Nigeria: Living on foreign loans, borrowed time
August 10, 20203K views0 comments
ACCUMULATION OF DEBTS by successive Nigerian governments has become a time bomb, ready to explode anytime soon. Although reliance on foreign loans to a limited extent to execute some government projects is not a bad idea, the conditionality needs to be borrower-friendly. Problems arise when a government’s borrowing profile is rising higher than normal and the terms of borrowing are becoming unsustainable. Nigeria, in the past, has been drawn into many needless foreign loans by inept and corrupt government officials either as military dictators, civilian political leaders or top civil servants. Many projects financed from such loans have turned out to become white elephants, redundant or abandoned all over the country, with little or no positive impacts. Yet, Nigeria has been paying heavily for them.
The borrowing profile under the Buhari Administration since 2015 has been worrisome. Recent disclosures about some loans and what Nigeria concedes while borrowing are alarming. They raise the spectre of concerns about procedures and approaches. Recently, the legislative arm of government, in a rare show of bravery, disallowed some projects of the executive arm from getting away with cheap populism and heroism, insisting on getting down to details. The House of Representative Committee on treaties, protocols and agreements panel, headed by Nicholas Ossai, in their patriotic observation, raised objection over a clause conceding Nigeria’s sovereignty to China in two loan agreements, the first being the $400 million loan for the Nigerian National Information and Communication Technology (ICT) Infrastructure Backbone Phase II Project, signed in 2018. The second was on Railway expansion. The clause, described as “lethal” by the panel, is in article 8(1) of the commercial loan agreement between Nigeria and Export-Import Bank of China.
The disputed clause provides that “the borrower (Nigeria) hereby irrevocably waives any immunity on the grounds of a sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets.” The agreement on a $400 million loan reportedly obtained in 2018 for Galaxy Backbone, federal government’s information and communication technology (ICT) agency, was revealed during the panel’s investigative hearing on the loan request by Rotimi Amaechi, minister of transportation. Amaechi’s dismissive response to the panel’s questions drew attention to deeper revelations on issues that show no signs of going away soon. Amaechi’s casual response to questions on Nigeria’s sovereignty has shown the level of flippancy of many Nigeria’s public office holders about the country’s future.
While, according to the chairman of the committee, there are concerns about risks of breaching Nigeria’s sovereignty in some agreements signed by the ministries of Transportation as well as of Communications and Digital Economy, Amaechi thinks differently. In a full display of official naivety, he tried to educate the legislators and – by extension – Nigerians, affirming that contracts signed with China do not cede the country’s sovereignty. He spoke as if he was China’s Public Relations manager and attempted to give Nigerians a false sense of security by saying that the disputed clause was only a diplomatic agreement between both parties to ensure payment is made accordingly. While we agree that, in securing a loan of any kind, there must be an agreement which must contain some terms, we are uneasy about the complacency in Amaechi’s assertion that “no country will sign out its sovereignty.” His befuddled comments complicated issues further as he attempted to explain away what the Clause 8 meant in reality. His subsequent admission that he was not aware that the immunity clause was inserted in the loan agreement with his ministry made a further mockery of his spirited explanations. It portrays him as one who is not thorough. It brings home the importance and desirability of a good working knowledge of international relations by government appointees.
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Our concern here is not about how much was involved in Amaechi’s China loan as only Amaechi and the Chinese can explain the cost disparities issues that came up for discussions at the legislative panel session. Our concern is about the practical cost of his ignorance. It was even more ridiculous to urge the lawmakers to suspend their probe until Nigeria has secured the loan. With his weak and hardly persuasive arguments, his repeated comments about China raise a lot of questions. One particularly ridiculous stunt that seems like blackmailing the legislators into toeing China’s line was when he said “the day they (China) say ‘the government is not supporting the loans you people are taking, we are no longer giving you,’ that is the end of the project.” Another confusion added by Amaechi to the sovereignty question was when he argued that the immunity does not relate to Nigeria’s sovereignty as a nation but refers to the country’s immunity from arbitration. Another of Amaechi’s antics was put this way: “The Chinese ministry of foreign affairs has issued a statement that there is no clause ceding the sovereignty of Nigeria to China. What is ceded is the commercial immunity which prohibits any country from taking us to court; that is the jurisdictional immunity.” How then can you meaningfully separate a living snail from its shell?
