Nine days ago, the House of Representatives mandated some of its committees to investigate all China-Nigeria loan agreements from 2000 to date. The intention of the green chamber here was to ascertain the viability of the facilities, then regularize and renegotiate them, especially as the country is expected to slide into recession this year.
There and then, Ben Igbakpa, one of the legislators, moved a motion on the need to review and renegotiate existing China-Nigeria loan agreements. The motion was adopted.
Why it matters…
Igbakpa argued that the agreement should be investigated as there were global concerns about the alleged fraudulent, irregular, and underhand features of Chinese loan contracts with some African countries, which had resulted in a new form of economic colonialism foisted by China.
Meanwhile, Nigeria has obtained 17 Chinese loans to fund different categories of capital projects, and Nigeria will still be servicing the Chinese loans till around 2038, which is the maturity date for the last loans obtained in 2018.
The lawmakers’ concern is worthy to be considered. Nairametrics found that the history of Chinese loans, especially in Africa, is a growing concern. Several observers, including some of the United States Representatives, have warned many nations on what they described as Chinese Debt trap diplomacy, as the Asian nation allegedly used finance as a weapon in many developing countries.
Victims of Chinese alleged Debt trap diplomacy
Since all Chinese loans are tied to infrastructural developments, some of the African nations have had to forfeit their stakes in the infrastructure, which they used as collateral, after they defaulted. For instance, $7.4 billion of Zambia’s total $8.7 billion foreign debt is owed to China, representing a large debt burden, given the relatively small size of Zambia’s economy. It was reported in late 2018 that the Zambian Government was in talks with China that might result in the total surrender of the state electricity company ZESCO as a form of debt repayment since the country had defaulted on the plethora of Chinese loans for Zambia’s infrastructure projects.
Also, Kenya may soon lose its largest and most lucrative port, Port of Mombasa to its creditor (China) after it defaulted in the refund. This could force Kenya to relinquish control of the port to China.
One of the most cited examples of alleged debt-trap diplomacy by China is a loan given to the Sri Lankan Government by the Exim Bank of China to build the Magampura Mahinda Rajapaksa Port and Mattala Rajapaksa International Airport. The state-owned Chinese firms’ China Harbour Engineering Company and Sinohydro Corporation were hired to build the Magampura Port at a cost of $361 million, which was 85% funded by China’s state-owned Export-Import Bank at an annual interest rate of 6.3%. Due to Sri Lanka’s inability to service the debt on the port, it was leased to the Chinese state-owned China Merchants Port Holdings Company Limited on a 99-year lease in 2017.
Can Nigeria refund the loans? Expert say …
Nigeria owes China about $3.1 billion, more than 10% of the $27.6 billion external debt stock. Minister of Finance, Zainab Ahmed, disclosed in February that the Federal Government decided to go for a $17 billion loan from China as the World Bank and the African Development Bank’s (AfDB) failed to show much interest in Nigeria during the recession.
But can Nigeria refund the loan? Experts think otherwise, as they argue that if care is not taken, the nation may fall into the Chinese Debt Trap.
In an interview with Channels TV, the Director of Centre for Infrastructure Policy Regulation and Advancement (CIPRA), Lagos Business School, Dr Bongo Adi, explained that Nigeria lacks accountability, transparency, and responsibility to refund the loans. He noted that when it comes to loans, Nigeria has failed to implement the three factors in its engagement with the Chinese.
According to him, Chinese Exim Bank has offered $6.6 billion to Nigeria and that is quite significant. He said:
“We have to look at the total debt and the capacity to repay not just to China but to our creditors. Our Debt independent revenue is at 96% now. That means for every N1 we earn, 96 kobo is used to refund loans. That has passed a critical threshold.
“What it means is that we lack the ability and we don’t have the headroom anymore to repay because our independent revenue has been strangulated by our enormous debt hanging over the Federal Government as it stands now.”
READ MORE: A Post-COVID Economy
He also expressed concern that increasing Chinese loan is an indication that the nation has not considered the history of Chinese loans. He said:
“Out of 64 countries that host the Chinese Belt and Road initiative projects, 20 have gone under distress and 8 are about to lose their sovereign debt sustainability if they should take any further loan. If that were supposed to be a good guide, it means Nigeria needs to be very careful when we are borrowing from the Chinese.
“We have seen this Chinese cycle and need to be careful. What normally happens is that the Chinese will begin to take over infrastructure asset, which is what some call Chinese Chopstick Imperialism and the experience is not just pleasant. Chinese strategically tie loans to infrastructure and that is with the intention of taking possession of the infrastructure asset if there is the default, as such asset became their collateral.”
Meanwhile, contrary to the belief of some pro-government pundits that the Abuja-Kaduna rail was a success, a Chartered Accountant, Peter Adebayo, said that It depends on how the success is qualified. He said:
“When you look at the economics of the project, questions have been asked. Minister of Transportation has said in a forum that government subsidised the project by 60%. Now, that the cry all over is for the government to remove subsidy, will the project continue to be sustainable if the subsidy is removed?
“If that is the case, will we be able to repay the debt? What is the impact of all these, we need to be careful. We should look away from PPP and focus on Blended finance. It is a strategic move where you bring in development finance with some philanthropic funds to activate private capital into infrastructure development. Our debt is high and it is a precarious situation for everyone. We cannot do without taking loans but the government has displayed incapacity and incompetence to manage projects.”
