Avoiding a looming debt trap

In August 2016, Nigeria and China spoke of a planned loan of $20bn from China to Nigeria. It was during the visit of President Muhammadu Buhari to China where he held meetings with Chinese President Xi Jinping. There was a caveat, though. The Chinese gave stringent conditions. They wanted to name their officials into the management of the fund and demanded articulated repayment plans, including terms and conditions. Nigerian officials were to discuss and agree with the China Ministry of Commerce.

The Federal Government announced through the Minister of National Planning, Udoma Udo Udoma, that the Federal Government had put in place a team of experts that was working with the Chinese on the modalities. The China Eximbank was to fund the loan. The Federal Government has not said much subsequently on this considerable loan expected from China. Chinese president Xi Jinping had affirmed at the China follow-up conference on the implementation of the follow-up actions on the Johannesburg Summit of the Forum on China-Africa Cooperation (FOCAC) the determination of the Chinese to maintain cordial and supportive relations with Africa.

It was the first time the Chinese were playing hardball with Nigeria over credit. The matter has been on hold since.

Since 2015, Nigeria has increased the embrace of the Chinese that the government of Olusegun Obasanjo commenced. Before the stalemate on the $20b loan, Nigeria in April 2016 spoke of a $6bn infrastructure projects loan from the Chinese. It was also to include a currency swap deal. There were neither details of the size of the swap nor any information to date. Federal officials spoke of inviting the Chinese to provide funding for local industries.

There was a loan of $4.5bn for mechanisation of agriculture in April 2017. Agriculture Minister Chief Audu Ogbeh alongside Governor Abdulazeez Yari of Zamafara State spoke of the credit after briefing President Buhari on the outcome of their visit to China.

Ogbeh stated, “We signed an agreement which engages all the states including the Federal Capital Territory for the procurement of strategic machinery for rural development and agriculture. The Chinese were willing to supply us these things on a long-term basis, 20 years credit on an interest rate of one percent per annum.”

Ogbeh articulated the basis for the romance with China. He said, “Of all the partners we have, the Chinese have shown the willingness to see us out of our problems because about 30 years ago they were in the same crisis. They see us as people in the same circumstances they were then, and they are willing to help us get out of it, and we appreciate it. The president does.”

Channel noise around his visit beclouded assimilation and discussion of the message of immediate past American Secretary of State Mr Rex Tillerson. As he travelled to five African countries including Nigeria, Mr Tillerson raised the concerns of the United States on the increasing debt profile of African nations. He was worried about the fact that majority of the loans were with China and the terms of engagement were not clear.

The unfortunate injection of geopolitics in Mr Tillerson’s concern robbed it of its credibility, urgency and importance. The situation is doubly regrettable as the sack of the foreign secretary from his elevated position on his way back from Nigeria prevented a proper engagement of the issue.

Citizens need to pay closer attention to the debt matter and task the Government over it.

The Debt Management Office recently reported a 79.25 percent increment in the nation’s debt stock within 330 months, moving up from N22.2tn in June 2015 to N21.73tn in December 2017. External debt rose to 26.64 percent of the portfolio from its previous share of 20.04 percent.

The reliefs are that the debt manager assures that the loans are still within manageable limits while the external component rose by deliberate action of the restructuring of the debt portfolio. DMO chose to increase our foreign against domestic debts to reduce exposure to the high-interest rates of local liabilities.

The reassurances of the Debt Management Office would ordinarily be comforting but for history. Nigeria got into a debt bind in the 1980s despite similar assurances. It was not until the Obasanjo presidency that we were able to negotiate a costly reprieve to pay off the debts.

There are claims and counterclaims in the states about the deployment of non-utilisation of borrowed funds, many of them from China. We are not keeping to the terms of many of the projects. The Lagos light rail project has overshot both its time and cost, for instance, compared to a similar project in Addis Ababa, Ethiopia that cost less and covered a longer distance. The Chinese funded both.

We call for a proper accounting for all the loans Nigeria has borrowed from China. How much is at stake? What projects served as justification? What is the status of those projects? More importantly, what were the terms of the loans? This accounting should cover Federal and State Government loans. A national conversation on the loans should follow. We must avoid going down the same ugly road of the 1980s.