The ability to attract funds at a reasonable cost or interest is one of the key factors to consider when seeking domestic or external loan. It’s so because, among other things, interest and fees on loan contribute 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 points before closing a loan negotiation. 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, and many more, that led to the anxiety in the House of Representatives last week over the loans secured from China. The concern is legitimate. It was for that reason too that the House Committee on Treaties, Protocols and Agreements summoned the following Ministers: the minister of Transportation Chibuike Rotimi Amaechi, the Minister 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 seems, the government is plunging 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 to power, Nigeria total debt profile was N12trn.
Today it’s over N27trn. And the fear of the legislators 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 $3.17bn. This represents 3.94 precent of Nigeria’s total public debt of N27.40trn or $89.303bn as of March 31, 2020, while external sources of funds, loans from China accounted for 11.28 percent of Nigeria’s external borrowing of $27.67bn. The loans from China were reported to have been obtained with interest rates of 2.5 percent, with repayment period of 20 years, in addition to a 7-year moratorium .
It is the condition allegedly attached to the loan agreement which reportedly contained a stragulatory waiver clause. That is the reason for the anxiety we all saw during plenary last week . Article 8(1) of the commercial loan agreement signed between Nigeria and Export-Import Bank of China, which the House said it has obtained, allegedly concedes Nigeria’s sovereignty to China in the event of a default on repayment. Something didn’t quite add up, the lawmakers fumed .
For instance, the lawmakers are fuming, and rightly so, about the $400 million loan agreement for Nigeria National Information and Communication Technology Infrastructure Backbone Phase II Project, signed in 2018. Perhaps most provocative is the clause in the agreement, reportedly signed by the Federal Ministry of Finance on behalf of the Federal Government of Nigeria (borrower) and the Export-Import Bank of China (lender) on September 5, 2018, which 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 assets and diplomatic assets”.
If this is true of what Nigeria had signed in order to obtain loan from China, 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. Amaechi didn’t help matters in his own explanation. He made matters worse when he said that the House should stop all investigation into the loan agreement so that China wouldn’t be forced to pull out. What kind of logic is that?
As a rule all over the world, it’s the constitutional mandate of the legislature to look into or review any loan portfolio with the aim of correcting any problems that may arise thereto. It’s strange and unpatriotic for a serving minister to try to arm twist a legislative arm to abandon this constitutional duty . 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 China, adding 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 the National Assembly 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. We should avoid a China debt trap.
Altogether, those who say 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, the journey of the ‘more -you- look, the less-you-see’. 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 hefty loan from China, totaling $6.4bn 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. For the record, in less than five years, the present administration has borrowed over N15trn. It inherited N12.118trb in 2015 as total national debt stock . On November 28, 2019, it sought $29.6bn from multilateral financial institutions, and said oil earnings not enough to meet national priorities. On March 5, 2020, the Senate approved Buhari’s $22.7bn loan request, amid a rowdy session, raising fears that debt servicing may hit N3trn annually. There’s need to be extremely cautious and limit both domestic and external borrowing. Only if this government will take heed.