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Mounting loans: ‘Why forensic probe to avoid economic colonialism is vital’

By Kelvin Ebiri (Port Harcourt) Lawrence Njoku (Enugu) and Mathias Okwe (Abuja)
14 June 2020   |   4:00 am
For the umpteenth time, development economists are sounding the alarm that generations yet unborn may become slaves with mortgaged future, as a result of the Federal Government...

Zambia’s Chinese Power Loan, Others That Went Bad Should Be Case Studies For Our Policymakers – Amobi
• If Not Properly Scrutinised, Loans Could Birth New Form Of Economic Colonialism – Ukeje
• Accumulating More Debts, Especially To Fund Consumption Amounts To Insensitivity – Uba
• No Cause For Alarm Over Chinese Loans – DMO
•There’s Every Cause To Be Worried – Ajakaiye 

For the umpteenth time, development economists are sounding the alarm that generations yet unborn may become slaves with mortgaged future, as a result of the Federal Government’s insatiable appetite for loans acquisition, especially the Chinese variant.

Their grouse arose from the secrecy that surrounds these loans, the uncertain terms, and the litany of unexecuted projects, which the loans were meant to address. They, therefore, insist that an urgent forensic fiscal scrutiny and review is imperative for successful debt servicing because a number of these loans may not have followed due process, hence their capacity to spell doom.

Debt servicing has continued to occupy the second position in the country’s public expenditure, only after recurrent spending, with as much as 60 percent of the available fund being devoted to debt servicing.

Checks by The Guardian indicate that as at end of December 2019, the country’s total foreign debt stock stood at $27.676b, while China’s credit to Nigeria was $3.175b sourced under bilateral arrangements from the China Exim Bank Group.

The President Muhammadu Buhari-led administration has, by far, driven the scale of borrowing to the zenith by more than doubling it from N12t to N27t in a spate of five years. Currently, the country’s debt service to revenue is above the World Bank’s prescribed 22.5 percent, while debt service to revenue ratio is above 66 percent and is expected to increase to about 80 percent at the end of 2020 due to an increase in debt accumulation.

Worried by the impending consequences that the mounting debt burden could cause the country, the House of Representatives, the penultimate week began a probe of Chinese loans to the country between 2000 to date.

Ben Rollands Igbakpa, who represents Ethiope East/West Federal Constituency of Delta State, while offering an insight into the decision to probe, said there is more to the loans than meet the eye, stressing that the gesture from the Chinese authorities could just be a gimmick to drag the country back to the dark days of the debt burden that previous administrations had settled.

“The world knows that China is laden with a lot of fraudulent activities. The struggle of the superpowers is to take control of Africa and the developing world; they are all coming with one form of programme or the other,” Igbakpa said, adding, “so as it is now, we have obtained a total of 17 loans from China and those loans are for various categories of projects. And we are going to service these loans till 2038, which is the maturity date for the last loans obtained in 2018.

“One will say China is not the highest creditor in Nigeria. Yes, but the worrisome part of it is that the way the Chinese bring these loans, there appear to be some under-the-table activities. The International Monetary Fund (IMF) sounded on its website that these Chinese loans are not Paris Club-compliant. It means that if there are disputes, there is no world-accredited body that will intervene. So, for me, this is the kind of loan that we consider as black market loans.

“In all these 17 loans, the National Assembly does not know. We have committees for treaties, agreements, and protocols, but they are not aware. We are dealing with international treaties, agreements that are bilateral whether trade or security, whatever it is.

“It is an international act that has to be domesticated back home. Loans are agreements and if we have such agreements and the committee does not know anything about them, they are in the dark; it shows that something sinister is being done and that’s why we are saying ‘let’s see.’

“In some parts of Africa today, the Chinese have already set up their structure to take over some infrastructure they constructed for these countries that cannot pay: talk about Sri Lanka, Zimbabwe, Djibouti, Zambia, Namibia, and Angola, even in South Africa. These loans are laden with lies and fraud that make them difficult for these countries to pay.”

Development experts, Dr. Chiwuike Uba, Dr. Ifediora Amobi, and the former Director of the Central Bank of Nigeria (CBN), Dr. Stan Ukeje, in separate interviews with The Guardian, agree with the lower chamber’s decision to probe the loans but insist the action is a serious indictment on the National Assembly considering the length of time the probe would cover.

They, however, argued that Nigerians needed to know in details what the loans were procured for, the projects that they are tied to, and their terms of repayment.

