Debt trap: Why Nigeria could lose some infrastructure to China – Experts

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The federal government has been warned of excessive borrowing from China and its increased dependence on external loans, which could harm the country’s political and economic sovereignty. PAUL OGBUOKIRI reports that Nigeria could lose the country’s only deep-water port to China as the country’s ability to meet its debt service obligations dwindles

Lekki Deep Seaport

Multi-purpose deep-sea port located in the Lagos Free Zone, Lekki Deep Sea Port will be one of the most modern ports in West and Central Africa, providing enormous support to booming commercial operations across the Nigeria and the sub-region.

It is a joint venture owned by a group of investors led by Lekki Port Investment Holdings Inc (comprising China Harbor Engineering Company Ltd. and Tolaram Group), the Lagos State Government and the Federal Government of Nigeria by through the Nigerian Ports Authority (NPA).

The federal government has said the Lekki Deep Seaport, which is expected to be completed before the end of the year, will create around 170,000 jobs to boost the Nigerian economy.

The project is also expected to bring approximately $201 billion in revenue to the federal and state governments in the form of taxes, royalties and fees, as well as an overall impact of $361 billion in 45 years after the start of operations. .

Experts, who spoke to the Sunday Telegraph on condition of anonymity, said it was an asset that would attract interest from China should Nigeria default on its loan service obligation to the Asian giant.

Debt trap

Meanwhile, Nigeria has secured 17 Chinese loans to fund different categories of investment projects, and the country will still service Chinese loans until around 2038, when the last loans secured in 2018 matured.

Nigeria’s total debt to China is about 10% of the $27.6 billion outstanding external debt. Finance Minister Zainab Ahmed revealed in February that the federal government had decided to secure a $17 billion loan from China after the World Bank and African Development Bank (AfDB) failed to show much of interest to Nigeria during the recession.

But can Nigeria repay the loan? Experts believe otherwise, as they argue that if care is not taken, the nation could fall into the Chinese debt trap.

Analysts have said it is possible the country could give up key national assets to China if the country defaults on its $3.48 billion loans.

They advised the federal government to properly review loan agreements with China to prevent the country from facing a situation similar to that of Uganda and other countries that had to give up their major national assets in favor of of China after failing to service their debts.

SD&D Capital Management Managing Director Idakolo Gbolade said Nigeria could lose some assets if it defaults.

In an interview with Channels TV, the Director of the Center for Infrastructure Policy Regulation and Advancement (CIPRA) at Lagos Business School, Dr. Bongo Adi explained that Nigeria lacks accountability, transparency and accountability to repay loans. He noted that when it comes to loans, Nigeria has not implemented the three factors in its engagement with the Chinese.

According to him, the 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 ability to repay not only to China but to our creditors. Our debt to revenue ratio is now around -12%. This means that for every N1 we earn, we need an additional 12 kobo to be able to repay the loans. This has passed a critical threshold.

“What that means is that we don’t have the capacity and we no longer have the flexibility to repay because our self-employed income has been strangled by our huge debt burden on the federal government such as he is currently showing up.”

He also expressed concern that the increase in Chinese lending is an indication that the nation has not taken China’s lending history into account.

He said: “Of 64 countries hosting China’s Belt and Road Initiative projects, 20 are in trouble and 8 are on the verge of losing sovereign debt sustainability if they were to take out another loan. If this were to be a good guide, it means Nigeria has to be very careful when we borrow from the Chinese.

“We have seen this Chinese cycle and have to be careful. What normally happens is that the Chinese will start to take control of infrastructure assets, what some call Chinese imperialism chopsticks and the experience is not only pleasant.

The Chinese strategically tie lending to infrastructure and it is with the intention of taking possession of the infrastructure asset in the event of default, as this asset has become their collateral.

Debt service

According to Bismarck Rewane, managing director of Financial Derivatives Limited in Lagos, Nigeria’s debt service obligations are growing faster than income, pushing the country into “high debt distress”. The country’s long-term debt is rated B2 by Moody’s Investors Service and B- by S&P Global Ratings, both below investment grade.

