‘Seun Ibukun-Oni, Abuja
The economics of development has attracted the attention of economists right from Adams Smith down to Marx and Keynes, albeit limited to static Western framework of social and cultural institutions. Later, economists started devoting their attention towards analysing the problems of underdeveloped countries having realized that ‘poverty anywhere is a threat to prosperity so everywhere’.
However, almost all economists agreed that the interest of the wealthy nations in America, Europe or Asia in alleviating widespread poverty of the poorest nations has not been aroused by any humanitarian motive. China, the darling of African countries is not an exception. The primary reason for all supports whether loans, aids or grants, is the export value for both the aid-giving and aid-receiving countries. In order to avoid secular stagnation, China needs an ever increasing rate of development which must be accompanied by an outlet for the use of their growing capital stock. On the receiving side, African countries need an accelerating rate of development to increase their export potential for avoiding deficit in balance of payments.
Chinese bank lending to African infrastructure projects peaked at more than $11 billion in 2017 and deep during the post COVID era at $3.3 billion, according to a Baker McKenzie report.
With the continent facing an estimated annual $100 billion infrastructure investment deficit, Chinese funding leaves a big gap to fill.
China loans only make up 10 percent of Nigeria’s total indebtedness estimated at $32billion by the Debt Management Agency.
The World Bank, IMF and development banks account for 54.7 per cent of the debt. Bilateral loans, including from China are about 12.4 percent.
Euro and Diaspora bonds are about 24 percent. Nigeria’s External Debt Stock as at March 31, 2021.
The reduction in the loans to African countries is due largely to two factors; first, the need to stabilize the growth path of China which took a hard dent from the global pandemic. The second being its huge debt liability in Africa. China happens to be Africa’s biggest lender with debts worth more than $150 billion owed. Overall, in 2019, China’s outstanding debt claims stood at well over $5 trillion across the continent.
Rotimi Amaechi, the Minister of Transportation, has blamed the delays in major projects, including railways, on the inability of the Chinese to fund them.
Amaechi said the Federal Government has started looking for loans in Europe following the refusal of the Chinese to fund Nigerian projects.
In an interview with the Guardian, the minister expressed hope that Nigeria could get loans from Europe to complete existing projects.
According to Amaechi: “We are stuck with lots of our projects because we cannot get money. The Chinese are no longer funding. So, we are now pursuing money in Europe.
“And when I look at the money they are borrowing in other countries and compare it with the one we have borrowed, the kind of comments by Nigerians will put you off.”
Amaechi said the Abuja-Itakpe railway is underway, which will link the existing Itakpe-Delta rail line.
China developed cold feet after they pledged to offer most of the funds.
It is the latest sign of falling Chinese financial support for infrastructure projects across Africa, after years of major Chinese lending for railway, energy and other projects.
Another project caught in China’s inertia is the 614-km (384-mile) Ajaokuta-Kaduna-Kano (AKK) pipeline, which the Bank of China and Sinosure promised to cover $1.8 billion of the project cost.
Nigeria’s fiscal policy is not unique in the context of an underdeveloped economy. The role of fiscal policy is to accelerate the rate of capital formation. The propensity to save is very extremely low and the propensity to consume is very high. Thanks to the current Buhari’s approach which has ensured that all borrowed funds have been tied to what it termed legacy projects sprawling across the country.
But someone must tell President Buhari that China may play the debt-trap like the Sri Lanka’s Hambantota port on a lease of 99 years. Previously, the government was tight-lipped about the prospect of China taking over the port in the case of loan defaulting. However, it’s now a reality, and the recent confrontation on Mombasa port says a lot about Chinese high-handedness when it comes to loan repayment.
Kenya’s cumulative public debt has ballooned to $65.3 billion, and it is feeling the weight of its financial obligations, particularly servicing the Standard Gauge Railway (SGR) loans. The country is spending 40 percent of tax revenues on servicing public debt. The SGR project was constructed under the Belt and Road Initiative (BRI), and needless to say, Kenya now finds itself in a situation where it has been trapped under tremendous debt, and faces the prospect of its sovereignty being walked over by China.
Nigeria must neither give in to Chinese debt-trap diplomacy in the name of infrastructural revolution. Nor return back to Britton Wood institutions for drowning conditionalities that would keep the next generation of Nigerians in vassal mode. Rather, it must explore the other fiscal derivatives such as taxation, public expenditure through thrifty budget implementations and lean government across the three tiers and arms.
* ‘Seun Ibukun-Oni is the Publisher of Daily Courier online media and Chief Survey Methodologist at Gates Polls Limited based in Abuja. He can be reached on 08037998398 or email@example.com