Chinese loans: Nigeria is spending money it doesn’t have on projects it can’t sustain

By ‘Kunle Adebajo
Posted on Thursday, 20 October 2022 16:46

A train driver of the newly commissioned Abuja light rail train waves as the train he is driving pulls away from the station in Abuja
A train driver of the newly commissioned Abuja light rail train waves as the train he is driving pulls away from the station in Abuja, Nigeria July 17, 2018. REUTERS/Afolabi Sotunde

When the creators of Nigeria’s capital Abuja envisioned the city in the late 1970s, they imagined it would be the hub of rail transportation, connecting all the other parts of the country. Over four decades later, that vision remains unrealised.

Hope was rekindled in May 2007 when the capital territory authorities awarded the Abuja Rail Mass Transit project to CCECC Nigeria Limited. The project cost $824m, with loans from the Exim Bank of China used to fund about 60% of the project. It is even more essential now that the city’s population has grown beyond what the original master plan anticipated, with traffic building up frequently on many routes. An intra-city rail system would ease transportation.

In July 2018, President Muhammadu Buhari commissioned the project’s first of six phases, which connects the airport to the Central Business District, but not long after, the trains went cold and the tracks became silent.

Having fallen into disuse, it was easy for different components of the facility, including cables along the track, nuts, and air conditioners, to be vandalised and looted.

Though the government claimed in September 2021 that the facility had not resumed operations due to health concerns from the Covid-19 pandemic, journalists gathered that the major reason might be the lack of profitability.

Demand for the service was poor even before the pandemic, despite inexpensive ticket pricing. Among other logistical problems, this is because of the remote location and the fact that most people neither reside downtown nor visit the airport often. It is also argued that the Nigerian Railway Corporation (NRC) lacks experience running a commuter rail.

National Public Security Communication Project

This is not an isolated example of a Chinese investment in Nigeria that has gone bad. There are several others.

In Abuja lies a part of another Chinese loan agreement that has hit the fan. The National Public Security Communication Project was awarded in August 2010 to the Chinese company ZTE Communications for $470m. The project, funded through a $600m China Exim Bank credit facility, involved the installation of CCTV cameras and other surveillance equipment across the country to check criminal activity.

Years later, it became obvious that the project had fallen to pieces, with the solar-powered cameras broken down, unused, and heavily vandalised. Federal lawmakers and civil society groups have tried to make sense of and resolve the mess, but nothing seems to be working.

One thing we don’t talk about enough in the Sino-African relationship is the African agency.

Yekeen Akinwale, an Abuja-based investigative journalist who reported the rot in 2017, says it is unfortunate that the cameras set up to detect crime could not protect themselves from criminals.

“Nigeria has a terrible history of abandoning projects, not just those funded by the Chinese government. Up to now, nobody knows exactly what went wrong, why they stopped the project, and why it has not been reactivated … If what you have even procured the loan for is not working, how do you hope to recoup the money and pay the loan? It’s so worrisome.”

Satellite NigComSat-1R

Another similarly wasteful loan-funded project is Nigeria’s massive investment in satellite technology. NigComSat-1R, the Chinese-built communications satellite launched in 2011, cost $340m.

More than half of this was covered through a loan from the Chinese Exim Bank and while the satellite has been useful with security surveillance, experts say it has been underutilised. Even though the satellite industry rakes in a lot of money globally, Nigeria lags behind. Meanwhile, the government has continued to pump money into the agency that operates the equipment.

No benefits despite payments

Like with the Abuja light rail and security communication projects, Nigeria continued to pay its debt to the Chinese government with standard interest despite not benefitting much from the arrangements.

Four years from now, NigComSat-1R will have exhausted its 15-year lifespan. With repeated talks of launching more satellites into space that could cost additional millions of dollars in loans, it’s hard to see how the aftermath will be any different without necessary changes.

Finance analyst and Sino-African relations expert Fikayo Akeredolu believes that any institution lending money to African countries would often have to deal with shortcomings in blueprints and management. It is possible the funds kept coming because of China’s need for soft power as it positions itself as an alternative to the Bretton Woods Institutions. There could also be actual revenue and investment potential.

The problem with Chinese infrastructure projects in Nigeria is not just the amount of waste that is accumulating, but also the growing inability of the West African country to pay back its debts.

As of June this year, Nigeria owed the Exim Bank of China over $3.9bn, which is about 10% of its total external debt stock. If it were up to Nigeria, the figure would be much bigger, but China is shifting its priorities and has stalled providing additional loans.

Experts believe this is partly due to concerns about low-income countries’ inability to pay. Perhaps nothing better justifies these concerns than the recent announcement that Nigeria spent more in servicing debts than the total revenue generated in the first quarter of this year.

Hope with Europe?

Fearing that the number of abandoned projects would pile up, the frustrated Nigerian government says it is looking towards Europe for financial rescue.

“One thing we don’t talk about enough in the Sino-African relationship is the African agency,” says Akeredolu.

“The conversation sometimes sounds like China forced us to take the money and that is not the case. African countries need to do better with these negotiations. African countries need to leverage institutions like the African Union and ECOWAS to demand better trade terms, so we are not getting loans for low or no-value projects.”

She further advised Nigeria to improve its bookkeeping, cut outrageous spending, be more responsible when executing projects, and stop agreeing to opaque loan agreements.

“Don’t borrow to fund wild projects,” she says, adding that the reduction of loans from China presents an opportunity for both countries to rethink how they negotiate loan terms and prioritise infrastructure projects.

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