The ability to attract loans at a reasonable cost or interest from a lender, is one of the key factors to consider when seeking domestic or external loan. It’s so because, interest and fees on loan make up a sizeable amount the lender makes from the facility advanced to the borrower. But in all this, the borrower is often advised in his own interest, and indeed, that of his country and citizens, to consider the following before closing a loan deal . These include: the financial condition and repayment ability, completeness of documentation, consistency with the loan policy, perfection of the security interest on collateral so as not to mortgage the sovereignty of the borrowing country. This entails legal and regulatory compliance.
I believe it’s for these reasons that have necessitated the latest furore over loans secured by Nigeria from China. The concern is legitimate. It was for that reason too that the House of Representatives Committee on Treaties, Protocols and Agreements, last year summoned Ministers of Transportation, Chibuike Rotimi Amaechi, that of Finance, Budget and National Planning, Mrs Zainab Ahmed, and the Minister of Communications and Digital Economy, Dr. Isah Pantami.
The worry by the House also reflects the concerns of many Nigerians. This is because the way the present administration is going in taking foreign loans especially from China, it may plunge the country into a new debt-trap without learning the lessons of the past. Those who forget the mistakes of the past, history teaches, are bound to repeat it. The facts are there to worry about. In 2015 when the present administration came to power, Nigeria total debt profile was N18.89trn.
Today, it’s over N32trn. And the fear is deep. Data from the Debt Management Office (DMO) indicates that the total value of loans taken by Nigeria from China as of March 31, 2020 stood at $3.121bn. This represents 11.28 precent of Nigeria’s external debt of $27.67bn, according to The Guardian lead story of April 14, 2021. The loans from China were reported to have been obtained with interest rates of 2.5 percent, with repayment period of 20 years, and a 7-year moratorium. On paper, the benefits are huge. But, in the long-term, it could turn out to be a poisoned chalice.
This is as a result of the strangulatory conditions reportedly attached to the loan agreement . For instance, Article 8(1) of the commercial loan agreement signed between Nigeria and Export-Import (NEXIM) Bank, which the House of Representatives said it has obtained, allegedly concedes Nigeria’s sovereignty to China in the event of a default on repayment. China is the world’s largest lender to developing countries. It is speculated that this undue influence imposes tough and unique conditions on borrowing nations, a situation that could make China to have a huge influence on Nigeria’s economic and foreign policies.
Germany’s Think Tank, Ziel Institute for World Economy (IFW) has reinforced this fear in its latest report. Over 90 percent of Chinese contracts reportedly include a clause that allows the creditor to terminate the contract and demand immediate repayment in the case of policy change or administration in the debtor’s country. Another “offensive” clause refers to a borrower’s promise not to disclose all the terms in the loans agreement. This sort of secrecy may prevent other lenders from accurately assessing the debtor’s creditworthiness. In all of this is the additional worry that while Nigeria’s debt to China increases, projects in the country that are being executed by the loans are currently facing acute cashflow and viability challenges. This raises the fear of what happens in the event of Nigeria’s likely inability to meet the obligations of repayment at the time stated in the loan agreement. For instance, there’s an existing $400 million loan agreement for Nigeria National Information and Communication Technology Infrastructure Backbone Phase II Project, signed in 2018.
Perhaps most provocative is a reported clause in the loan deal that was signed by the Ministry of Finance on behalf of the Federal Government of Nigeria (borrower) and the NEXIM Bank on September 5, 2018. This is said to have provided that, Nigeria as the borrower “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 and diplomatic assets . The federal government has however denied this. But, if this is true of what Nigeria was said to have signed in order to obtain loan from China, it amounts to signing off Nigeria’s sovereignty. Though the Attorney General of the Federation and Minister of Justice, Abubakar Malami has allayed fears over this, explaining that “concessions relating to immunity for the purpose of provision of commercial guarantee are a normal, traditional ritual”, it doesn’t seem as simple as that. Secrecy has its consequences.
As a rule all over the world, it’s the constitutional mandate of the National Assembly to look into, or review any loan contract with the aim of correcting any problems that may arise thereto. It’s well and good that the Chinese Foreign Ministry has denied that China had any clause in its loan contract purportedly ceding Nigeria’s sovereignty to Beijing. It had explained that “China is committed to enhancing investment and financial cooperation with African countries based on their needs to help them improve infrastructure and expedite economic development Nonetheless, nothing should stop NASS from looking into every component of the loan agreement, not only with China, but other foreign loans that this government or the previous ones have entered into. When you fail to find the borrower’s financial statements, the riskiness of the borrower, the lender’s interest rates, clauses of the deal, usury ceilings and other “hidden charges”, that’s the starting point of debt crisis. Nigeria had been on this bumpy road before and it took years and the financial expertise and connections of people like Dr Ngozi Okonjo-Iweala for Nigeria to exit the London/Paris Club of creditors. This time, we should avoid a China debt-trap.
Altogether, those who are saying that there’s nothing to worry about the Chinese loans, are sincere deceivers. The opaque nature of most Chinese loans has put the borrowers on a cliffhanger. To some unwary countries, China loans have become like what garlic is to vampires. Take the fate of Zambia, for instance, which signed similar loan deal with China in 2018, and is now said to have lost some of her national assets on account of default on repayments. China is reported to have taken over the Zambia National Broadcasting Corporation.
Talks are still ongoing between the two countries on a possible take over of Zambia’s national electricity company, ZESCO, as well as the Kenneth Kaunda International Airport, Lusaka. All because of Zambia’s inability to meet its loan repayments. Over this period, data from China Africa Research Initiative (CARI) shows that Zambia had accumulated a total of $6.4bn loan from China, as of December 2017. If these are not enough reasons to worry about loans from China, tell me what is? That’s how nations fall when they accumulate debts that they cannot repay in the foreseeable future.