Those who know China too well are not impressed by Amaechi’s pointless and mediocre defence. They know that China goes for loan defaulter’s jugular. They will also easily see the sense in the legislators’ arguments as the panel chairman complained that, “even the details embedded in those agreements are not forwarded to you when demanding counterpart funding… You don’t have the details, clause by clause, in line with the Act that established DMO. We need to know those details even before going to sign such agreements. But those details are not provided to the parliament. So, we have the right to question them.” These show the competence gap and lack of thoroughness in Nigeria’s official loan negotiations that have put the country in a quandary as the lenders easily exploit loopholes that are hardly detected by Nigerian officials. Sri Lanka, today, is living with the mistakes made in loan agreement with China for the finance of an infrastructural project, in which case it had to cede a national strategic asset to China. Djibouti in East Africa is going on the same path.
Although Ossai, in response to Amaechi on the China loan, was expressing concerns for next generations of Nigerians yet unborn, more disturbing in contemporary times is the vulnerability of Zambia to China on account of sovereign loans. One of the projects for which China loans were obtained was a railway project in Zambia. By 2019, when China came, threatening to recover all, the China Exim Bank clarified that it now has full control over Kenneth Kaunda Airport, Zambia’s main broadcast corporation and ZESCO power plant, the country’s main public electricity utility. How great it would have been if Nigeria has learnt from countries that recently turned down China’s loans on account of terms that have the potential of enslaving them! Malaysia, Pakistan, Nepal, and a host of others could not go ahead with loan agreements with China because of reservations about China’s style. Even a poor Myanmar recently expressed misgivings about falling into what was described as “debt trap” in China’s loan.
Many countries in Africa appear to have understood China’s pranks and seem unimpressed by Beijing’s “no strings attached” philosophy to lure countries into ‘unaffordable’ or ‘unsustainable’ loans. They are therefore prospecting for loans elsewhere other than from China. Tanzania now borrows intelligently for railway projects. In 2017, Turkey won bid to finance and build Tanzania’s ambitious $1.9 billion second phase railway projects. Ethiopia too seems to have learnt some lessons. It was therefore a great mistake for Amaechi to have suggested that China is way’s the only way out. China’s debt diplomacy should therefore worry Nigeria. The progressive descent into the mire of debt makes the situation more unsettling. Since 2018, Nigeria’s debt-to-GDP ratio has steadily climbed from 27.26 per cent to 29.78 per cent in 2019, 31.35 per cent in 2020 and is projected to rise to 32.64 and 33.88 per cent in 2021 and 2022 respectively. With a progressive decline in oil price, worsened by the Coronavirus pandemic-induced recession which does not show any sign of early improvement, Nigeria’s loan repayment with oil risks becoming unsustainable, especially as revenues generated from the railway projects will hardly cover the cost of running train services. This may put the Nigerian railway system under China’s control in case of default.
Nigeria can borrow intelligently without putting our children’s future at risk. The loan portfolios need to be diversified and projects approved under open, transparent and competitive tenders. Decent money will be attracted to worthwhile projects. Apart from national lenders, Nigeria needs to keep exploring private lenders whose repayment terms do not put national assets in jeopardy. The multilateral lending agencies such as World Bank and International Monetary Fund (IMF) have been objects of harsh criticisms for their recommendations. Despite all that, the upsides are their insistence on structural reform measures as markers for assessing programme implementation, such as improvement of financial sector operations, supporting social safety nets and strengthening public financial management. Hardly has any of them asked for any country’s infrastructure to be seized in the event of loan default. During Olusegun Obasanjo’s presidency, a defaulting Nigeria enjoyed $18 billion debt forgiveness, written off by Paris Club, a cartel of lenders. China loan emphasises none of these. Feasibility studies are often shoddily done and many poorly packaged projects, doomed to failure, pass China’s loan disbursement tests. As part of the totality of Nigeria’s enterprise development strategy economic growth, credible private sector companies selected through a credible bidding process need to be supported to borrow.
