Features

A Promise with China: Knowing Where Nigeria’s Bread Is Buttered

Despite persistent efforts by the West to discourage Nigeria and other African countries from close economic partnership with China, relations between China and Nigeria has continued to grow, opening new vistas of opportunities every year. With so many economic advantages emanating from this partnership, it would be a huge miscalculation if the African giant fails to identify where her bread is buttered.

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Long-standing friendship, technical cooperation and strong connections between China and African countries have endured the test of time despite severe criticisms from the West. The consistent efforts by the West to de-market China are partly orchestrated under the guise that China’s activities in Africa, are saturated with questionable political goals and commercial practices.

China’s primary oppositions in the diplomatic and economic drive into Africa are the United States, France, and the United Kingdom. But the Asian giant has remained undaunted. 

In 2009, China overtook the United States as Africa’s greatest trading partner. Between China and 40 African countries, a lot of bilateral trade agreements have been struck. China-Africa trade was about $10 billion in 2000, but reached a peak in 2014, rising to $220 billion.

China not only pushes its businesses to invest in Africa, but also provides governments in the continent with loans to help them become more competitive economically.

Various Chinese enterprises are operating on the African continent, especially in the energy, construction, agriculture, telecommunications, and transportation sectors, where they continue to support and invest. To enhance bilateral relations, China presently has bilateral and bi-national agreements with more than 50 of Africa’s 55 countries, excluding those that recognise Taiwan.

Nigeria has been a key participant in this inter-continental partnership with China. February 2021 marked fifty years of bilateral relations between both countries. For the past five decades, especially after the establishment of the strategic partnership of 2005, the wide-ranging bilateral cooperation between the two countries has been a pacesetter in China-Africa cooperation.

Nigeria is a resource-endowed country with a growing youthful population. It has potential for speedy growth, but needs a mega partner like China with vast economic and developmental goals that are similar to hers for motivation. On its part, China in the last three decades has been making dynamic strides and has attained economic independence and humongous growth.

In the last six years, under the strategic guidance and personal attention of their two leaders, President Xi Jinping and President Muhammadu Buhari, the relationship between China and Nigeria has reached new heights unmatched in history, bringing tangible benefits to the two countries and their people.

In 2019, President Xi’s special envoy, Yang Jiechi paid a visit to Nigeria and held fruitful discussions with President Buhari. In 2020, President Buhari attended the Extraordinary China-Africa Summit in Solidarity against COVID-19.

The last few years have witnessed substantial progress in areas that have been quite beneficial to the government of Nigeria, especially in infrastructure development. In 2019, the two-way trade between China and Nigeria reached 19.27 billion US dollars, a long way from 2001, when Nigeria’s trade with China accounted for merely 1% of the total of Nigeria’s foreign trade.

Today, China is one of Nigeria’s top trading partners. In the area of infrastructure, there are so many tangible results from Nigeria’s cooperation with China such as the Abuja-Kaduna Railway, Lagos-Ibadan Railway, Abuja Light Rail, and airport terminals in Abuja and Port Harcourt, among others. These were all financed with loans from Chinese banks, facilitated by the Chinese government. Before now, Nigeria’s traditional development partners mainly in Europe and the Americas (USA and Canada) dominated her investments and trade relations. One noticeable factor was their stringent business terms on loans and project financing.

China was able to turn the table in her favour by providing Nigeria with low-interest loans, favourable bilateral trade policies, and substantial foreign aid – both technical and humanitarian, and non-interference in Nigerian politics. The recent boost in Nigeria-China economic relations is a result of a number of these factors, including complementary economic interests of the two countries.

Some analysts have opined that Nigeria should back out from her “hot” relationship with China, citing exploitative terms and hidden motives. Some of such opinions smirk of western prejudices, are ill-informed, or outright mischievous. Such persons also fail to clearly see all the dimensions of market opportunities that drive the relationship between both countries. While Nigerian consumers and business owners are looking for cheap products from China, Chinese growing manufacturing firms are seeking market opportunities for their products in Nigeria. (The joke is that it is the same quest for cheap services and products that made America’s businesspeople to abandon their country and home industries for China many years back!)

Also, the input sourcing and export-promotion drive of the two nations is another dimension of the economic affinity. As huge Chinese firms are seeking Nigeria’s raw materials (oil, gas, solid minerals, agricultural products, etc) for inputs and generation of energy, Nigerian exporters are seeking market opportunities for these primary products.

China’s ability to readily provide financial and technical assistance (at concessionary interest rate or/and with aid) to Nigeria is another critical factor that is consolidating this relationship. The recent repeated political visits by the Nigerian government and the reciprocal visits by the Chinese government which led to the signing of bilateral Trade Treaties and Memorandum of Understandings between the two nations have also strengthened the relationship.

There have also been enormous benefits in the area of people-to-people and cultural exchanges between China and Nigeria. The China–Oriented Spring Festival Temple Fair, which has been held in Abuja for 4 consecutive years before the pandemic, has continued to attract more and more local people. In 2019, the number of Nigerian students studying in China rose to 6800, which stands first among all African countries. Many of them are covered by a wide variety of scholarships, studying for their master’s and doctorate degrees in engineering, medicine, agriculture, and other majors.

Scientific cooperation between the two countries is also experiencing some boom. The relationship in this area had witnessed the launching of NIGERCOMSTAT 1, Nigeria’s first communication satellite in early 2007. An MOU on the Provision of National Information/Communication Technology Infrastructure Backbone between the Federal Ministry of Science and Technology and Huawei Technologies was also signed.

