In December, President Muhammadu Buhari of Nigeria presented the country’s 2019 budget at a rowdy joint session of the country’s lawmakers. The president’s speech was interrupted by boos and jeers from lawmakers as he struggled to highlight the key achievements of his administration.
The lawmakers cried foul over Nigeria’s poor economic growth rate in the previous year, which was impeded by revenue challenges—despite the relatively high price of crude oil in 2018—as well as the poor implementation of the previous year’s budget.
Other criticisms of the economic year included a higher deficit than budgeted, as well as heavy borrowings to cushion the effects of the revenue gaps.
Two months ago, the International Monetary Fund (IMF) underscored the precarious nature of the Nigerian economy when it said the country was servicing debts with more than 50 percent of its total revenue, a percentage described as unreasonably high by analysts and responsible for Nigeria’s tenuous recovery from recession.
In September, during the Forum on China-Africa Cooperation roundtable, attended by African leaders, Chinese leader Xi Jinping announced that Beijing was offering $61 billion in funding to African countries.
At the meeting, Buhari stirred a raging debate on the country’s debt profile, while noting that Nigeria’s loans from China were valued at over $5 billion in the past three years.
The News Agency of Nigeria cited Nigeria’s Debt Management Office as saying that the loans (granted under China’s Belt and Road Initiative) would be used to “finance road and rail transport, aviation, water, agriculture, and power projects,” including the upgrade of airport terminals, the Lagos-Kano rail line, the Abuja-Kaduna rail lines, and the Zungeru hydroelectric power project.
Concerns about Nigeria’s debt profile have grown, as some critics think that the country’s acceptance of Chinese loans hasn’t generated much in the way of economic growth.
Beijing’s less stringent loan terms haven’t eased the suspicion of economic experts, given that China has a history of luring developing countries to take loans, in exchange for their natural resources and infrastructure. Sri Lanka’s recently forfeited control of its main southern port owing to its failure to offset a $6 billion loan from China. There are concerns that some African countries struggling to repay their loans may suffer a similar fate.
Sheriffdeen Tella, a professor of economics, attributes Nigeria’s heavy borrowing to mismanagement and capital flight, adding that African countries are invariably assisting China to generate additional funds by seeking loans from the Asian country.
Given the bad experience of some African countries with Chinese loans, it’s important for an assessment of all loan agreements to counter the risk of losing the Nigerian economy to Chinese hegemony, Tella notes.
The dangers for Nigeria and other African countries is that the inputs for the projects to be financed, including technical manpower, are imported from China which means the projects aren’t creating jobs for Nigerians, he said. His worry is that the funds end up going back to China, instead of creating more wealth in Nigeria.
“This implies that a large proportion of each loan doesn’t get to the borrower, but resides in the country (China) producing these inputs,” he told The Epoch Times.
Oby Ezekwesili, a former Nigerian federal minister and World Bank vice president, has expressed a similar view. She thinks the loan from China wasn’t a wise decision, describing indebtedness to China as the hardest in the world.
She tweeted, “The Chinese know exactly what they are doing. If you read their loan agreements with African countries, you will see how tightly they cover their exposure. Meanwhile, our own leaders go there to naively, gleefully, and with a huge dose of inferiority complex, sign on to bad deals.
“I know, because I had to deal with it in the course of my work at the World Bank, helping African countries to get the HIPC Debt Cancellation. It annoys me to no end to see our countries binging on Chinese loans.”
The situation in Kenya, Zambia
Credit-rating company Moody’s recently issued a warning to sub-Saharan Africa concerning the risk of losing strategic state assets to China if they fail to repay loans. Angola, Nigeria, Zambia, and some others were mentioned.
Angola owes China some $21.2 billion, with a pending proposal for another $4.4 billion. Reports say China now owns more than 70% of Kenya’s bilateral debt. The East African country is yet to pay 320 billion Kenyan shillings (about $3.15 billion) borrowed to build the Standard Gauge Railway between Nairobi and Mombasa.
Moody’s says Kenya is among countries at the highest risk of losing strategic assets to China over the pile of debt it owes Beijing.
Edward Kusewa, an economist and a university professor, told The Epoch Times that the development finance offered to Kenya was an option it couldn’t resist because of the country’s revenue challenges.
Kusewa is concerned that Kenya is overburdened by debt, adding that the country’s recurrent expenditure had gone so high that little is left for development purposes. The economist, however, says he thinks corruption by African leaders is at the root of heavy borrowing.
He says, “I think it (loan from Beijing) is a good model, but African governments have been notorious for not repaying. It is good for China to take over this continent because African leaders have become irresponsible. If they can continually sponsor such kinds of projects and take ownership of it, it is going to be good.”
In Zambia, there is fear that the country might lose its international airport for defaulting on its Chinese loans. The IMF has warned that Zambia and Ethiopia were at “high risk of debt distress” to China.
But Dr. Lubinda Haabazoka, the president of the Economics Association of Zambia, told The Epoch Times that reports of Zambia losing its international airport to China weren’t true because under Zambian laws, it is illegal to give public property as collateral for loans.
Haabazoka says such reports arose from China’s growing economic influence in the country. He says China is despised in Zambia because the citizens think China has taken their jobs, businesses, and the economy.
He said, “The problem with Chinese loans is that they don’t come in the form of Forex in most cases, because everything is done from Chinese banks. Those things (loans) come in labor, raw materials and other tools of project implementation, so the projects are implemented by Chinese companies, but there is little that benefits Zambian companies.
“So much money coming in would have even helped to stabilize the economy but it doesn’t come; cash only comes to buy those raw materials that can be sourced within Zambia. That is the major problem of a China loan. There have been debt-sustainability worries.”
A Way Forward
As the continent begins a New Year, experts have proffered solutions to the debt crisis. Tella reasoned that if countries such as China (which have surplus funds) don’t find borrowers, the multiplier effect of their funds on their economy will be zero or even negative.
While taking loans may be an inevitable economic measure, Tella urged African governments to be more careful and get trusted local experts involved before signing loan agreements with the Chinese or other fund providers.
“This should involve project feasibility firms, with financial experts, lawyers, engineers and technocrats whose integrity will be at stake for the misadvising government. Countries without such experts can seek assistance from those who have or through ADB or UNECA,” he said.
Haabazoka stressed that African governments need to slow down on debt service.
“We hope that going forward, the government will consider public-private partnerships to finance projects. The Democratic Republic of Congo has been hijacked by foreign investors that refuse to pay taxes.
“In Zambia, in a bid to move away from debt finance, the country optimizes its taxes for the mining companies which are mostly owned by Western companies who have threatened to lay off 21,000 miners because of the percentage increase in mineral taxes. That is the difficulty we find in Africa because we no longer control our raw materials and mineral resources and foreign firms continue to exploit us,” Haabazoka said.
Meanwhile, Kusewa called for an end to corruption, which he described as the primary solution to Africa’s debt crisis.
“We need to get rid of the corruption within this country. The biggest problem is corruption. If we make corruption zero, we can see change. We need to reduce the cost of governance and introduce austerity measures,” he said.