Business News

Dr. Vincent Nwani (Economic & Business Analyst – Lagos)

Feedback email:



Several African countries confronted with perennial revenue shortfall to fund acute infrastructure deficits have recently found respite in China’s capital investment programme for the continent. The Chinese government has rolled out relatively attractive cheap loans and advancements to countries in Africa, which seek to increase domestic infrastructure stock and create more public goods. The uniqueness of the Chinese funding model lies in its strategy that gives priority to financing physical infrastructure projects as well as public goods that would drive economic growth and development of the nation in particular and the continent in general whilst spreading the Chinese economic, political and cultural interest. One thing that is clear is that the relatively cheap infrastructure loans come in kind to benefiting countries while the repayment is cash-based. In addition, the Chinese lenders, set out technical specifications together with terms and conditions for projects, in a manner that appeals to Chinese interest.


China Remain the Single Largest Bilateral Infrastructure Financier in Africa

According to the McKinsey and Company, the total sum of loans Beijing had made to the continent increased threefold since 2012. For instance, in 2017 alone, the newly signed value of Chinese contracted projects in Africa registered US$76.5 billion.  This has made China, “the single largest bilateral financier of infrastructure in Africa, greater than the Africa Development Bank (AfDB), the European Commission, the European Investment Bank, the International Finance Corporation, the World Bank and the Group of Eight (G8) countries combined”. This drive has created a monetary impact on the infrastructure projects visible all over the continent, with new modern airport terminals, good road networks, modern rail facility, seaports, high-rise buildings among others. This is also creating commercial opportunities for local businesses as well as the much-needed jobs for the population.


Countries at the “Border Line” of Chinese Debt Crises in Africa?

The Chinese approach has the potential to help Africa’s bridge the infrastructure gaps, but at the same time, it has led small-sized economies, to accumulate debts extensively. In April 2018, the International Monetary Fund (IMF) warned that not less than 40% of low-income countries in Africa are either in debt distress or at high risk. There are rising concerns that the ability of most African countries to service their debts as well as repay huge loans from China may soon frizzle, thereby creating a debt crisis with the attendants’ political and economic consequences.

  1. Zambia

The incidence of Chinese loans high risk of actual debt distress is most significant in Zambia, Djibouti and the Congo (Brazzaville). Other countries that have accessed huge infrastructure loans from China include Ethiopia, Angola, Kenya, South Africa, Sudan, Uganda, and Nigeria. The China-Africa Research Initiative in August, at the Johns Hopkins School of Advanced International Studies, emphasize that about 73% of Zambia’s debt stock of US$9.3 billion as at March 2018, was borrowed from Chinese lenders. Following the inability of the nation to service its liabilities, Zambia has fallen victim of the Chinese “debt-trap” diplomacy, being the first country in Africa, that have allegedly handed over some of its strategic national assets to Chinese companies in the form of long-term leases.


To put things in proper context, the Africa Confidential in a report titled ‘Bonds, bills and ever bigger debts’ published on September 3, 2018, observed that the level at which Zambia is losing strategic national assets to China is worrisome and could rob the nation its sovereignty if the trend continues. “Zambia continues to default on repaying Chinese loans, hence Chinese companies are gradually taking over Zambian public assets and a whole lot other economic interests. The Lusaka Airport, all tollgate plazas and East Park Mall are run by Chinese companies. Similarly, Zambia state-owned Television and radio news channel ZNBC is already Chinese-owned while the electricity company ZESCO is already in talks about a takeover by a Chinese company”.

  1. Djibouti

Like Zambia, Djibouti appears to have got itself also into a serious debt quagmire and in the days ahead, might be surrendering some of its priority national assets to Chinese companies. The small East Africa country with very weak revenue base, has procured more loans from China than it can possibly pay back in the near time. At the end of 2016, Chinese financiers held 77% of Djibouti’s debt. In fact, Djibouti case is more precarious as well as complicated. The nation currently maintains a huge public debt totaling 88% of the country’s small Gross Domestic Product of US$1.72 billion, with China owning the lion share of the debt, the Center for Global Development stated. Public debt stock in Djibouti, have exceeded the debt sustainability threshold set by the IMF for a country in its category.


  1. Democratic Republic of Congo

Though the true picture of the Democratic Republic of Congo indebtedness is ambiguous, it is, however, evident, from all indications that the country, has taken more loans from Beijing, than it could repay. According to a working estimate, Congo is reputed to be indebted to China to the tune of US$7.1 billion. The situation is further compounded by an alleged preponderant official rigidities and high hydria corruption in the internal debt management system of the economy.

  1. Kenya

An analysis of the infrastructure projects funded with Chinese loan in Kenya reveals a very interesting interplay. There is a public outcry that the returns on the public goods produced with the Chinese infrastructure loans are insufficient to repay the loans used to finance the projects. Except for the fanfare, political acceptance together with the emotional dividends that greeted the inauguration of the US$3.2 billion railway connecting the capital Nairobi to the port of Mombasa, the railway has failed to generate the expected revenue to finance the repayment. If the trend continues, Kenya, might either use its annual budget to finance the repayment or surrender some national assets to Chinese companies.


  1. Sierra Leone

Chinese-funded projects are riskier in poor revenue generating countries, hence small economies in Africa, with loan deadweight, might continue to forfeit priority state asset to the Chinese companies. In fact, some African countries are beginning to scrap infrastructure loan deals with China. For instance, in October 2018, Sierra Leone revoked its $318 million airport deal with China citing heavy burden and unrealistic terms.


Will Nigeria Exposure to Chinese Capital Loans Hurt the Economy?

Currently, Nigeria’s external debt stood at US$22.08 billion, resulting in a total debt stock of US$73.21 billion (as of June 2018) as reported by the Debt Management Office (DMO). The DMO clarified that only 8.5% (about US$1.9 billion) of Nigeria’s external debts is owned by Beijing lenders. However, several independent reports put Chinese holding of Nigeria debts stock at about US$5 billion. On our part, we understand that Nigeria’s debt to China currently stands at 1.05% of our GDP, 21.8% of our external debt and 21.1% to our current revenue. In line with the debt sustainability framework, Nigeria seems to be within the tolerable debt threshold. However, we are getting increasingly concerned over our ability to pay due to mounting debt stocks from other non-Chinese sources, over-dependence on oil as the main source of revenue and forex and the lack of earning profile of our loan deals. For instance, Nigeria’s total debt increased by about 90% from about N12.6 trillion in December 2015 to about N22.71 trillion in March 2018.

Unlike other African countries, Nigeria has many alternatives other than loans from China or anyone. One starting point is to deal with our wasteful non-financial assets which can ultimately unlock scores of billions of dollar liquidity. Some that easily come to mind include relocating uneconomic barracks, prisons, stadiums, etc. sitting on prime commercial land across the country to more economically sensible locations. It is only sensible to free and lease such prime land for commercial development to fund the government rather than sign off other national assets to China for cheap ‘credit in-kind’, not even ‘credit in-cash’!”

Thus, as our quest to secure cheap loans to fund infrastructure projects from China continues to gain compelling traction, it is imperative that Nigeria set a specific framework that aligns with our risk appetite, economic growth drive, revenue profile and “ability to pay” realities. It is believed that privatising some national assets and opening some sectors for private investors is a more sustainable option with lesser adverse future implication.



Leave a Reply