira from the China Export Import Bank.
The same bank funded the Abuja light rail that was recently launched by President Muhammadu Buhari. The project cost $824 million and the Nigerian government has yet to meet its commitment in the counterpart funding arrangement.
The bank also provided some $7.5 billion for rail modernization across Nigeria. This is besides the $1.5 billion loan that the bank also provided specifically for the Lagos-Ibadan standard gauge rail line.
Besides rail, China is also building Nigeria’s communication satellite at $550 million under a build and operate arrangement.
In the Agric sector, China loaned Nigeria $4.5 billion for mechanized Agriculture in 2017.
In the energy sector, just 2 days ago, China agreed to finance Ajaokuta-Kaduna-Kano pipeline project at $2.38 billion.
And just today, it is in the news that President Buhari is seeking help from China to build the Mambila Power project.
And the list goes on and on.
The government can’t seem to get enough and the only people who seem to be worried are Nigeria’s former friends in Europe and America.
So, it looks like a good thing. The Chinese are developing the country by building infrastructure and they don’t seem to care that the country does not have money. President Xi told African and business leaders at the FOCAC summit, that there are no strings attached to the loan. They just want Africa to develop. But how true is this?
Here are 3 possible downsides to the increasing Chinese dependence.
1. Nigeria Will Confront An Increased Cost Maintaining Chinese Infrastructure: So, you see, the Chinese projects being undertaken in Nigeria also require that they deploy their technical manpower to maintain them. So, after China has completed a project, they would stay to maintain it at a cost for the government. The parts of the infrastructure will be supplied from China at almost triple the cost of original supply, for instance. So, while it looks like a great deal in the beginning, the project has a lifetime for China. And no skills are really transferred.
2. Chinese Loan Does Not Drive Market Transparency: You see, when IMF or World Bank wants to give loans to Nigeria for instance, they usually advocate for some market reforms. They want an overall condition of the market to improve so there will be a win for the economy and them. But in China’s case, there are no stringent conditions. They don’t care about market reforms or monetary policies. Again, that looks like a good thing but in the end, it only gives room for them to also get away with lots of things.
3. More Taxes Raises In The Future: As the adage has it, lend a friend money, and you could lose both the friendship and the money. The chances of that happening in this China-Nigeria love affair is not remote.
But Nigeria will try everything it can to not lose the friendship by paying up its debt. And that may result to increase in tax as it struggles to raise the revenue to clear the debt. Tax raises are never good for any economy. Businesses will struggle and capital importation (foreign direct investment especially) will take a bad hit.
Right now, the government is taking and taking (the loan). But what if the government defaults in its repayment? (It has happened with the infamous Paris Club debt.) What will happen is that it will be the turn of China to take and take, flout labour laws and operate in complete disregard for other local laws. If you don’t like it, you pay your debt.
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