Increased Chinese loans to Nigeria By Dapo Fafowora

During his official visit to China, President Muhammadu Buhari concluded with the Chinese president a $6 billion loan to Nigeria for the construction of the Lagos-Calabar rail project. Nigeria is to provide some N40 billion as counterpart funding for this huge infrastructure project, the largest since the Chinese built in the 70s the Tan-Zam railway, linking Tanzania with Zambia.  It is the largest ever Chinese loan to an African state. Despite some legislative hiccups here in Nigeria over the counterpart funding, the project will almost certainly go ahead. Nigeria needs it badly to provide a coastal railway between Lagos and Calabar with future possible lateral rail connections on the route. The critical importance of this project to Nigeria is so obvious that it should not evoke any controversy. It should go ahead as speedily as possible.


In recent years, China’s loans and investments in Nigeria have increased significantly. Before the current $6 billion loan, total Chinese loan to Nigeria was $13.3b, roughly a third of its total loans and investments in Africa. In 2015, President Goodluck Jonathan secured a Chinese loan of $1.5b for infrastructure support, including the development of the aviation sector. Chinese investments in Nigeria and Africa have become even more critical in view of the global recession, the fall in oil prices, and the inability or unwillingness of the G7 states to make fresh investments in infrastructure developments in Africa. For instance, in 2015 President Barack Obama announced a miserly $8b as the total US foreign direct investment in Africa. Over the years cumulative G7 investments in Nigeria and Africa have fallen sharply, partly due to disappointment with African states in the management of their economies, particularly over the prevailing corruption on a massive scale in these African states, as well as internal pressures in the G7 countries for greater internal social development. There is growing turmoil in most of the advanced industrial countries that makes foreign investment less attractive and a distraction from facing their own domestic severe economic challenges. The home front has become a priority for them.
In this situation, China is better placed to take up this slack in foreign investment in Africa. It is the second global largest economy and has the largest reserves of US dollars. It is investing massively in Europe, Asia and the Americas, including the US where it is buying up blue-chip companies. Though its economy has slowed down to only seven per cent this year, it is still the fastest growing economy in the world. China’s interest in Africa, particularly Nigeria, should be viewed largely on economic terms. It is not wholly benevolent. China will in future need new and large commercial markets, which only Africa can provide. Increasingly, China’s exports will face restrictions in Europe and the US, currently its biggest markets. It will have to look for new markets in Africa where the population projection is that in the next two or three decades, Africa’s total population could be close to two billion. It is this huge market that China is eyeing. The Chinese have a reputation for long range planning, in decades, well ahead of their economic and industrial rivals.
Until recently, Nigeria has been rather slow in seeking closer economic relations with China. As Amb. Olu Sanu, a former Nigerian Ambassador to China, observed in his recently published biography, Nigeria was really not serious about promoting economic relations with China, until recently. From 1972, when Gen. Yakubu Gowon first visited China as head of state, virtually every Nigerian head of state, including the late Gen. Sani Abacha, has paid an official visit to China, to ask for Chinese technical and financial assistance. When granted by the Chinese, who were eager to promote economic relations with Nigeria, these offers have not been duly taken up by the Nigerian authorities.
For most of the time the military were in power in Nigeria, they were suspicious of the Chinese spreading their socialist doctrines to Nigeria. Such suspicions no longer exist. Nigeria recognised China in 1973 and supported its admission to the UN, thus ending China’s international isolation. In addition, the periodic oil boom made offers of Chinese financial assistance somewhat less attractive. Now, the situation has changed. China is still a one party communist dictatorship, but its economy is becoming increasingly diverse, freer and capitalist in structure. China is no longer interested in spreading its socialist doctrines to any country, particularly in Africa.
Nigeria’s economic and financial situation has changed drastically. Its estimated growth rate this year will be only two per cent, a drastic fall from its 2014 growth rate of nearly seven per cent. Without the injection of fresh foreign capital, its future economic growth prospects are dismal. New jobs, on a massive scale, are badly needed to contain and reduce possible social tensions that may tear the nation apart. It is in this light that the $6b Chinese loan for the Lagos-Calabar rail lines should be viewed. The project will create new jobs. The Chinese are already involved in the development of railways in Nigeria. They handled the refurbishment of the Lagos-Kano line, as well as the fast train from Kaduna to Abuja. They have an impressive global reputation and record in the business of railway development. Even in Europe, Chinese expertise in this respect is highly valued and respected.
Of course, Nigeria should be concerned about its growing trade imbalance with China. Chinese exports to Nigeria represent some 80 per cent of its total trade with Nigeria. This is an awful trade gap that Nigeria should seek to address. Nigeria must also find ways of blocking Chinese exports to Nigeria of cheap and fake products, such as textiles, plastics and drugs. It is obvious that Nigeria, with the connivance of our own traders, is being used as a dumping ground for cheap Chinese products. It is up to Nigeria to take proactive measures within the ITO provisions to reduce this huge trade imbalance. It should take advantage of the Chinese ‘benevolent trade policy’ to reduce the trade imbalance between the two countries. Under this policy, the Chinese are obliged to buy up our surplus export commodities, as it is doing in Tanzania in respect of coffee and tobacco. The problem is that Nigeria has little or no agricultural surpluses that the Chinese can buy up.