Mailafia: We must be alert, circumspect in handling Chinese-sponsored projects
External Loans Should Only Be For Projects With Guaranteed Return On Investments
Former Deputy Governor of Central Bank Of Nigeria (CBN), Dr. Obadiah Mailafia, in this chat with GBENGA SALAU, spoke on the implications of mounting Chinese loan for the country, adding that it was not acceptable that China should grant Nigeria loans to build facilities while also supplying labour.
The International Monetary Fund (IMF) had cause to complain about taking loans from China without considering the terms of such facilities in compliance with the Paris Club arrangements. Is there reason for Nigerians to worry about this rising trend?
The question you have raised is a very important one. I recall that the International Monetary Fund (IMF) and several Western agencies have raised issues with the way China is dishing out loans to many African countries.
In the case of Nigeria, China’s bilateral loans amounts to $2.6b, according to the latest figures from Debt Management Office (DMO). This amounts to only about 3.5 per cent of our total national debt stock of $83.88b. But when compared to our total external debt of $27.1b, the figure becomes more significant, at slightly over 10 per cent. China is by far, the largest bilateral creditor to Nigeria. The other important ones are France, at $362m and Japan at $74.63m, Germany at $171m and India at $26.46m. In principle, any responsible government worth its salt must be very prudent and sagacious when it incurs foreign loans of any kind. We must always pay detailed attention to the small prints. Wise men would advise you that the devil is always in the little details. China has been talking to the Paris Club since 2016, but I do not think they have joined.
The Paris Club is a body of national public debt creditors with a secretariat based in the French capital. It comprises of 20 OECD countries: United States, the United Kingdom, Switzerland, Sweden, Spain, Russian Federation, Norway, Netherlands, South Korea, Japan, Italy, Israel, Ireland, Germany, France, Finland, Denmark, Canada, Brazil, Belgium, Austria and Australia. China is a sovereign country and is not bound to observe Paris Club protocols. Some of our own experiences with the Paris Club have been rather bitter. They have often behaved like a debt cartel that uses the IMF and the World Bank to enforce reform policies on debtor countries with rather harsh macroeconomic conditionalities. I do not think they are in a position to preach to the Chinese whose state has been in existence for three millenniums.
I find it rather rich and patronising that they should be preaching to us in this manner as though we are a sophomore who has suddenly gone wild on spending on his credit card. Having said this, Nigeria must of course be careful. At the same time, we have to concede that it is rather politically risky to pile up such huge loans from one country and one world power to this level. I also worry about some of the quality of the Chinese infrastructures being implemented in our country. Many of the African beneficiaries of Chinese loans – Ethiopia, Kenya, Djibouti, Zambia and Madagascar – are facing serious fiscal challenges in terms of servicing their loans. And we hear that the Chinese are threatening to takeover some of their national assets as collateral that were pledged when the loans were being negotiated. Although, I have not seen any document to that effect, I heard that we have pledged some of our oil fields in the Niger Delta to Beijing as collateral. We must of necessity be more careful and more prudent. We do not want the Fund or Western powers to remind us. Only a fool signs off his destiny for a mesh of pottage.
Financial experts and stakeholders have equally expressed worries about the conditionalities attached to some of these loans, which they fear Nigerian officials may overlook, but which may hurt the country badly eventually. Are such fears justified?
Yes, indeed, we have good reason to be concerned. A few of our sister countries on the continent have got their fingers burnt already. And so we have good reason to worry. The problem with some of these Chinese projects is that they are not based on the kind of rigorous project identification and preparation that the World Bank, the African Development Bank and other multilateral finance institutions with a formidable intellectual capital would undertake before reaching a financing decision. I would strongly advise that when we enter into such loan negotiations, we must ensure rigorous project preparation. For my part, I have always insisted that we take external loans only for projects that have a guaranteed calculated return on investments.
Is there merit in the allegation that most of the funds given out as loans actually go back to China by way of supplies, construction contracts with all the equipment brought over from China?
I am afraid, anecdotal evidence suggests that there is some truth in that observation. When you look at some Chinese infrastructure projects, you see that even the labourers are brought from China. I visited the African Union Commission a few years ago for a Summit of African Heads of State and Government. You would recall that the Chinese built it as a donation to Africa. It is an impressive edifice worth some $300m. After completion of the building, and even as a session of our leaders was afoot, I saw some Chinese milling around the building. I was curious to know who they are and was told that they are the people maintaining the building! I did not feel comfortable with such an arrangement. We in Africa must be smart enough to arrange better deals with the Chinese. We must insist that all major infrastructure projects must involve the use and training of local manpower. We must insist on our people being sent to learn Mandarin so that they can work as equal partners with the Chinese. It is not acceptable that they should give us a loan to build a facility while importing all the labour from China. And after project completion, all the maintenance and spare parts will all have to come from China. But let’s face it; the Chinese are in business. It is up to us to be tough negotiators and in striking deals that are positive-sum rather than negative-sum in terms of ultimate benefits and outcomes. We must also insist on technology transfer with the Chinese. People will always get away with what they can; it is up to us to protect our own interests and to make sure that we are not being recolonised by stealth.
