Chinese Debt Trap Diplomacy in Nigeria

Africa’s largest economy is in turmoil over the prospect of ‘losing’ its sovereignty to China over bad debts. Federal lawmakers of the national assembly are demanding a probe into China’s lending practices into Nigeria, in the wake of a sovereign guarantee clause in loan agreements that they consider ‘an entrapment of Chinese neo-colonial plans’. The domestic political narrative is that the clause could see Nigeria sign away its sovereignty in the event of a payment default.

The House of Representatives had up the ante over clauses in Article 8(1) of the Commercial Loan Agreement signed between Nigeria and the Export-Import (Exim) Bank of China. In the said agreement, Nigeria stands to concede her sovereignty to China should there be a default in the repayment of the $400 million for the Nigerian National Information and Communication Technology Infrastructure Backbone phase 2 project signed in 2018.

China currently constitutes the largest overseas trade partner and is also one of the largest creditors of Nigeria. According to a West African Nations’ Management Office data, Chinese credit accounts for 80 per cent of all bilateral lending to Nigeria. China provides loans to build railways, power plants and airports in Africa’s largest oil producer.

The controversy erupted on the established perception of China’s ‘debt-trap diplomacy’ in Africa. China’s posturing as a willing partner for expensive infrastructural projects is an elaborate play to entrap African countries in debt. There is a popular belief that China is present in Africa for the sake of China not as it claims to be there for Africans. A lot of the current debt of most African countries is not going to be profitable to China and China is keen on helping Africa, these loans allow China to take control over certain projects once the credit conditions are not met by the borrowing county. China’s loans often include conditions which are strongly orientated towards Beijing’s strategic interests and increase the risk that many countries in the developing plunge into a monetary disaster.

This tactic is known as “debt-trap diplomacy” and has been used by China in numerous instances like Kenya and Ethiopia are struggling with Chinese debt.

For example, China had given a loan to develop a strategic port in Djibouti. In 2017, Djibouti’s debt was projected staggering at 88 per cent of its GDP, with China responsible for the bulk of this debt. Djibouti had fallen victim to China’s debt-trap and let China built its first overseas military base there. That China’s first and only overseas military base is a consequence, not a coincidence.

Nigeria is staring at a grim economic condition due to Covid-19 pandemic that caused cash crunch and there is a lingering fear that its debt burden might escalate. Its primary revenue source- oil earnings have long been undercut by falling production levels and dips in oil prices coupled with recent total shutdown of the global oil economy. Over the past few years, Nigeria’s economy has been unable to fund national budgets fully. Consequently, it is desperate to look for more external funding.

Nigeria has increasingly relied on loans for big-ticket infrastructure projects and has particularly leaned on Chinese financial and technical support to build out its transport network. So far, China has offered loans to back eleven ongoing large-scale infrastructural projects, leaving Nigeria’s debt to China at $3.1 billion as of March 31 against the total $5.575 loan agreements wrapped up with China Exim Bank in the span of eight years between 2010 and 2018.

The International Monetary Fund (IMF) persistently warns Nigeria and other third world countries that mounting debts to China are dangerous. It stresses that Chinese creditors create some instability or vulnerabilities.

Economists have been urging African governments to ensure that they read the small prints of the “conditionalities” defined by the Chinese. In their views, it would avoid Beijing laying claim to some of their assets, as they are doing in Madagascar, Kenya, Zambia and Zimbabwe. Nigerian opposition members also allege that the Nigerian government has pledged some oil fields as collaterals for the Chinese loans..