As Nigeria and China this year mark their golden jubilee of official relations, there are growing fears over the imbalanced relationship, especially with China’s predatory lending bond with Nigeria and the country’s debt exposure to the Asian powerhouse, which has risen geometrically in recent years.
Official relations date back to February 1971 when Nigeria established diplomatic relations with China, and today Nigeria remains China’s major investment destination in Africa. At an event in Abuja to mark 50 years of Nigeria-China relations, the Chinese Charge de Affaires in Nigeria, Mr. Zhao Yong, disclosed that China’s trade with Africa has hit $208.7 billion with foreign direct investment totaling $49.1 billion.
According to Yong, the trade volume between China and Nigeria reached $19.27 billion in 2019, which was 1900 times that of 1971 when the diplomatic relationship was established, but fell to $13.66 billion in 2020 due to the pandemic.
Yong said: “Despite the adverse effects of COVID-19, the bilateral trade volume from January to October of 2020 increased by 0.7 per cent year on year, which was 14% higher than the trade growth rate between China and Africa as a whole. Nigeria surpassed Angola and South Africa respectively to become China’s second-largest trading partner and largest export market in Africa.”
The growing trade and presence of Chinese in Nigeria has also led to changing narratives about increased migration on both sides. As of March 31, 2020, Chinese loans to Nigeria stood at $3.121 billion, which is 11.28 per cent of the country’s external debt of $27.67 billion.
Meanwhile, a new study has found that China, the world’s largest public lender to developing countries, imposes unique conditions on borrowing nations, which gives Beijing undue influence over their economic and foreign policies.
According to the study from Germany’s Kiel Institute for the World Economy (IfW) released two weeks ago, after analyzing 100 Chinese loan agreements with 24 countries, China’s financing state banks establish new lending terms or adapt standard ones in ways that “go beyond maximizing commercial advantage.”
“Such terms can amplify the lender’s influence over the debtor’s economic and foreign policies,” the report said. It goes on to list several examples.
Over 90 per cent of the reviewed Chinese contracts include a clause that allows the creditor to terminate the contract and demand repayment in the case of significant law or policy change in the borrowing country. While policy change clauses are standard in commercial contracts, the researchers argue that this takes on a different dimension when the lender is a state entity and not a private firm subject to standard financial regulation.
The contracts also contain “unusually far-reaching confidentiality clauses,” researchers found. “Many of the contracts contain or refer to borrowers’ promises not to disclose their terms — or, in some cases, even the fact of the contract’s existence,” write the authors, who obtained access to these documents only through a multi-year data collection initiative carried out by AidData, a research lab in the United States.
This secrecy prevents other lenders from reliably assessing a country’s creditworthiness. “Most importantly,” the authors write, “citizens in lending and borrowing countries alike cannot hold their governments accountable for secret debts.”
In Nigeria, while the Chinese debt increases, projects funded with the borrowed funds face cash flow and viability challenges, raising questions on the country’s ability to fulfill its obligation to the lender.
Amidst the growing concern over the country’s ability to offset the growing debt, much of which the National Assembly said the conditions are shrouded in secrecy, the Federal Government sees China as a reliable partner in its efforts to resuscitate the country’s moribund infrastructure.
Sources in the government’s establishment saddled with the responsibilities of negotiating the debt agreements and overseeing the underlying projects said the waning interest among traditional European lenders, including the Paris Club, has made the incessant trips to China irresistible and puts the Federal Government in a dilemma.
“It is a dilemma if you consider the long period of neglect of the most important infrastructure. The government must find a way to fund the projects. And if the traditional market is unwilling to give loans, should the government sit back and lament?” the source asked.
Nobody, not even the opposition, expects the government to sit back in the face of a dwindling economy, low production and growing unemployment that are rooted in poor infrastructure; but the least that is expected of the government is to keep a bloated governance structure in the face of falling fortune.
