Nigerian Assets that may be Taken Over by China if the Country Defaults in its Debt
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.”
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 Nairametrics , Kunle 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.
This Article first appeared on Nairamerics, under the heading “Nigerian Assets that may be Taken Over by China”