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OPINION

Much Ado About Chinese Loans

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It was on the 3rd September, news that the Nigerian President Muhammadu Buhari is in China was all over my timeline, my flight out of Saudi Arabia has been postponed yet again so I had ample time to follow the reactions and conversations online.
They say Instagram is for “Slay Queens” Facebook is for “Families” But if you want to learn and share ideas, go to twitter so unto my twitter timeline I scrolled, Lo! and Behold! I stumbled upon reaction from a brilliant Nigerian, a former World Bank’s Vice President Mrs Oby Ezekwesili and it reads:
“Chinese attitude to indebtedness is the hardest in the world. I know because one had to deal with it in the course of my work at World Bank, helping African Countries get the HIPC Debt cancelled, it annoys me to no end to see our countries binging on Chinese Loans”
Right after reading that statement, it immediately hit me to ask if this is Scramble for Africa 2.0? Just few days back President Buhari received two August visitors; UK Prime Minister Theresa May on Wednesday August 29, then German Chancellor on Friday 31st August before catching a flight to China same day to Beijing to participate in the Forum on China-Africa Cooperation opening on Saturday 1st September 2018.

FOCAC was established in 2000, it’s a triennial forum that houses 53 out of 54 African States from Africa. 2018 would make it the 7th Summit and President of republic of China Xi Jiping just recently announced a $60 Billion commitment fund to Africa.
President Xi Jiping on Monday said China will implement 8 Major initiatives with African Countries in the Next three years and beyond; covering fields such as Industrial promotion, Infrastructure connectivity, Trade facilitation and Green development.
So Scramble for Africa 2.0? If not why else do we have France, UK and German head of states visiting Nigeria within a span of two months.
Back to Madam Oby’s tweet, I’ve learnt a thing or two about the Eastern Asia and the Western Europe’s Ideological leanings as a political science undergraduate, I also learnt development theory and dependency theory and I recall SAP, the infamous IMF’s Structural Adjustment Programs executed by the Former Head of State General Ibrahim Babaginda after General Buhari’s ouster in 1985. Being a former World Bank Vice President it is evident where she stands, the leaning is for Bretton wood’s institution so I engaged her on her earlier comments on Chinese loans and it goes;

@MrSomoye: “I will be the first to admit that we should be wary of China, but who else would have partnered with us on Infrastructure development like the Chinese? With interest rate as low as 2–3%. Asides technology and knowledge transfer we also have targeted fundings for Agriculture”.
In her reply she goes; @obyezeks: “You are referring to their concessionary loan/grant which is paltry compared to the predominant Non-concessionary loan book it has built up across Africa. We must put the feet of our leaders to the fire to articulate and execute Market reforms like China did and grew”.
I recall chuckling and mumbling “China that is 3,000 years old, their civilization no be today”.
However I obliged and I asked;

@MrSomoye: “Please ma, can you kindly furnish us with the interest rate on the Non-concessional loan to Nigeria so we can compare to what IMF/World Bank can offer us?”.
She replied;

@Obyezeks: Wonderful! I should furnish you? It is the FG should ask for it’s Non Concessional Loan details with China cause it varies.”
And oh, by the way, just a quick one for those who maybe wondering; Concessional loans are granted to low-income countries at low interest rate while Non Concessional loans are Market based interest rate.

@Obyezeks: “What I do know though is that on average Chinese loans offer an interest rate of 3.6% a grace period of 4 years and a maturity of 12 years.
Pause, Madam Oby was not able to provide the details on the Non Concessional loans that she claims have higher interest, I will address why I think she’s not so right in the subsequent paragraphs.

It is normal for you to hesitate when you hear the word “Debt” but relax, Debt is what makes the World tick, the US Debt if stacked would reach the moon, it is a staggering $2.3 trillion and their debt to GDP ratio is 105% which means they’ve borrowed more than what the American population can produce in a year, but at-least unlike Nigeria, they mostly invest in New Ideas like Science, Tech, Engineering and Mathematics which always birth the New Frontiers for the World. In Nigeria’s case it was about paying salaries but not anymore.
With China’s focus on helping with Infrastructural Development, we can borrow so we can meet our infrastructural needs, we can borrow for electricity, borrow for Roads, Rails, Highways and many other things. Our debt to GDP is still 20% which means we are better of in some way than the United States when it comes to Debt.