The Chinese loan model, apart from the fact that it is concessionary, is also tied to infrastructural project. In other words, almost all the projects are designed to create economic value and linkages. Does this argument hold water at all?
Yes and no! It is true that the bulk of Chinese loans are concessionary. This is partly because China genuinely wishes to partner with Africa in development, investments, trade and international economic relations. The Chinese have a bitter history with the West. For more than a century, China was raped and humiliated by Western powers. The so-called Opium Wars were fought in the mid 19th century because European powers literally coerced the Chinese into buying opiates on pain of death. The Chinese, a people with a long civilisation, were reduced into a population of hopeless drug addicts. The New China, with its 1.4 billion people sees Africa as a partner of destiny. They need our natural resources and markets. China is also becoming a surplus capital country, with external reserves of the order of magnitude of $3t. They are looking for good investments and good projects in Africa and in other emerging economies. I for one welcome the entry of China as a player in African economic development.
For decades, no Western European country would be bothered to invest in infrastructure in our continent. They have never treated us with anything, but barely concealed contempt. The French invest in African infrastructure in the so-called “Francophone” countries only on the condition that they exercise total control. The Chinese genuinely want to help in developing African infrastructure. Their first major project was the Tanzania-Zambia Railway Authority (Tazara railway project) in 1970s. Tazara is a 1,860 km rail from Kapiri Mposhi in central Zambia, to Dar es Salam, Tanzania. They did it for a mere $406m equivalent to $2.62m today). So, yes, the Chinese help us develop projects that have economic value, but the problem is that some of the projects lack the necessary linkages. This is because the Chinese are only now beginning to understand our continent. And like I said earlier, they do not always do enough technical preparatory studies in terms of project identification to ensure that projects are implemented flawlessly, and that there are dynamic integrated sectoral linkages that maximise value and return both in financial and socio-ec
The Development Bank of China has assets of a staggering $2.4t. Their capitalisation outstrips the combined assets of the World Bank and the European Investment Bank (EIB). I would have expected an organisation of that size to have offices at least in Lagos and Johannesburg so as to work with local businesses and government in identifying bankable projects for investments. I’m hopeful that when they have more intimate knowledge of local conditions, they will be in a better position to finance more successful projects.
Some are of the view that Nigeria is too big for debt disagreement with China, much less default to the point of asset conversion. With examples across the continent, can we really beat our chest that the country cannot default?
Nobody is too big to fail. If size were all that mattered, dinosaurs would still be roaming the earth like the colossi that they were. The laws of evolutionary biology require that all systems adapt or die. We must therefore adapt to changing realities and environments. This is particularly imperative for countries. The bigger you are the more cautious you have to be. An old Swahili proverb also says that the small flea can cause more trouble to a lion than a lion can cause the flea. We are a big country, for sure, but we are small when compared to a global giant such as China. My biggest fear is that there is an intellectual imbalance in our relationship. The Chinese have operated a merit-based bureaucracy since ancient times. The mandarinate that run China today are people of exceptional talent and intelligence, as contrasted with our civil service that is steeped in mediocrity, venality and sloth. We need to put our best 11 forward each time we are dealing with the Chinese. We need to ensure that no project they finance has the potential to cause us problems later. And as always, we must be cautious in reading the small print.
Having gone through a famine that killed millions in the 1960, coming out of it through dedicated leadership, and lifting over 700 million people out of poverty, while its middle class is set to constitute more than a third of its population in about a decade, what can Nigeria learn from China?
Ah, this is a big question! Until the 1970s, life in China was as Thomas Hobbes depicted it in his imaginary state of nature – “solitary, nasty, brutish and short.” Most Chinese lived in grinding poverty. Mao Zeidong was an extraordinary figure, who reasserted China’s national sovereignty and self-respect in the comity of nations.
Former American Secretary of State confessed in his memoirs that Mao was only personage that ever made him feel “small”. That says much for a genius with the ego of Lucifer. But Mao’s so-called “Cultural Revolution” was a great calamity. His extremes were only tempered by Premier Zhou En-Lai, who was a humane and highly competent technocrat beloved by the people. As many as 70 million souls may have perished in Mao’s catastrophic misadventures. The architect of the New China was a little philosopher-king by the name of Deng Xiaoping. When he took over in 1979, he launched a modernisation programme that was anchored on agrarian reform, industrialisation, massive investment in human capital and infrastructure development. Today, China has a GDP of $14.2t and a per capita income of $10,153. These are the figures in nominal terms. When you translate them into purchasing parity terms, China’s GDP is estimated to be US$27.331 trillion, way ahead of America’s US$21.438t. The Chinese themselves are wary of such comparisons. Their strategy is to rise quietly to the height of world economic and political power. China today has the fastest maglev trains in the world. Their infrastructures are world class. The Chinese Academy of Sciences has staggering glitterati of geniuses. What can we learn from such a great country?
First, we must rebuild our country. China may not be your liberal democracy, but they have a strong and effective state. We must reinvent our country as a stable and effective state. We must ruthlessly deal with grand corruption. The Chinese institute capital punishment for anybody who defrauds the state. I am not a believer in capital punishment. But I think life-imprisonment would do. We must also develop a strong and effective, merit-based civil service.
