A few weeks ago, there was a deep outcry in Lusaka, Kitwe, Chingola, Ndola, Livingstone and all other Zambian cities and towns. What could be the problem in the land of Kenneth Kaunda, that could have made people express this general deep anger throughout the country? 

Zambians had woken up to the alarming news and were wondering how their best international airport would be taken over by another country. The country has defaulted in its debt repayment to China and consequently, China is about to take over the Lusaka International Airport.  

As if that was not enough, a few days later, news went round the land of Chipolopolo that talks were underway for some Chinese companies to take over others priced assets: the power utility company, ZESCO, and other strategic national institutions and assets like KKIA, etc.  

Nevertheless, Zambians were not really surprised, because they were aware that their government had been securing unending loans from China in recent years and many were also aware of Zambia’s indebtedness to China to the tune of $8 billion in the past few years.  

The outcry was very strong, because Zambian state-owned TV and radio news channel, ZNBC, was already being run by the Chinese, who acquired 60% ownership that has given them influence over what should or should not be premiered on their stations. 

The fear of China, the beginning of wisdom

The fear of China taking over national assets has now pervaded the entire African continent, as several African nations stand the risk of losing their sovereignty to this big creditor. The world’s most populous nation will seize national assets, once these owing governments default on the Chinese loans hanging round their necks. 

Two weeks ago, Sierra Leone’s newly sworn-in president, Julius Maada Bio, cancelled a $400 million Chinese-founded project to build a new airport in the country. Former President, Ernest Bai Koroma, had signed the loan agreement with China, before he lost election in March; despite World Bank and IMF warnings that the project would impose a heavy burden on the country.  

The decision comes amid concerns that many African countries risk defaulting on their debts to China, which might lead to the take-over of several assets funded by the project. 

Nigerian projects that could be taken over by China if… 

In the past three years, Nigeria has gotten over $5 billion loan from the People’s Republic of China, which has resulted in the execution of infrastructure projects across the country.  

This was revealed by President Muhammadu Buhari last month in Beijing, at the China-Africa Cooperation (FOCAC) Round Table meeting, attended by African leaders and Chinese President Xi Jinping. Chinese loans now make up 8.5% of Nigeria’s external debt of $22.08 billion, as at the end of June 2018. 

To be fair, Nigeria sets aside a reasonable percentage of its budget for debt servicing yearly, and most likely would not fail to service its Chinese debts. However, Nairametrics takes a look at key Chinese-loan-funded infrastructural projects in the country, which might be taken over by China, in case Nigeria defaults in its debt repayment to the Asian giant, depending on what is contained in the terms of the loan deals. 

Abuja Urban Rail System 

This $500 million rail project was constructed with loans sought from China and happens to be the first urban rail system in the entire West African sub-region. The rail was commissioned in July this year. 

Abuja-Kaduna Rail System 

This is another $500 million Chinese-funded rail system that has been completed and operational in Nigeria. The amount was borrowed to complete the project, which brought the total figure to $1 billion. The 180km rail line connects Abuja and Kaduna and was commissioned about two years ago. The rail line system is the first in Africa that uses modern Chinese standard and technology.  

Investigations by Nairametrics revealed that the rail line is functioning efficiently with no issues, and one could only hope that it would not be taken over by China. 

Upgrading of Airport Terminals 

This is one of various on-going projects worth $3.4 billion that Nigeria is leveraging Chinese funding to execute across the country. This amount was jointly borrowed under the administrations of Presidents Muhammadu Buhari and Goodluck Jonathan. 

In 2013, Nigeria secured a $500 million loan from China at 2.5% interest rate, for the construction of four international airport terminals in Abuja, Kano, Lagos and Port Harcourt, after signing a Memorandum of Understanding with China Exim Bank. The MoU for the loan was signed in Beijing, with the delivery of the four new International airport terminals to be constructed by the China Civil Engineering Construction Corporation (CCECC). 

