Nigeria on the cusp of losing assets if it fails to pay $3.48b loans
By Jeph Ajobaju, Chief Copy Editor
Both Uganda and China have denied that China has taken over Entebbe International Airport in Kampala over unpaid $200 million loan. Even if that is true, it is only a stop gap. The agreement is that China will take over the airport if Uganda defaults.
What is not denied is that China has rejected recent pleas by Uganda to renegotiate toxic clauses in the loan obtained from the Export-Import Bank of China in 2015.
At the last count, Nigeria owes China over $3.48 billion in loans. If Nigeria fails to pay up, China will take over some assets, despite the lies told by Abuja people.
Uganda joins Sri Lanka, Malaysia, Maldives in the debt trap created by predatory conditions of Chinese loans in the Belt and Road Initiative of Beijing.
Other countries on the verge of suffering a similar fate over debt repayment default to China include Pakistan, Thailand, Kenya, Sudan, Ethiopia, Laos, and Cambodia.
Economic and financial experts warn that Nigeria risks losing key national assets to China if it defaults in paying back loans.
Transportation Minister Rotimi Amaechi disclosed in August that Nigeria may forfeit assets to China in the event of loan default.
He said Nigeria has waived immunity on a loan, which means China could take the country to arbitration in the event of a default.
He added, however, that there would be no need for China to claim any infrastructure once Nigeria repays its loans.
“We must learn to pay our debts and we are paying, and once you are paying, nobody will come and take any of your assets,” Amaechi said.
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Financial analysts have advised Abuja to review loan agreements with China to save the country from the fate of Uganda.
The views, collected by The PUNCH, are reported below:
Idakolo Gbolade (SD&D Capital Management Chief Executive Officer)
“Yes, it is very possible that Nigeria may forfeit certain assets in the event of a loa default.
“If you remember about a year ago, there was serious concern in the National Assembly on the loans given by the Chinese Exim Bank to us, and I am sure the loan clause also includes forfeiture of national assets.
“But I am confident that Nigeria is capable of paying back its debt.”
Akpan Ekpo (professor of economics and public policy, University of Uyo)
“It is an issue of concern; that is why in any loan agreement with China, we have to read in between the lines. We have to make sure we really understand their agreements.
“We should make sure that Nigerians are involved in the loan negotiation process. Experts should be carried along so that they can properly understand both the agreement in English and in Chinese.
“If the loans have clauses that may cost us our assets or even our sovereignty – as the debate was earlier in the year – that would be disastrous.
“So they should take experts with them when they go to negotiate the loans they collect from China, not just people from foreign affairs.”
Sheriffdeen Tella (professor of economics, Olabisi Onabanjo University, Ago Iwoye)
“It could happen to any African country because they are all thinking of borrowing. But I think that since people have kept the conversation alive now, the government will be very careful with loans collected from China.
“There is, however, the need for an assessment of government external debt from different sources now. We have to start looking at it and there is a need to study the documents that contain the agreements of some of these loans to prevent a similar occurrence.
“We need to start asking ‘what are the contents or the conditions of the loans?’ There is also a need for the government to create a means for offsetting such debts.”
Johnson Chukwu (Cowry Asset Management Managing Director)
“An interest of 2.5 per cent is not high. The key challenge is that did we invest the money in productive assets, and are we getting the value for the money? Was the project cost-optimal?
“It is important to note that investment in infrastructure should lead to an expansion in the country’s ability to generate revenue. If the economy thrives, paying back the loan should not be a problem.
“However, if certain reasonable conditions are not met, it may have a catalytic effect on the economy with the country finding it difficult to pay back the loan.”
Response from DMO
Although the government is mostly secretive about the terms of its Chinese loans, the Debt Management Office (DMO) has provided some insights.
“The total borrowings from China of $3.121bn as at March 31, 2020 are concessional loans with interest rates of 2.5 per cent per annum, tenor of 20 years and grace period (moratorium) of seven years,” it said in statement in June 2020.
According to the DMO, the terms comply with Section 41 (1a) of the Fiscal Responsibility Act 2007.
In addition, the DMO said, low interest rate reduces the interest cost while the long tenor enables repayment of the principal sum over many years.
Eleven projects, ranging from water supply, power generation, railways, airport terminals, communication to agricultural processing, are funded by the loans.
“So far, let’s be very clear that there has not been any default, whether of local or international debt,” DMO Director General Patience Oniha said in February.
History of Nigeria’s 11 loan deals with China
The PUNCH reports that the earliest of the funding agreements between Nigeria and China was signed in 2010 with an interest rate of 2.5 per cent yearly, a repayment period of about 20 years and a grace period of seven years.
If Nigeria is unable to pay its first debt by 2038, the country may lease out any of the Chinese-funded projects to China.
The first loan was for national public security communication system with $399.50 million agreed on December 20, 2010 and disbursed.
The second loan was for railway modernisation (Wu-Kaduna section) with $500 million agreed on December 20, 2010 and disbursed.
The third loan was for the Abuja light rail project with $500 million agreed on November 7, 2012 and disbursed.
The fourth loan was targeted at ICT infrastructure backbone project with $100 million agreed on January 5, 2013 and disbursed.
The fifth loan was for expansion of four airport terminals (Abuja, Kano, Lagos, and Port Harcourt) with $500 million agreed on July 10, 2013 but $455.28 million disbursed, which is 91.06 per cent of the agreed amount.
The sixth loan was for Zungeru hydroelectric power project with $984.32 million agreed on September 28, 2013 but $518.24 million disbursed, which is 52.65 per cent of the agreed sum.
The seventh loan was for 40 parboiled rice processing plants (Ministry of Agriculture and Rural Development) with $325.67 million agreed on April 26, 2016, but nothing disbursed.
The eighth loan was for railway modernisation (Lagos-Ibadan section) with $1.27 billion agreed on August 18, 2017 but $759.84 million disbursed, which is 17.50 per cent of the amount.
The ninth loan was targeted at the rehabilitation and upgrading of Abuja-Keffi-Markurdi road with $460.82 million agreed on August 18, 2017 but $80.64 million disbursed, which is 59.96 per cent of the amount.
The 10th loan was for the supply of rolling stocks and depot equipment for the Abuja light rail project with $157 million agreed on May 29, 2018 but nothing disbursed.
The 11th loan was for the greater Abuja water supply project with $381.09 million agreed on May 29, 2018, but nothing disbursed.
Loan repayments
- Nigeria paid $102.68 million to China in the first six month of 2021 (H1 2021).
- It also paid $102.68 million to the Exim Bank of China (EBC) in H1 2021.
- Nigeria paid an interest fee of $42.54 million which is 73.76 per cent of the principal sum of $57.67 million as debt service to the EBC in the first quarter of 2021 (Q1 2021).
- Together with commitment charges of $1.98 million, Nigeria paid a total $102.20 million.
- Nigeria paid an interest fee of $306,050 in Q2 2021, without paying the principal fee, as debt service to the EBC in Q1 2021.
- Together with commitment charges of $170,680 Nigeria paid a total $476,730 in Q2 2021.
- Nigeria spent $591.11 million in five years on servicing debts owed to the EBC.
- Nigeria still owes China $3.48 billion as of the end of June 2021.