Nigeria’s Chinese loans in spotlight amid concerns over Ugandan debt

PELUMI BOLAWA examines the fresh concerns over the debt owed to China by Nigeria following the recent reports about Uganda’s Chinese loans

China has been a significant lender to Africa in the area of infrastructure since the late 20th century, providing project-tied loans for railway, airport and power projects, among others.

Late last month, a Ugandan newspaper, Daily Monitor, reported that some provisions in the agreement for the $200m Chinese loan the East African country obtained to expand its Entebbe International Airport, if not amended, exposed the country’s only international airport and other government assets to potential attachments and take-over by China upon arbitration awards in Beijing.

But China and the Ugandan government have denied allegations that the Asian country may grab the airport if the country fails to service the loan.

The development stoked concerns about Nigeria’s indebtedness to the Asian giant. As of June 2021, the country’s debt to the Exim Bank of China stood at $3.48bn.

“The Nigerian government prefers to service debt with debt and it creates more problems for the country,” an economic expert, Prof. Sheriffdeen Tella, said in an interview with Financial Street. “Whatever we are paying on debt servicing is too high and that is affecting some other things,”

According to the Debt Management Office, Chinese loans accounted for 11.28 per cent of Nigeria’s external debt stock of $27.67bn as at March 31, 2020.

The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, said recently that the Nigerian government was borrowing sensibly and responsibly.

“These investments will make returns in the future,” she said.

A former President, Chief Olusegun Obasanjo, while reacting in September this year to the Federal Government’s plan to source for fresh loans, said borrowing to accumulate debt for the next generation “is criminal”.

“If we are borrowing for recurrent expenditure, it is the height of folly,” he said, adding, “If we are borrowing for development that can pay for itself, that is understandable. Then the payment, how long will it take to pay itself?”

The Minister of Transportation, Rotimi Amaechi, in an interview with Arise TV in June, said about $150m out of the $500m obtained from China during the President Goodluck Jonathan administration to fund the Abuja-Kaduna Railway Project had been repaid.

The minister expressed confidence that the country would not default on the debt owed to China.

A civic-tech organisation, BudgIT, revealed recently that in 2020, Nigeria expended a sum of N3.34tn on debt servicing out of its total revenue of N3.42tn.


Transportation sector gets the lion’s share

The Nigerian transportation sector has been the major beneficiary of the Chinese loans.

Out of the 11 loan deals agreed with China in over a decade, six of them are directly related to constructing or revitalising transportation facilities.

The first transport-related loan was received in 2012 to modernise the Idu-Kaduna Railway with a sum of $500m.

In 2013, a $500m loan was also obtained from China to fund the Abuja Light Rail Project. The Airport Terminal Expansion Project in Abuja, Lagos, Kano and Port-Harcourt got $455.28bn out of the $500m.

Nigerian Railway Modernisation Project (Lagos-Ibadan) is being funded with $759m out of the $1.27bn loan deal of August 2017.

A sum of $80.64m was disbursed to fund the Rehabilitation and Upgrading of Abuja-Keffi-Makurdi Road Project out of the $460.82m loan deal of August 2017.  

Tella said the quality of the rail lines would not solve the rail transportation problem in Nigeria, adding that the focus should be more on commercial activities than ordinary transportation.

“If we are dealing with rails, it should have been strong rail-lines. Carrying cargo is real commercial business. Some people might not even pay, but business owners would,” he said.

Amaechi said the railway construction in Nigeria might not have a direct impact in terms of revenue but would indirectly help solve transportation problems.

He said it would help businesses with adequate mobility of goods from one place to the other. 

According to the minister, some of the advantages of the deals with China include the opportunity for Nigerians to study transportation and railway in China, transfer of technology, and the establishment of Transportation University in Daura, Katsina State, which will be managed by the Chinese for five years.


‘Nigeria should renegotiate some loan deals’

 Tella said the Nigerian government should renegotiate some of the loan deals with China.

He said, “They should rather go for moratorium (postpone of loan payment). The government is refusing because they want to continue to borrow more money. The debt is much, but as long as we are able to service our debt, I don’t think we would run into trouble.”

“The government can also make use of the operate-and-transfer model. There will be an agreement on how much will be charged. When we finish payment, it becomes our own. By the time these operators are leaving, we would have learnt the way they collect money through their system. Operating and paying could be burdensome.

Amaechi said last year that he was unaware of any clause in the country’s loan deals with China that might have mortgaged any of the country’s national assets. 

Pelumi Bolawa
Pelumi Bolawa
Pelumi Bolawa is a content developer, writer, researcher and photographer. An intern at Financial Street, Pelumi is also a development administrator.

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