The Debt for Rails for example is not Government liability perse, the government need not dip her hand in the public purse to repay the loan, once railways are built with train stations, coaches and effective management, the debts can be repaid from what the Nigerian Railway Corporation gets from ticketing on passengers and levies on import and duties of goods.
On the question asked in the topic, which way Buhari? To Face East or West? or to Face Both, it is cardinal to point out that Nigeria’s government has sought the participation of a number of East and West foreign State actors in her efforts to link up the country by rail;

  1. The African Development Bank with German-Nigerian firm Julius Berger for the central trunk line.
  2. The United State’s General Electric (GE) during President Buhari-led delegation to America signed an MOU with the Nigerian Government to kickstart work on the narrow gauge. 10 locomotives 200 Wagons have already been deployed to kickstart the interim phase.
  3. The largest projects in the rail sector have been dominated by Chinese firms. China Civil Engineering Construction Company (CCECC), a subsidiary of China Railway Construction Company, is involved in multiple infrastructure projects across the country, including the Lagos airport expansion, numerous road projects, and inner-city light rail projects in Abuja and Lagos, all financed with concessional loans from the Exim Bank of China.
    On my way to Saudi Arabia, I took a ride from the Abuja Metro rail in Central Area to the Airport in less than an hour. The intrastate line is expected to connect Nyanya, Mararaba, and Kubwa.
  4. Chinese finance is looking to back the two major standard-gauge rail (SGR) projects though there is also $2 Billion finance talks with American GE for the upgrade of the same Western trunk line from Lagos to Kano, replacing the colonial track, chuckles “Na dem dey rush us”.
  5. However, CCECC was first contracted in 2006 to build the route, but given the Nigerian government’s difficulties in raising its portion of the funding, the project was suspended; the line was subsequently segmented to be built in installments.
  6. Of the planned route, there’s a 20 year tenured $500 million concessionary loan at 2.5 percent interest rate for the 187-kilometer (116-mile) Abuja-Kaduna single-track SGR which was nearly completed in 2014, but the Train coaches, Train Stations, Signaling and communication equipment was subsequently added by the Minister of Transportation in the Buhari administration at a total cost of $874 million.
    So Madam Oby Ezekwesili’s claim that an average Chinese concessional loan is 3.6 percent with 12 year tenure is not tenable here.
  7. CCECC is also in the process of constructing the next 312-kilometer (194-mile) Lagos-Ibadan segment, which was awarded in 2014; Financing for the $1.1 billion Kano-Kaduna segment is also under discussion.

Unlike the light rail and other infrastructure projects, which are financed under concessional terms, the interest rate and loan terms for these other SGR projects are undisclosed but from Abuja-Kaduna’s experience of 2.5 percent interest for 20 year in comparison with Kenya’s experience of 2 percent interest for 15 year tenure, one should expect that the interest rate for others won’t be up to 3.6 percent as Madam Oby claimed in our twitter banter.
Good-news for my friends in the South South and South East, why should you care to listen? Well there’s a second major rail project which is a new coastal railway connecting Lagos to Calabar, via Warri and Port Harcourt, to include branch lines to Benin City and Onitsha.
This was not part of the original twenty-five-year vision but proposed by CCECC as part of three east-west routes that would crisscross the colonial trunk lines.
Other segments of the Lagos Calabar coastal rail line such as Otueke, Yenagoa, Ughelli, Warri, Sapele, Benin, Agbor, Asaba, Onitsha, Ijebu Ode, Lagos, would be ready also within another two years.

The Nigerian Senate approved a loan request to the Exim Bank of China in April 2017, which includes $3.5 billion for the Lagos to Calabar coastal project, the southern corridor from Port Harcourt to Calabar will be constructed first.
The first corridor of the rail line is linked from Calabar to Uyo then to Aba and Port Harcourt.
This brings back nolstagia from my yesteryears in Akwa-Ibom, I’m guessing it won’t be as far as when we — once upon a time — embarked on on a school Excursion to Obudu and Tinapa in Calabar.

The contract for the Lagos to Calabar project, signed with CCECC in June 2016, is reported to be worth $11 billion, with the capacity to create 500,000 jobs so who should care?
The Nigerian Youth, The Business Men, The Contractors, The Petty Traders And Everybody else.

– Kunle Somoye is a Policy and Public Affairs Analyst, wrote in from Saudi Arabia.



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