Nigeria and the Chinese debt empire

Could COVID-19 liberate Nigerians from the Chinese Debt Empire? That is the question on the minds of some members of Nigeria’s House of Representatives, which is now up in arms over demands for the cancellation of some Chinese loans to Nigeria because of the pandemic. Some of our legislators insist that the COVID-19 outbreak fits the legal principle of Force Majeure, one dream chance they wish can free Nigeria from Chinese loans. Many of them are in a fighting mood, not just against China but against the executive branch of Nigeria’s federal government.

There are some reasons for this emerging bellicosity. First is the opacity of loans from China, which has become Nigeria’s premier lender. Its EXIM Bank is the biggest bilateral creditor to Nigeria with N1.9 trillion (about $6.5 billion) lent to Nigeria since 2002. The problem is not so much the size of the indebtedness, as the absence of transparency. The opposition Peoples Democratic Party (PDP), complaining about the Chinese loans taken by the Buhari administration since 2015, claims that the loans are so shrouded in secrecy that even the total amount of indebtedness to China may be ambiguous at best.

Recently on Channels TV, House of Representatives member, Mr. Ben Ibakpa (PDP, Delta) went as far as claiming that Nigerian government officials had signed loan documents with China that were written in Chinese, which they could neither read nor write.

Another reason is the sharp decline in crude oil prices and heavy debt service bills. The country’s 2020 budget of N10.27 trillion was based on a crude oil price benchmark of $57 (per barrel). Then came the price war between Saudi Arabia and Russia and the COVID-19 outbreak that severely plunged crude prices. One difficult upshot of this is foreign debt servicing and a depreciating naira. According to Bloomberg, Nigeria’s highly regarded Bonny Light, fell this week to a deplorable $12 or $13 a barrel.

The fiscal consequences say it all. As the minister of Finance painfully explained, the federal government had to slash its aggregate expenditure budget by N88.412 billion, decrease statutory transfers by N162.6 billion, and reduce the overhead costs of ministries, departments and agencies of government (MDAs) by N61.52 billion. But while these belt-tightening fiscal measures were being taken, debt service allocation increased from N2.453 trillion to N2.678 trillion!

While some of the shouting in the House of Representatives against the lack of transparency of Chinese loans may be opposition politics, the danger of opaque loan agreements from China cannot be dismissed. This is because opaque lending agreements hide lending conditions, and that can make it difficult to know Nigeria’s actual debt burden. And this is not the only problem.

There are important issues of accountability and probity, all linked to transparency. The absence of transparency can be disastrous to good governance and economic growth in Nigeria. Whether they are loans from China or from anywhere else, opaque loan contracts and under-stated loans (hidden by the lack of transparency) are not good for Nigeria. They weave the fabric of corrupt and predatory external loan practices that can undermine self-government.

Some 27 or so years ago, Paul Johnson, surveying the crumbling of many governments into failed states unable to meet the basic needs of their citizens, wrote a column in the New York Times headlined, “Colonialism is back—and not a moment too soon”. In it, he declared with a gusto that some countries are simply not fit for self-rule. Most Westerners did not agree with Johnson then, nor did China… then. Still, it is wise to remember that colonisation is not always planned or achieved through the Maxim gun.