Economic experts have raised an alarm, warning Nigeria strongly against China’s infrastructure loans considering the terms as a hidden “debt trap” for the country.
The experts gave the warning during a one-day webinar roundtable discussion titled: re Chinese Infrastructure Loans Putting Nigeria on the Debt Trap Express, organised by the US-Nigeria Trade Council.
In his presentation, the Managing Partner & CEO, Berkham Capital UK, Joseph Oyediran, kicked strongly against the China infrastructure loans, arguing that Nigeria at the moment is clearly exhibiting the symptoms of a country that will default payment.
According to Oyediran, the revenue streams for Nigeria to repay the loans within the specified period are not there especially in the face of the impact of the Covid-19 pandemic.
” China infrastructure loan is a debt trap for Nigeria because the revenue source to pay back is just not there,” he said.
He further stressed that with a debt profile put at about $65 billion, Nigeria is not looking healthy enough to repay the China loans.
Data obtained from the Debt Management Office, DMO, shows that between 2010 and March 31, 2020, eleven loan facilities have been obtained from China Exim Bank.
The loans which come with a seven-year grace period, 20 years tenor were obtained at a 2.5% interest rate.
While the pricing of China loans looks cheap; there is serious concern they could be debt traps for Nigeria and many other African countries.
The biggest fear, however, was the Caveat in the Chinese Loan agreement which requires a borrower to pledge its sovereignty status, sovereignty guarantee, and all its sovereign assets as well as waive its immunity in any arbitration to China.
The caveat is stated here in the borrower (i.e. the State of Nigeria) hereby irrevocably waives any arbitration proceeding pursuant to Article 8(5) thereof with the enforcement of any arbitral award pursuant there; except for the military assets and diplomatic assets.
Oyediran warned that Nigeria should not be carried away by the pricing mechanism of the loans dangled by China but wary of the “wicked clause” that submits its sovereignty to China should it default.
He said Nigeria should learn from the experience of defaulting countries like Zambia and Sri Lanka where China has taken over assets belonging to the countries.
Oyediran advised Nigeria to completely shun borrowing; set up a special energy fund from which it can finance its infrastructure.
Also speaking, the Managing Director/CEO of Cowry Assets Management, Johnson Chukwu, supported the establishment of a special fund to finance infrastructure.
Chukwu, however, called for a radical change in Nigeria’s current infrastructure financing model; which he said was no longer sustainable.
He called for a legal and fiscal framework that will encourage the private sector to invest in critical infrastructures such as roads and airports.
He said the legal/fiscal framework must be tailored in a manner that will ensure the concessions are not arbitrarily revoked without recourse to the National Assembly.
“We don’t have enough revenue stream to fund infrastructure. The government is building infrastructure from the borrowed funds. We cannot continue to fund infrastructure from budgetary allocation.”.
“We need to come up with a legal and fiscal framework that will allow private sector participation”, he said.
The Pioneer Vice-Chancellor, Federal University of Otuoke, Professor Mobolaji Aluko, provided the delicate diplomatic dimensions to the China infrastructure loans; warning also that Nigeria should run as far as possible from the debt trap.
According to him, on no account should Nigeria lift its sovereignty for any loan facility; adding that Nigeria should not stick its neck deeper in more loans.
“When you’re in a hole; you don’t dig further,” he said.