CBN reacts to videos, pictures of new N2,000 and N5,000 in circulation
The videos and pictures of the purported circulation of the N2,000 and N5,000 banknotes as false, a piece of fake news that is being pushed out to the members of the public and asked them to disregard the falsehood.
The Central Bank of Nigeria (CBN) has reacted to the circulated videos and pictures that claimed it had introduced N2,000 and N5,000 banknotes to members of the public.
The apex bank in a statement described the videos and pictures of the purported circulation of the N2,000 and N5,000 banknotes as false and a piece of fake news that is being pushed out to the members of the public and asked them to disregard the falsehood.
Going further, they asked the members of the public to report to law enforcement agencies if they found anyone in possession of such banknotes.
This was disclosed by the Central Bank of Nigeria in a tweet post on its official twitter handle on Sunday, May 31, 2020.
The CBN stated, ‘’Videos and pictures of purported circulation of N2,000 and N5,000 banknotes are false and fake. Members of the public are advised to disregard such falsehood and to report anyone found in possession of such banknotes to the law enforcement agencies’’.
It would be recalled that the planned introduction of the new N2,000 and N5,000 banknotes by the CBN under the leadership of the then Governor, Lamido Sanusi, in 2012, had elicited some mixed reactions from some experts.
The Federal Government at that time said that the proposed N5,000 banknotes will not be for mass circulation, but would only be reserved for banks and heavy cash users.
UPDATED: CBN revises timelines for resolution of dispense errors, refund complaints
The apex bank said this is in line with its resolve to enhance the quality of service bank customers are given. Nigerian banks are, therefore, required to implement the revisions starting from June 8, 2020.
The Central Bank of Nigeria, CBN, has revised the timeframes for the resolutions of all botched online transfers, POS transactions, and ATM withdrawals.
According to a brief statement that was posted on its official Twitter handle this evening, the apex bank said this is in line with its resolve to enhance the quality of service bank customers are given. Nigerian banks are, therefore, required to implement the revisions starting from June 8, 2020.
Below are the revisions
In line with the revisions, any failed ATM transaction that occurs when a customer tries to withdraw from their bank must be reversed instantly. In the event that instant reversal fails due to technical challenges, the money must be manually reversed within a 24-hour period. Note that prior to the revision, the timeframe for such reversal is usually three working days.
a.1 Failed “On-Us” ATM transactions (when customers use their cards on their bank’s ATMs) shall be instantly reversed from the current timeline of three (3) days.
— Central Bank of Nigeria (@cenbank) May 31, 2020
Similarly, the resolutions for failed ATM withdrawals occurring when bank customers use their ATM cards on other banks should not exceed 48 hours, the CBN said. Before now, such a resolution would normally take three working days.
Also, starting from June 8, banks will be required to resolve all disputed/failed online transfers and POS transactions within 72 hours. In other words, resolution for such disputes shall no longer be taking five working days as it used to.
In the meantime, the apex bank advised banks to ensure that all pending failed transactions/complaints are resolved “within two weeks starting June 8, 2020”.
“Meanwhile, key service providers in the Nigerian payments system have also committed to establish an integrated dispute resolution platform for the industry and enhance their payment system infrastructure and processes to reduce incidences of transaction failure,” the statement further disclosed.
What Nigeria is not getting right with PPPs
We need to develop greater capacity for our public service to engage in public private partnerships. PPP is not a gift. The public sector is not charity and so you need to understand what you are doing with them.
To achieve the Sustainable development goals, public-private partnerships (PPP) is not just an option for Nigeria but a necessity. That is because it is not possible for government alone to raise the kind of money needed for it.
According to Dr Joe Abah, Country Director, Development Alternatives Incorporated (DAI), the government needs to provide a safe and stable environment for the private sector to invest, and also restructure public-private partnerships in order to get more value out of it.
Speaking during a virtual conference on Saturday, he referred to a report from the United Nations general assembly which stated that Africa needs “an incremental amount from $200 billion to $1.3 trillion per annum to be able to achieve the SDGs”.
This, he noted, calls for restructuring of public private partnerships, to harness the strengths of both sectors towards sustainable development.
“We need to develop greater capacity for our public service to engage in public private partnerships. PPP is not a gift. The public sector is not charity and so you need to understand what you are doing with them.
“We need to monitor performances very closely and that is one thing that the private sector does very well that we don’t do in the public sector,” he stated adding that the public sector needs to have delivery target tied to remunerations.
Removing socio-economic constraints
In his presentation, chairman of Citibank Nigeria limited, Yemi Cardoso stressed the need to remove constraints that hinder people from thriving.
“In one of the studies done where they looked at 8 high-growth countries, they discovered that there were no identical policies in all of them, but there was a common theme – liberate people from their societal economic constraints and they flourish,” he said
He explained how tax rates and regulations that frustrate free enterprise could also impede a countries growth and pointed out countries that had removed such bottlenecks.
According to him, the negligible tax rates in Hong Kong are a source of encouragement to businesses, and so is the ease of doing business in Singapore.
“There is also Macedonia where the sectoral competitive strategy is focused on attracting foreign direct investment (FDI) in automotive industry. Malaysia has also reduced dependence on agricultural exports by paying attention to manufacturing,” he added.
If Nigeria could focus on her competitive advantage, tweaking it as the time changes and attracting strategic investments to the country, she would well be on her way to economic prosperity.