Fresh concerns over loans burden from China

• China’s secrecy clause to loans poses problems, says study
• Exposure to EXIM Bank increased by over 2000% in eight years
• Lawyers defend legislative scrutiny, sovereign immunity clause

As Nigeria and China this year mark their golden jubilee of official relations, there are growing fears over the imbalanced relationship, especially with China’s predatory lending bond with Nigeria and the country’s debt exposure to the Asian powerhouse, which has risen geometrically in recent years.

Official relations date back to February 1971 when Nigeria established diplomatic relations with China, and today Nigeria remains China’s major investment destination in Africa. At an event in Abuja to mark 50 years of Nigeria-China relations, the Chinese Charge de Affaires in Nigeria, Mr. Zhao Yong, disclosed that China’s trade with Africa has hit $208.7 billion with foreign direct investment totaling $49.1 billion.

According to Yong, the trade volume between China and Nigeria reached $19.27 billion in 2019, which was 1900 times that of 1971 when the diplomatic relationship was established, but fell to $13.66 billion in 2020 due to the pandemic.

Yong said: “Despite the adverse effects of COVID-19, the bilateral trade volume from January to October of 2020 increased by 0.7 per cent year on year, which was 14% higher than the trade growth rate between China and Africa as a whole. Nigeria surpassed Angola and South Africa respectively to become China’s second-largest trading partner and largest export market in Africa.”

The growing trade and presence of Chinese in Nigeria has also led to changing narratives about increased migration on both sides. As of March 31, 2020, Chinese loans to Nigeria stood at $3.121 billion, which is 11.28 per cent of the country’s external debt of $27.67 billion.

Meanwhile, a new study has found that China, the world’s largest public lender to developing countries, imposes unique conditions on borrowing nations, which gives Beijing undue influence over their economic and foreign policies.

According to the study from Germany’s Kiel Institute for the World Economy (IfW) released two weeks ago, after analyzing 100 Chinese loan agreements with 24 countries, China’s financing state banks establish new lending terms or adapt standard ones in ways that “go beyond maximizing commercial advantage.”

“Such terms can amplify the lender’s influence over the debtor’s economic and foreign policies,” the report said. It goes on to list several examples.

Over 90 per cent of the reviewed Chinese contracts include a clause that allows the creditor to terminate the contract and demand repayment in the case of significant law or policy change in the borrowing country. While policy change clauses are standard in commercial contracts, the researchers argue that this takes on a different dimension when the lender is a state entity and not a private firm subject to standard financial regulation.

The contracts also contain “unusually far-reaching confidentiality clauses,” researchers found. “Many of the contracts contain or refer to borrowers’ promises not to disclose their terms — or, in some cases, even the fact of the contract’s existence,” write the authors, who obtained access to these documents only through a multi-year data collection initiative carried out by AidData, a research lab in the United States.

This secrecy prevents other lenders from reliably assessing a country’s creditworthiness. “Most importantly,” the authors write, “citizens in lending and borrowing countries alike cannot hold their governments accountable for secret debts.”

In Nigeria, while the Chinese debt increases, projects funded with the borrowed funds face cash flow and viability challenges, raising questions on the country’s ability to fulfill its obligation to the lender.

Amidst the growing concern over the country’s ability to offset the growing debt, much of which the National Assembly said the conditions are shrouded in secrecy, the Federal Government sees China as a reliable partner in its efforts to resuscitate the country’s moribund infrastructure.

Sources in the government’s establishment saddled with the responsibilities of negotiating the debt agreements and overseeing the underlying projects said the waning interest among traditional European lenders, including the Paris Club, has made the incessant trips to China irresistible and puts the Federal Government in a dilemma.

“It is a dilemma if you consider the long period of neglect of the most important infrastructure. The government must find a way to fund the projects. And if the traditional market is unwilling to give loans, should the government sit back and lament?” the source asked.

Nobody, not even the opposition, expects the government to sit back in the face of a dwindling economy, low production and growing unemployment that are rooted in poor infrastructure; but the least that is expected of the government is to keep a bloated governance structure in the face of falling fortune.

Economists and allied professionals have asked the current administration to bite the bullet in fulfillment of its electioneering promise and reduce the cost of governance manifesting inexpensive official lifestyle and unreasonable wages/allowances to public officials.

Despite these, the government sticks to its gun, pays lip service to cut the cost of governance, lives off the future earnings or prints money as alleged by the Governor of Edo State, Godwin Obaseki, to survive while going on a borrowing spree to finance basic infrastructure.

This has triggered the fear of a possible China debt-trap diplomacy though the government has dismissed repeatedly that there is no trap in the new-found love with the Chinese government and its agencies.

The China debt-trap diplomacy is a global concern and has taken firm root in Nigeria in the past years, assuming a market square joke of a sort among urban folks. But the government often dismisses it as “unfounded”.

The Debt Management Office (DMO), realising the growing worry, explained that the tenure of the concessional loans was 20 years with a moratorium of seven years, a clause that inadvertently pushes the responsibility of servicing and full payment of the current tranches of facilities to subsequent administrations.

Though China’s share of credits to Nigeria is nascent and accounted for a negligible portion of the country’s external borrowing about a decade ago, the country’s debt exposure to the EXIM Bank of China has increased in 22 folds in eight years, jumping from $8.4 billion in 2012 to $195.5 billion by last December. The increase is about 2,200 per cent.