The government generated 1.63 trillion naira in revenue in the first four months of the year, 49% below its target and less than the 1.94 trillion naira needed to cover service payments from the debt.

The country is missing oil revenue forecasts due to widespread theft and vandalism of pipelines, which are also preventing the country from meeting its OPEC+ quota, according to the government.

The Surplus Crude Account, where the government saves excess crude sales, had only $376,655 available in June because the government was unable to raise enough revenue from oil sales to deposit into the funds.

Debt trap diplomacy

China is not only active in Nigeria, but is currently the largest overseas trading partner and also one of the largest creditors in many African countries. Across the mainland, Beijing lends to nations for railways, stadiums and other major infrastructure initiatives.

Does China like Nigerians? Is China a nation without domestic problems that would require lending money to other countries? These questions arise because international politics, according to experts, is a game played with the national interest of each country at heart. They said that each nation conducts its foreign policy according to its needs, adding that foreign policy is a reflection of the internal reality of any nation which begins with the identification and articulation of national interests. They asserted that foreign policy is inseparable from the national interest and is the product of domestic political decision-making, which in turn is the product of a country’s national interest.

Therefore, it is pertinent to bear in mind that no nation has ever conducted a foreign policy without its national interest in mind. Thus, Chinese loans to Africa can be seen as an extension of Chinese foreign policy in Africa. And the loans could be detrimental to the African countries receiving the loans.

Led by Harvard professor Carmen Reinhart, a team of German-American scholars dug through the documents and compiled a comprehensive analysis of Chinese foreign loans. The resulting picture does nothing to allay concerns about the economic strength that Beijing wields. Reports show that China’s loans often include conditionalities, which are heavily geared towards Beijing’s strategic interests and increase the risk that many developing countries will plunge into monetary disaster.

Some experts claim that China is present in Africa for the good of China. China claims to be there for Africans. One thing is certain: China has an immense impact on Africa’s economic growth and development. And there is no change in sight.

Although it seems that much of the current debt of most African countries will not be profitable for China and that China is keen to help Africa, these loans allow China to take control of certain projects once credit conditions are not met by borrowing. country. This tactic is known as “debt trap diplomacy” and has been used by China in many cases. An example is Sri Lanka.

When the debt burden became unsustainable in 2017, Sri Lankan authorities came under pressure to transfer majority control of Hambantota Port in lieu of ongoing repayment. The port was ceded to Beijing for 99 years.

The trap of Chinese loans under the Buhari administration

In 2018, Reuters reported that China’s Exim Bank would lend Nigeria $328 million to improve the country’s telecommunications infrastructure. At the Forum on China-Africa Cooperation (FOCAC) roundtable in Beijing, attended by African leaders and Chinese President Xi Jinping, President Muhammadu Buhari said Nigeria’s partnership with China has been successful. delivering major infrastructure initiatives across the country. , which have totaled more than $5 billion in three years.

He further said that Nigeria has faced great demanding situations in the areas of infrastructure, human capacity development, energy, maritime transport, agriculture and humanitarian aid. He named several successfully executed projects as well as upcoming projects such as the construction of the first urban rail system in West Africa, the modernization of airport terminals, a hydroelectric power project, fiber cables for internet infrastructure, road rehabilitation and water supply projects.

President Buhari said the above-mentioned projects have confirmed the high degree of consistency and dedication that China has shown and is strengthening its relations with African nations under the umbrella of FOCAC.

Therefore, he affirmed that: “Nigeria will continue to support the FOCAC initiative and will also seek to integrate into the Belt and Road Initiative as an additional Chinese mechanism to enhance cooperation in our quest. infrastructure and economic development. These vital infrastructure projects are perfectly synchronized with our economic recovery and growth plan, and some of the debt incurred is self-liquidating”.

His comment appears to praise Chinese imperialism in Africa, even though many indebted countries and scholars in economics and international relations have criticized Chinese activities in Africa.

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