Specifically, an economic development expert, Prof. Ben Naanen, has stressed the compelling need for more transparency in the country’s multilateral and bilateral financial transactions, particularly, loans from China.

He said since international economic cooperation is not a humanitarian affair, every country that is giving money to another country will expect something in return.

Interestingly, while experts and ordinary Nigerians are worried about something untoward emerging from the loans, the Federal Government insists that there is no cause for alarm.

While dousing the anxiety in the air about the possible failure of the loans and the consequential seizure of the country’s assets by China as has happened in some African countries and Sri Lanka, the Director-General of the Debt Management Office (DMO), Ms. Patience Oniha, reassured that there is ample provision for servicing of the loans in the budget, noting that this has been complied with religiously.

She said: “Sometime in 2018 or 2019 when this same issue was very topical, the DMO issued a press release, alongside the revised borrowing guidelines (that was recently published). But I must state that we don’t contract loans, including Chinese Loans ‘anyhow’.

“On the issue of default on debt service, I am sure that you know that debt servicing is explicitly provided for in the annual budgets for domestic and external debt. Are you not aware of provisions that have been made for full financing of the budget…?”

In a sharp reaction, however, Professor Emeritus and former Director-General of the Nigerian Institute for Social and Economic Research (NISER), Prof. Olu Ajakaiye disagreed with the DMO boss, saying there was every cause for Nigerians to be wary given the gale of corruption in public life in the country, and the secrecy which shrouds the loan deals.

“Nigerians have had cause to worry about loans from any source if corruption remains endemic. The projects to be financed with the loans are not well costed, and their cost-benefit analysis properly carried out. The implementation processes remain tardy and, above all, the loans are not carefully negotiated by competent, committed and ethical government officials to secure the most favourable terms and conditions for the country.”

“If these challenges persist, Nigeria should worry about loans from China, Japan, India, Russia, Europe, and North America. In short, the problem is not really with the source(s) of loans, but with a compromised Nigerian system,” Ajakaiye said.

According to Uba, forensic scrutiny of these loans is very important given the secrecy that surrounds them, as the government hardly discloses the full terms of its loan agreements with its creditors, especially, the Peoples’ Republic of China. Evidence from Zambia’s experience with China has shown that Nigeria may be in for a big problem if it fails in loan repayment agreements.

“In addition to lack or inadequate information on terms of the loan agreements, there is little or no information on the details of projects for which the loans are obtained. Non-disclosure of such details makes monitoring and accountability difficult. Some of the projects for which these loans were contracted may not have been executed, or even where they are executed, they may be below expected standards/quality. For example, the implementation of the largest hydropower project – the 2,600 MW Mambilla scheme in Nigeria is now uncertain. Nigeria cannot afford to have its national assets and/or natural resources taken over by the Chinese government/companies as a result of default in loan repayment. Whereas the loans’ contractual agreements of other countries show that natural resources are used to secure some loans’ financing, the Nigerian government has always denied having such provisions as part of the loan contractual agreements. The Congo River Dam in the Republic of Congo, and Bui Dam in Ghana are financed by the China Exim Bank loans backed by guarantees of crude oil in the case of the Congo River Dam, and cocoa, in case of Bui Dam, and the loan for the Souapiti Dam in Guinea is linked to mining (bauxite) revenues.”

On his part, Amobi wants the loans’ review to be “conducted by experienced and seasoned financial and legal experts, and not political standing committee members. Going forward, our loan contracts with any foreign country must be clearly thought through, vetted, and approved by the Office of the Attorney General of the Federation. Zambia’s Chinese power loan and other loans that went bad should be case studies for our policymakers.”

Amobi, who said even though Chinese loans are mostly “concessionary loans” that are good for African countries to use in covering domestic resource gaps, and pay for programmes that can help reduce poverty and foster longer-term growth, the challenge, however, is both in the use of the loan and the country’s ability to pay back within the stipulated time.

He pointed out that the Chinese Belt and Road Initiative, a strategy involving China’s huge investment programme in infrastructure around the world is viewed as an attempt to control a global supply chain and boost economic activity. Over 130 countries have signed up for it, including Nigeria.

Ukeje, while agreeing that all sovereign financial obligations should be in good faith contracts, particularly the external sovereign debt obligations, added that they should also satisfy the principles of promoting responsible lending and borrowing, agreed by the creditors and mediators, after the extinguishing of bilateral sovereign debts under the Paris Club of Creditor nations.