The new terminals, “designed to rival some of the best around the world”, were to be part of the achievements of President Jonathan’s administration, ahead of its 2015 re-election bid, however, none of the terminals were completed before he lost his re-election bid. The Port Harcourt International Airport terminal, part of the deal, was commissioned last week by President Buhari. 

Lagos-Kano Rail Line 

This is another project that is part of the recent $3.4 billion Chinese loan to construct infrastructural projects in Nigeria. Though the rail line is an extension of the Lagos-Ibadan standard rail gauge, it is to be funded with about $6.1 billion loan to be used on Ibadan-Ilorin-Minna-Kaduna- Kano line.  

The railway will run parallel to the British-built Cape gauge line, which has a lower design capacity and is in a deteriorated condition. 

Zungeru Hydroelectric Power Project 

This is a $1.2 billion loan power plant that is currently under construction by the China Electric Engineering Company (CNEEC). It was initially billed to be completed towards the end of 2019, but will now be completed in 2020.  

The Hydro Power Plant will produce 700MW of electricity and it is a joint project between Nigeria and the Chinese government at a financial contribution ratio of 25/75 per cent respectively. It is expected to produce a yearly power generation of 2,640GWh and supply electricity to the National Grid. 

Lagos-Ibadan Rail Line 

This rail line is being funded by a $1.6 billion loan secured from the China Exim Bank. A sum of $1.6 billion was borrowed by the current government for the construction of this standard gauge Lagos-Ibadan rail line that will connect Nigeria’s commercial capital, Lagos to Ibadan. The project is a segment of the Lagos-Kano Railway modernisation project. 

Fibre Cables for Internet Infrastructure 

The Export-Import Bank of China provided a loan of $328 million to support Nigeria’s National Information and Communication Technology Infrastructure Backbone Phase 11 (NICTIB 11) between Galaxy Backbone Limited and Huawei Technologies Limited (HUAWEI). This project is expected to boost Nigeria’s Information and Communication Technology sector. 

Furthermore, less than 3 months ago, Nigeria signed an additional $1 billion loan from China for additional rolling stock for the newly constructed rail lines, as well as road rehabilitation and water supply projects. 

Can China take over these projects, if…? 

The Federal Government hardly disclosed the full terms of its loan agreements with the People’s Republic of China. However, the Federal Government has dismissed insinuations of the possible takeover of the economy, by the Chinese Government, if it defaults on loan terms. 

According to a statement issued by the Debt Management Office (DMO) last month, Chinese loans are cheaper compared to other international bodies and agencies and there is no risk of default on the Chinese loans. 

“The public should be assured that Nigeria’s public debt is being managed under statutory provisions and international best practices, and there is no risk of default on any loan, including the Chinese loans. 

“Thus, the possibility of a takeover of assets by a lender does not exist. 

“For the avoidance of doubt, government’s borrowing in the domestic and external markets, including Chinese loans, are all backed by the full faith and credit of government, rather than a pledge of government’s assets.” 

Nigeria won’t default in repayment

Meanwhile, President Muhammadu Buhari disclosed in Beijing last month, during the FOCAC meeting that Nigeria would repay the loans “as and when due”.  

The president said:  

“These vital infrastructure projects synchronise perfectly with our Economic Recovery and Growth Plan. Some of the debts incurred are self-liquidating. Our country is able to re-pay loans as and when due in keeping with our policy of fiscal prudence and sound housekeeping.” 

Experts’ Reaction 

In her opinion, an economic expert, Sarah Pius, said: 

“So far, China recently threatened to take over national assets in Zambia, for defaulting in loan repayment; then, what stops it from doing the same to Nigeria, if she fails to service the debts?” 

An economist and former Director-General, Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu, believes that Chinese loans are not totally bad. He said, 

“I don’t have any problem with Nigeria borrowing from China. The only problem I have with Chinese borrowing is that the entire funds will eventually be repatriated to China. 

“This is so because when the Chinese Government gives you loans for infrastructure, they will insist that only Chinese companies handle the construction. 