It is a shame that Nigeria, which is supposed to be leading the way by examples, is trailing behind because of shady agreements and poorly executed public projects. It raises questions about Amaechi’s competence and corporate experience, buttressed by him in a recent newspaper interview wherein he admitted that unemployment drove him into politics. Any wonder therefore that he is easily hoodwinked by Chinese loan negotiators? The way a country and its projects are packaged will determine how funding is attracted and the type of funding attracted. Credible process will lead to credible loans. The opposite is crisis-ridden loan. It is difficult to rule out a repetition of what has been done on railway projects during Jonathan’s regime now being presented again as new projects. Such may have to be investigated. Amaechi’s argument that “when we stop collecting the loans, then we stop developing because there was no money when we came into government,” is as shallow as it reeks of ridicule. It portrays the present government as lacking in innovative ideas. In the pursuit of its Grand Ethiopian Renaissance Dam (GERD), Ethiopia had to raise bonds from citizens at home and in the diaspora to fund part of the project. PWC, a consultancy, estimated that migrant remittances to Nigeria could grow to $25.5 billion, $29.8 billion and $34.8 billion in 2019, 2021 and 2023 respectively. Is it out of place if Nigerian government considers turning to its diaspora population for raising funds to finance national projects?
The incompetence or complicity of Nigeria’s Debt Management Office (DMO) has become very evident from the way the disputed Chinese loans have been handled. Nigeria’s rapid accumulation of debt in the previous five years is legendary. And incompetence has been identified as one of the reasons Nigeria was drawn into the debt trap in the case wherein a $9.6 billion judgment debt was awarded against the country by a United Kingdom court over the Process and Industrial Development (P&ID) deal. Although Nigeria has been taking legal steps to escape the P&ID suit, it is clear that those business partners are not joking with their terms of agreement. So, whether those conditions in written agreements are enforceable or not can be better understood as P&ID is asking for 20 per cent of Nigeria’s external reserves as compensation. Amaechi needs therefore to understand that those agreements are not mere papers that can be tossed away carelessly. It is also pertinent to ask whose interest he was protecting when he told the House Committee that “Nigeria won’t get loans from China if you keep probing,” and what motive was behind his aversion to probe. Some are insinuating cover-up attempt.
A major question Amaechi is yet to answer is that of why Hong Kong is the third party in one of the loan deals between China and Nigeria. Perhaps, during their next meeting with the House Committee, Isa Pantami, the Communications Minister or Zainab Ahmed, Finance Minister, or Patience Oniha, the Director-General of DMO, will be able to provide an answer to this question in connection with the commercial loan agreement between Nigeria and Export-Import Bank of China if it applies to the $400 million loan obtained for Galaxy Backbone, the government’s information and communication technology (ICT) agency. Nigeria needs to apply sound intellectual reasoning to its debt accumulation, repayment strategy and indeed to any official policy issue. Failure to do so could lead to implosion, not necessarily an asset take-over by aggressive lenders. In a July 2020 paper, Joseph E. Stiglitz, a Nobel laureate, and Hamid Rashid warned that “the consequences of a debt crisis at any time are devastating.” According to them, “Latin America’s lost decade is generally attributed to that region’s debt crisis; the Greek debt crisis – plunging the country into a half-decade long recession – is yet another example. But as part of, and in the aftermath of, the pandemic the effects could be far worse, especially for the afflicted countries that are home to 70 per cent of the world’s poor. Many of them are fragile economies. A balance of payments problem – say, from a decrease in export earnings precipitated by Covid-19 – will easily catapult them into a debt crisis. A full-blown debt crisis will inevitably force painful cuts in government spending, including on health, education and other social sectors. Such spending cuts will lead to years of low growth and high unemployment.”
Nigerians need to be protected from the adverse consequences of happy-go-lucky officials’ decisions and their superficial reasoning that have far-reaching negative implications. It is time to call Amaechi to order and to curb his reckless utterances that are mostly products of lazy logic and warped thinking. Nigeria should not be made subservient to China or any other lender for that matter because of someone’s incompetence. Alternative means need to be sought if we must obtain external loans and the conditions must be fair to Nigeria, not the ones that would end up subjugating the country now and in the future.