He stressed that if all aspects are not properly scrutinised, loans could in future translate to a new form of economic colonialism by China, pointing out that in some Southern African Countries, China has already acquired land in exchange for some projects she financed under similar terms

“China, South Korea, and North Korea have very poor soil for farming. So China will be glad to take the land, in which the Chinese will grow food for the home market. In Nigeria, Angola, the Congo Basin, and other natural resource-rich countries, China takes huge stakes in the resources at non-market prices and terms. Such resources, including oil, are rapidly exploited and taken to China to build-up stockpiles.

For Uba, such loans translating into a new form of economic colonialism was inevitable because most of the monies borrowed were beyond the repayment capacity of the country, especially when the economy was evaluated based on revenue, budget size, and productivity.

He added: “African countries may require more than just portions of their limited budgets to complete repayment. It may, therefore, involve repayments in kind, which connotes colonialism in some ways. This involves the extraction of natural resources as part of the repayment structure. The Chinese government also desires Africa’s natural resources and this is evident in its heavy investment in local mines and processing facilities in Africa. Africa’s natural resources are expected to feed the Chinese industrial machine.

Also, the use of Chinese professionals – technical and management and artisans for infrastructure construction in Africa is another form of colonisation. It is not different from what the continent experienced during their colonisation by the Europeans. Infrastructural developments in Africa associated with the One Belt, One Road project will primarily benefit China by faster and cheaper transportation of African natural resources to the Chinese economy, such benefits, especially when compared to the costs of potentially non-repaid loans, maybe much less than anything that European colonists obtained from their ventures in the past. A good example is what is happening in Zambia where Chinese companies are playing hardball against debt restructuring, but instead are asking for collateral, which could involve mining assets, the national broadcaster, international airport, and other national assets.”

Justifying the need for the government to stop the further acquisition of loans, Uba stated that accumulating more debt was both insensitive and irresponsible especially when it was evident that the loans were taken mainly to fund consumption.

“We have borrowed enough and we don’t need to continue to mortgage the future of this country by creating an endless problem for generations unborn. The Federal Government has always argued that its debt to GDP ratio is still within the World Bank approved threshold but always fails to disclose that Nigeria’s debt service to revenue is above the World Bank’s prescribed 22.5 percent. There is a lack of transparency and accountability on what the loans are taken for. Chinese loans are tied to infrastructure construction.

“Accumulating additional debt is not sustainable in the face of increasing debt service to revenue ratio, poor tax to GDP ratio, increasing population growth, rising unemployment among other challenges. Let the government reduce the cost of governance, wastages, pilferage, and other frivolities and deploy the available resources to develop the social sectors (education, health, water, and sanitation), provision of basic infrastructures, and real investment in agriculture,” he added.

According to Prof Naanen, if the Federal Government borrows to fund infrastructural development as the present government is doing, the country would reap the dividends in no distance time, but if the borrowing is for consumption, or it is dissipated by corruption such that the government is unable to account for the funds, then the country would be in crisis.

Naanen noted that the loan problem of the 1970s and 1980s was a major problem to Nigeria and other developing countries because it was largely consumption and not investment loans. Many countries like Brazil that we’re able to invest heavily in infrastructure were able to pay because the investments yielded the returns.

“If the government is borrowing and investing in infrastructure, I don’t have many complaints. The fundamental problem of our lack of economic growth stems from the lack of infrastructure… We have deficit infrastructure and that does not augur well for the economy. I will call for more openness, more transparency in these multilateral and bilateral transactions,” he said.

Another financial economics expert, Dominic Essien, said the obsession for Chinese loans was not driven by any altruist motive, but corruption and greed by government officials.

“Anybody that has economic power controls your life indirectly. It is a new form of colonialism. The cost of building and repairing an airport is not as expensive as the monies that were returned as Abacha’s loot, as well as those stolen in this government or even under Goodluck Jonathan. If you want us to use the resources we have and judiciously apply them, it would take care of our infrastructural setbacks. We might not borrow as much as we are borrowing now,” he said.

The economist warned that Nigeria and Africa countries must be careful of Chinese loans as China could ride on that to take over some key critical assets.

“If I know that I will make $20m extra for myself, I will push and advance that we borrow and collect my own quietly. Corruption is what is making us go outside to look for money. It will impact on the GDP and the future income stream of the economy. So, if oil becomes reasonably priced, we will still be paying for money that people have taken away,” he said.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed, was not forthcoming on conditions for contracted loans, and the projects that they are meant to be used for despite repeated calls and messages.

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