“These funds end up going back to China instead of creating more wealth in Nigeria.” 

However, speaking with NairametricsKunle Bada, an Economics lecturer at the Adekunle Ajasin University, Akungba Akoko differs. He said, 

“I don’t believe the Nigerian government will be that naughty to include the takeover of national assets in its loan terms with the Chinese government. So, I don’t even want to think of possible takeover of our infrastructure, in case we default in loan repayment.” 

Since the President has assured that loans will be repaid as at when due, one can only hope that Nigeria keeps to that promise, in order to prevent Nigerians from going through the agony and anger Zambians are still passing through. 

2 COMMENTS

  1. the key aspect in wealth creation is flow retention.
    stage one of such retention should be have local professionals execution of the project.
    stage two: if one is not possible, then adjustment on return repatriation. here, outright cancellation is no option, rather set a minimum period within which the paid funds stays within the Nigerian system.

    i expect no surprises if materials (core or auxillary) for project will supplied from china.
    my point is this. when you see an economy with intelligence be it finance, economic, project etc. the cost always outweighs the benefit.

    what africa lack in general is
    1. CONSISTENCY (punctuality or maintenance). think of it if some of our already existing structures were maintained, we will not be talking of construction, rather we will be talking of maintenance or modification.
    2. efficiency in utilization: draws from the point i made above, if puntuality is effected in channeling funds raised from the after project execution is used to payoff the loans and serious maintenance carried out as at when due. then no one will be talking of this again.
    3.negotiating power: imagine a country like china that can create loan, manage loans to the benefit of their nationals. loan creation (forgoing present consumption, this is a means of saving for the future) construction by their national(facilitating wealth for the nationals. imagine the percent of their population that will be employed atleast for the coming few years on the basis of the project). for me the loan is a mere paper work. how? the pay the cash straight to the contractors so the cash doesnt come to us. in event it comes to us it goes back to them through the construction company. (while on the previous sentence i asked myself, why will the give the cash to us when governance is a huge debate in Nigeria. and other outstanding issues about the recent imf funds and how it was utilized). why wont my own government think of how to get some of those money stocked in Nigeria. for instance, review resident permit issue in Nigeria targeted on those from the asian region (permits should be renewed), tax on profit repatriation, minimum period before which profit can be repatriated,
    4. policy direction: lets assume this facility is set and running one day, but i am not certain about this, someone in the national house, will bring a notion for the abandonment of the project. and then later in the future another will move a motion for construction.
    5. training: mostly and lastly, aspect of training. whats given china prominent position today in the world. years of learning and training from world movers. i think nigeria should change out mentality towards education. the world is no longer centred on grades and can do but has moved to giving you the basis and exposing you to reality. this classroom method of nigeiran education is killing progress. how many of our nationals are we giving training, we select the so called best by academic or grade or theoretical standard, while other countries are doing it based on interest. for instance, imagine how many nationals of the US are in africa (mainly souhtern africa) doing practical research on wild life. but here in Nigeria a phd graduate in engineering have never carried out a street road construction work. all the road he has ever constructed is on paper. a finance or accounts phd holder does not know what a ledger is. why will they know, when the school system is interested in increasing tuition fees on the basis that in developed countries education is not free. while other are creating illusion of free education, then recruit teachers to teach english with igbo.my point why cant post graduate students be given grants and internships not just within nigeria but internationally. belief me, most of the individuals to partake in this projects will be chinese masters and phd student. through this they are giving exposure.

    my humble recommendation is this the loan is not bad only if based on the following condition: strict repayment schedule, the have to recruit some Nigerian nationals (both professionals and post graduate students to give us exposure), strict maintenance schedule while preparing for accomodation if need be so we do not talk this again in the future.

    finally let me raise a political dust: why are all the programme centred to the north? in a less orthodox palace why will the entirety of Nigeria be mortgaged for the benefit of the few.
    you can send me an email on [email protected] or 07067269393

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