An increase in economic cooperation is noticed in trade and investment at public and private levels. Renewed cultural cooperation also manifest in various areas. For example, some institutions of higher learning in Nigeria are collaborating with their Chinese counterparts in the area of Chinese culture and innovation, while cultural troupes and students are being exchanged.

The cooperation arrangements between China and Nigeria on different fronts, apart from providing alternatives to the traditional focus of government, have opened a new vista of beneficial relationships for other stakeholders. Nigeria has gained remarkably from technical assistance and scientific cooperation as a result of China superior know-how in various areas. A well-known fact is that the Nigerian military has benefited from China’s technical assistance in form of military training and even the supply of military hardware in the battle against insurgency.

Positive developments have been recently recorded in respect of net FDI. China has set up over 30 solely owned companies or joint ventures in Nigeria, and these are actively involved in the construction, oil and gas, technology, services and education sectors of the Nigerian economy. Increased Chinese economic interests in Nigeria can be broadly classified into two: private and public. According to information obtained from the Nigerian Investment Promotion Commission (NIPC), Chinese private FDI is prominent in the agro-allied industry, manufacturing, and communications sectors.

On the one hand, some of these investments are mainly joint ventures between the Chinese and Nigerians. On the other, some are wholly foreign-owned, either completely by the Chinese or in partnership with other foreign investors. Some of the Chinese businesses have also benefited from investment incentives such as pioneer status and expatriate quotas. 

In total, there are around twenty thousand Chinese people, including more than 300 from Taiwan, living in Nigeria, residing mainly in Lagos, Kano, and Abuja. In the 1960s, technicians and workers came from Shanghai and Hong Kong to start their businesses in Nigeria. Since the reform and opening up, more Chinese companies have invested in Nigeria. In 2002, the Nigerian Council for the Promotion of Peaceful Reunification of China was established in Lagos.

On the issue of loans, Nigeria’s debt to China forms 80.1% of bilateral debts, or $4.1 billion. Bilateral debts generally refer to debts loaned by one state to another state. Other countries that have lent to Nigeria are France, Japan, India, and Germany.

Multilateral debts, or debts owed to international financial institutions such as the African Development Bank, the World Bank, and the International Monetary Fund, stood at $17.9 billion.
The bulk of loans from China are concessional, which means they are given at more generous terms than market loans.
Eleven projects are funded by the money, according to the Debt Management Office (DMO). These range from water supply, power, and railways to airport terminals, communications, and agricultural processing.

“Those are all concessional loans and there are no reasons to be worried about them. They’re all project-tied, which we think Nigeria should be happy about,” the Debt Management Office stated last February 

In total, Nigeria has agreed to $5.6 billion in loans with China. But as of March 2020, Beijing had disbursed $3.3 billion. With Nigeria already servicing the loans, $3.1 billion was outstanding as of then.

The earliest of these funding agreements was signed in 2010, while the most recent dates back to May 2018. They all have interest rates of 2.5% per year, a grace period of seven years, and a repayment period of about 20 years. The earliest maturity date is September 2030, with the last loan to be paid up in March 2038. No other country on earth has ever offered any loan to the country on such generous terms.

Official figures show that Nigeria’s debt to China grew 136% between September 2015 and September 2020, from $1.4 billion to $3.3 billion. President Buhari started his first term in May 2015. External debt in that period also grew from $10.6 billion to $32 billion.

Nigeria spent $195.5 million to pay its debt to China in 2020, or about 12.6% of the $1.6 billion it spent servicing all its external debt.

In the words of Joseph Ajibola, a Professor of Monetary Economics at Caleb University, Lagos, “Not all debts are bad. It is not accurate to judge a country’s debt and its ability to pay simply by how much has been borrowed.

“The borrowing limits for any country depend on its condition, not on the debt-to-gross domestic product ratio, or any other ratio. Developing countries with lots of opportunities for economic growth may have reasons to borrow much to fund their growth.”

Ajibola stressed that the primary consideration should be what the loan is used for. “I really don’t have fears about Nigeria defaulting on China loans because they are project-targeted loans. It is bad when a government borrows for consumption: to import food, pay salaries or for administrative purposes.”

With the difficulties in the crude oil sector and a global economic downturn caused by the Covid-19 pandemic, Nigeria clearly needs Chinese investment and loans now more than ever.

Any economic analyst will see clearly that China is one of the most important lenders of development finance to Nigeria. Chinese firms and finance play a prominent role in Nigeria’s infrastructure development. This is notable in the construction of railway lines and road (re)construction across the country. Some examples are the $874 million 187km Abuja-Kaduna rail; the $1.2 billion 312km Lagos-Ibadan expressway; the $1.1 billion Kano-Kaduna railway lines, and the $600 million airport terminals in Abuja, Lagos, Port Harcourt and Kano.

Nigeria has remained one of Africa’s top destinations for Chinese foreign direct investment (FDI). Although an updated figure has not been released, it is estimated that about 5% of Chinese FDI stocks in Africa and 4.6% of FDI inflow in 2019 came to Nigeria.

With such a high- level of economic edge coming to the country in her partnership with China, it would be a gross miscalculation if Nigeria and other African countries fail to identify where their bread is being buttered and to act accordingly in their dealings internationally.

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