Why China’s $550m satellites gift is really ‘free’

Last week, Nigeria’s Minister of Communication, Adebayo Shittu announced that two prominent Chinese companies with very deep pockets, Exim Bank of China and China Great Wall have agreed to buy two communication satellites for Nigeria in a deal worth $550 million.

The new deal will ensure that Nigeria does not necessarily contribute a cent, despite an earlier pact that required the country to pay only 15 percent. Coincidentally, the two satellites where manufactured by China Great Wall, one of the funders in the deal.

Expectedly, the Minister of Communication says he is confident Nigeria is getting a good deal. According to him, the $550 million was not a loan. However, for putting up the money, the Chinese companies will take an equity stake in NigComSat, a limited liability company owned by the Nigerian government and responsible for managing satellite communications.

He did not disclose what percentage equity stake is being giving up or how it was valued in return for the Chinese investment.

Interestingly, the minister was quoted as saying that Nigeria “has nothing to lose because we are not putting anything into it in terms of financial services.” Apparently, sharing equity with the Chinese companies does not amount to anything “to lose” for the minister.

The National Bureau of Statistics (NBS) noted in September, 2017 that the country’s foreign debt stock stood at N15.05 billion. The Exim Bank of China accounted for $5.15 billion of federal government’s indebtedness alone. The $550 million will only further increase the country’s debt obligation to the Chinese. To be sure, Nigeria’s debt to China hit over $3.22 billion by the end of 2016.

China has a long history of granting seemingly “nothing to lose” loans to countries like Nigeria. Many of the projects being carried out by Chinese companies in the country came through such loan agreements.

A typical loan from China comes in the fashion of financing and building infrastructure that poor countries need – like the two satellites Nigeria is getting. In return, China demands favourable access to their natural assets, from mineral resources to ports.

As some debtor countries have recently discovered, no loan from China ever comes free as Adebayo Shittu stated. A good example is Sri Lanka, which recently fall victim of what Brahma Chellaney, a professor of Strategic Studies in India, called China’s masterful debt diplomacy. Sri Lanka was unable to repay massive debt (about $8 billion) it had accumulated from China and had to formally handover its strategic Hambantota port to the Asian giant. Hambantota straddles Indian Ocean trade routes linking Europe, Africa, and the Middle East of Asia.

China’s debt diplomacy is being fuelled by a slowing economy that is causing deep unrest among the leaders about losing easy access to overseas consumer markets, which propelled the country’s turbo-charged industrialisation in recent decades. Recent data show that global trade has stayed stagnant.

Funding big-ticket infrastructure projects overseas, according to one analyst, enables China to hit four birds with one stone. First of all, it prevents massive layoffs in and aids the survival of major state-owned enterprise and affiliated companies, which are running out of lucrative projects at home. Importantly, it also offers the opportunities for China to expand its supply chains beyond Pearl River Delta and East Asia by incorporating untapped labour markets overseas. Finally, improving the infrastructure of trading partners also facilitates Chinese exports owing to reduced transaction costs.

Rather than offer grant or concessionary loans, China provides huge project-related loans at market-based rates, without transparency, and often little or no environmental – or social-impact assessments. To strengthen its economic position, China mandates its companies to bid for outright purchase of strategic national assets.

From a development point of view there are many benefits Nigerian stand to get from owning a satellite. A well managed satellite communication can play a critical role in launching Nigeria on the global communication system. It can transform mobile communication and internet access in the country. Communication satellites are used for things like phone calls, data transmission or beaming TV channels into people’s living room.

How satellite works is, once a satellite becomes geosynchronous, rotates with the earth orbit, a satellite is ready to work. It then beams messages to a ground station, the ground station receives these messages by using a device called a transponder, which interrupts the message then distributes it. By doing this, satellite stations can then transport telephone service, data, or television transmissions to almost anywhere. These communication satellites are used for things like an overseas phone call or beaming many channels into people’s living room.

Nigeria already has possession of two satellites – NigComSat-1 and NigComSat-1R. NigComSat-1R, it will be recalled was launched December 19, 2011 as a replacement for NigComSat-1, the first sub-Saharan Communication satellite, launched in 2007 and which de-orbited in November 2008, due to single offset event on the power system.

NigComSat Limited, the agency in charge of the satellites, in 2015 claimed that the first satellite was providing broadband to various banks in Nigeria before it de-orbited. Consequently, customers’ sites were migrated to another satellite through a backup agreement between NigComSat Limited and another satellite operator. The agency also claimed that NigComSat-1R presently provides services to customers and resellers both within and outside Nigeria.

The obvious position from NigComSat is that the country’s current satellites are commercially viable. this raises the question of why NigComSat is not being encouraged to independently go into a commercial agreement with whatever satellite operator it choose to deploy its new satellites? Why force another Chinese satellite on them?

There is also the concern that Chinese equity interest in the Nigerian satellites would give China access to information and communication within or moving outside the country. In that sense, critical information belonging to Nigerians or even the government that can be accessed using the satellites is also available to the Chinese managers.

Admittedly, the minister of information did not specify what percentage of equity that the Chinese companies will take in NigComSat to consummate the deal. It is also not clear the value of this equity being handed over to the Chinese and how long they will hold this equity and if there is an agreement around exit strategy? There is no information on any knowledge transfer agreement around building of these new satellites in Nigeria.

Are we going to continue turning to China for new satellites or is a strategy in place to ensure that our universities acquire the knowledge to build these satellites?

Interestingly, some industry experts have also spurned the deal, advising the government to focus more on low hanging fruits to expedite technology penetration. “$550 million can build a national fiber backbone for Nigeria that will connect all the states. Same amount can extend existing fiber to Nigeria’s top 50 cities and create hundreds of thousands of new jobs, increase GDP and productivity, stimulate growth and new business creation, change the way public services are delivered, and how health care and educational services are provided. Only $50 million can extend quality internet via submarine cable to the Niger Delta for interventions in health care delivery education, agriculture, communications and ensure Port Harcourt emerges a centre for entrepreneurship via the creation of a network of technology clusters and incubation centres. There is so much that can be done with value we can create with that money yet we are funding Chinese R&D and satellites that add lesser value to our telecoms capacity” said one of them who chooses to remain anonymous.

The Chinese satellites are not free and it would be great if the government provided more information on this deal.