In the past five years which saw EXIM Bank become an undeniable part of Nigeria’s quest for infrastructure renaissance, the development bank’s debt assets in the country have expanded steadily from $58.8 billion to $195.5 billion, which is over three times.

The total Chinese credits to Nigeria are not known but at the close of books last year, NEXIM Bank alone accounted for 76% of Nigeria’s $258 billion bilateral loans, pushing the Paris Club members to the fringe of the country’s debt market.

Notwithstanding government’s explanation that there is no usual risks in all of these, Godwin Owoh, a professor in economics who runs a debt management consulting firm, said the debt-trap concern is real as the country has not shown sufficient commitment to proper management of the proceeds and projects executed in the manner that the debt can be offset.

The Chinese aggressive debt programme has drawn the ire of national lawmakers as well. Last year, a House of Representatives panel raised the alarm over clauses conceding Nigeria’s sovereignty to China in a loan agreement.

RECENTLY, the Minister of Transportation, Rotimi Amaechi, lamented that ‘selfishness’ of some legislators, which triggered the probe of the details of a 2018 Chinese loan agreement, has negatively affected the country. He said the lawmakers’ tendency to ask “more questions” has affected other countries’ willingness to grant needed facilities to develop the country.

But lawyers and public affairs analysts have insisted the National Assembly has done nothing untoward in their quest for probity. Seni Adio, a Senior Advocate of Nigeria (SAN) said: “The National Assembly is not in error for querying the Chinese loan openly. It is axiomatic that there are three arms of government. Equally elementary is that they are equal, and have distinct roles. Legislative oversight is part and parcel of the democratic process and, whereas law-making is the primary role of the National Assembly, a corollary and very important additional responsibility is legislative oversight of Ministries and by extension Departments and Agencies.

“Therefore, the lawmakers are simply fulfilling their constitutional responsibilities. Presumably, the loan agreement was negotiated at arm’s length and seasoned banking and finance counsel represented our Republic. If so, the agreement should pass muster. If not, the oversight will be quite revealing. All said, the National Assembly also has a concomitant responsibility not to unduly impede the Ministry.”

Also speaking, Dr. Jerome Okoro, a lawyer, said: “By the doctrine of checks and balances, the National Assembly (NASS) is empowered to question clauses in agreements and treaties of the Federal Government. Precisely for external borrowing, Section 21(1) of the Debt Management Office Establishment Act forbids the Finance Minister to approve or obtain any external loan unless the terms and conditions of the loan have been first presented to NASS and approved by its resolution.

However, it should be understood as a backdrop that waiver of sovereign immunity in a commercial or loan agreement does not mean the country is ceding all or any of its sovereignty. The waiver is only a protective clause for the lender to sue the borrower nation in a foreign court or arbitral forum and also enforce the judgment or award on foreign assets of the borrower in the event of a default.

Sovereign immunity waiver clauses are common in foreign loan agreements of nations, especially where the borrower has no strong reputation of repayment or convincingly independent judiciary or dispute resolution forum. It is therefore not realistic to expect any country or entity offering a loan to Nigeria not to insist on adding such a clause in the loan agreement.

“But in this case, the lawmakers’ complaint against the neglect of due process and details in negotiating the agreement is very cogent. The controversial clause in this agreement waives the immunity of Nigeria’s property to enforcement of judicial or arbitral decisions from the agreement ‘except for the military assets and diplomatic assets.’

“In other words, such enforcement can be carried out on any other asset except the two classes specifically exempted. That is too wide and unsafe. Again the dispute resolution forum is stipulated to be in Hong Kong-based on the waiver clause. Meticulous negotiation would have brought many other sensitive classes of assets under the exemption or specified the assets that would be subject to the waiver, and also ensured a neutral dispute resolution forum.”

Another lawyer, Abdulwasiu Esuola, stressed that the lawmakers were “merely exercising their powers of legislative oversight under section 67(2) of the CFRN, which empowers either the National Assembly to invite any minister to explain any conduct of his ministry that is of interest to them as the representatives of the Nigerian people”. He said Nigerians deserve to know the details of the loans since they are a party to any agreement that the Federal Government enters into.

Joseph Ekwe noted: “In line with the principle of separation and checks and balances, the legislature, executive and judiciary are independent arms of government but are partners in the progress of every government. There’s no watertight separation of power in practice because that would make a government a marketplace with sellers but without buyers. Each arm has to come and buy from the other. The parliament is the representative and by extension, the gathering of the entire people of a country and are charged with the responsibility of law-making, approval of budget and appointments (made by the Executive) and has oversight functions.

“Whereas the Executive in our system is headed by one person (called the President or Governor) elected to make, implement and execute decisions, policies in line with the law of the land or as approved by the Legislature. The Sovereign immunity clause means that if Nigeria fails to pay back the loan, the principle of sovereignty of nations will not prevent the Chinese Government from laying hold of any asset belonging to the Federal Government of Nigeria as alien.

“To abridge this narrative, Nigerians are not 100 per cent literate as to know without explaining the meaning of the sovereign immunity clause in the Chinese Loan Agreement. The executive is obligated to explain to the Legislature as the microcosm of the Nigerians. The period this explanation may take does not amount to delay because it is the constitutional responsibility of the executive to do so.”