Secondly, we must pay careful attention to the recruitment, mentoring and appointment of leaders. The Chinese identify their potential leaders from an early age. They undergo rigorous training. Competition is fierce. Only the best rise to the top. For example, current Chinese leader, Xi Jinping has a doctorate in engineering as well as an MBA.
Thirdly, we must begin with the fundamentals. We need an agrarian revolution that restores peace and productivity in the rural countryside. From there, we must link it to the manufacturing sector. We must launch an agriculture-based industrial revolution based on local resources and local needs.
Fourthly, we must invest heavily in human capital, particularly in science, technology, engineering and mathematics – the so-called STEM disciplines. Fifthly, we must open the door to foreign investors by reinventing our country as a secure, stable and business-friendly environment. This also requires definitively fixing the power and infrastructures conundrum.
Sixth, we must learn how to borrow technology. We must borrow from everybody. We must imitate the best technology in the world through reverse engineering. Whatever the best products are invented, the next day let’s set our scientists and technologists to reverse-engineer such products. We have more than enough people in Aba and Nnewi to do that if only we can equip and empower them.
Seventh, we must teach our people to believe in themselves. The greatest tragedy of the black race is that a millennium of slave, colonisation and trans-Atlantic Apartheid has forced 2 billion black people on the planet to believe that they are innately inferior to other human beings. Through electronic media and White Supremacist propaganda, Africans have been conditioned into internalising their own inferiority. The spirit of our people has been broken. Some very wicked people even connived with our enemies to remove the teaching of history from the school curriculum.
The thing with the Chinese is that their spirit was bowed but never broken. They took succour in the greatness of their civilisation. They invented gunpowder and paper money. They invented a bureaucracy while most of Europe was engulfed in the dark ages. The spirit driving the New China is the inherent that they are a great civilisation-nation state. Napoleon Bonaparte famously noted that we must allow China to sleep, because when she wakes, the world will tremble. The Middle Kingdom has reawakened from her millennial slumber. They are facing the Atlantic world powers today not as underlings but as equals. We in Nigeria must avoid undue arrogance. We make much noise about being the “giant of Africa”. Let us give ourselves 10 years of quietude while launching our New Industrial Revolution. Whilst doing this, let us inculcate a deep sense of pride and honour among our youths.
Africa is the mother of mankind. In our glorious continent, Egypt flourished as the greatest civilisation known in antiquity. We were the masters of the universe in the sciences, mathematics, and medicine and in the spiritual sciences. Nigeria’s great cultures are traceable to the great civilisations of the Nile Valley that spread from Kush in the South to Ethiopia in the East and Egypt in the North. We need to upscale our education system and transform our value systems.
The highest honour should belong not to moneybags, but to the men and women of the highest intellect. A few years ago, for example, the late Stephen Hawking, former Lucasian Professor of Mathematics – occupant of the Chair once occupied by Sir Isaac Newton himself was on a visit to Beijing. We were told that the entire Chinese capital was at a standstill. It was as though the Middle Kingdom had been visited by a god. The Chinese accord the highest places of honour to men of science and intellect. We must do the same. The task before us is to build nothing less than a new civilisation. We are the only hope of Africa and the black race. Nigeria is the only country in a position to re-launch the African Renaissance and to restore the honour and dignity of the black race.
The country’s rising debt profile without commensurate infrastructural development is a long-standing challenge the country is yet to address. What are your recommendations on how to address this?
Yes, this is a matter of great concern to all right-thinking Nigerians. As you know, our total national debt stock has recently risen to the astronomical figure of $83.88b (about N27t). We are currently spending over 50 per cent of government revenue in servicing our debt alone. Much of the rest goes into recurrent expenditure, with very little (about 23 per cent) left for capital expenditure. We need to come to grips with our public finances. We have not done enough homework on the expenditure side. I am not satisfied that we are exercising enough financial discipline with regards to expenditure controls. So, a lot of money comes in purportedly for infrastructure. It is frittered away through the vast bureaucracy that has turned rent-seeking into a sophisticated art form. And nobody is even talking about any cost-cutting plans. The model is obviously wrong. I hear people quoting extraordinary billions of dollars as the amount we need to fix our power and infrastructure. Unless the model is changed nothing will work. We got news that the government is considering dipping into the pension funds to raise money for infrastructure. Again, I would say, don’t touch, unless of course you have an error-proof model in place that would ensure that infrastructure investments are translated into serious projects that see the light of day. One of our biggest tragedies as a country is that we seem to have settled for a third-class status in our tastes and standards.
Consider the billions spent in the new wing of the Murtala International Airport. It’s a third-class building by Chinese standards. We need a whole new approach that would enable us build world-class infrastructure of the highest quality and standards. At the same time, we need to invest heavily in training in such fields as construction technology and engineering, while paying close attention to quality and maintenance culture. We should also consider direct-labour projects, especially in the rural sector, so that millions of our youths will get jobs. We can do it for railways, highways, rural schools and clinics and other similar projects. The future beckons. Our people cannot wait any longer!
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