Debt at China-price
Cheap money from China is flowing into Nigeria. During President Goodluck’s recent July visit to China, China Development Bank and the Export-Import Bank of China agreed to lend Nigeria $1.1 billion (several billions of yuan) to build roads, airport terminal in four cities and construct a light-rail line. It is remarkable that in recent years Chinese construction companies have been visible across Nigeria.
Referring to this China loan, Stella Oduah, Aviation Minister, is reported to have said “It’s almost free money”. Without doubt; the loans are at an interest rate of 2 percent, with a 7 year moratorium, and re-payable after 22 years.
It is noteworthy that in terms of interest rates, tenure and moratorium this loan is much cheaper than the loans that local banks lend to the federal government.
Also, the type of projects being funded suggests that the president and his team did their homework. Hard infrastructure is one major obstacle to Nigeria’s structural reforms. The president was also a Memorandum of Understanding (MoU) with Power Construction Corporation of China to guarantee the provision of a 20,000 megawatts power generation project that will cost $20 billion.
While harping on the need for Nigeria to court development partners or seek assistance from other economies, we insist that these friendships must be mutually beneficial. It is not for nothing that the Chinese call this type of loan hu hui dai kuan, or “mutual benefit loan”. It is clear that in return for financing development projects of the borrowers’ choice, a Chinese company, with support from their state banks, gets the business.
The benefits to China are clear. Three Chinese companies: China Civil Engineering Construction Company (CCECC), China Harbour Engineering Ltd, Chinese Road Construction Company and China Harbour Engineering Limited are the contractors.
In Nigeria, CCECC is veritable contender to Julius Berger. CCECC is a subsidiary of China Railway Construction Corporation (CRCC), China’s number two contractor. Apart from finishing their projects on time, they save manpower costs because Chinese site supervisors and engineers, compared to their western counterparts, do not require much in terms of salary and perks.
It is remarkable that CCECC plans to spend N160 billion on a cement factory in Tin Can Island, to guarantee supply for its construction projects and later expand into commercial sale. Cement is critical to its plan to expand into the construction of 110 villas along the Lekki-Epe expressway close to the Lekki Free Trade Zone (LFTZ). The access road to LFTZ and the Lekki deep sea port was contracted to Chinese Road Construction Company.
CCECC is offering scholarships to Nigerians who will study railway engineering in China, to counter perceptions that there are no technology-transfers from awarding projects to Chinese companies. Besides, it is smart business: construction companies are running the projects they build through public-private partnerships models like Build Operate Transfer (BOT).
We need ask: Where is the soft infrastructure, the local technical know-how to manage and maintain these projects, going to come from? It has either been downplayed or was entirely omitted.
Beyond the cheapness of this China loan meant for the improvement of our physical infrastructure, government should be clear on how these infrastructures would be further maintained, how to generate local manpower and skill to continue the effective and efficient operation of these infrastructures. Or shall we always be dependent on the Chinese to keep these structures efficiently operational?
We need caution that foreign development aid or assistance is relevant and effective to the extent that those on the receiving end remain focused not only on scoring temporary growth success, but also on long term development achievements that will be of ultimate benefit.
By: BusinessDay