In November 2021, arising from the impact of the COVID-19 on global economies, multiple reports alluded to the fact that the government of Uganda was set to forfeit its only international airport to China due to the alleged failure to pay back a loan of about $207 million from the Export-Import Bank of China (Exim Bank), which the country obtained in 2015 to finance the expansion and facelift of the Entebbe International Airport. Although, the Chinese and local authorities swiftly denied the reports, the clandestine nature and conditions of Chinese loans were accentuated at the time and they remain a source of concern for experts.
The lack of scrutiny and due diligence by officials and authorities, amidst claims of “toxic clauses”, and the indifference of the Chinese government, despite knowledge of the fiscal crisis and unsustainability of loans in the recipient countries, have led to claims of a deliberate foreign policy on the part of the Chinese government to set a “debt trap” for African countries (debt diplomacy) in order to expand its dominance and influence in the region.
The Chinese government today is the largest creditor for infrastructure projects in Africa. Chatam House, in December last year, reported that Chinese lenders currently contribute to 12% of Africa’s private and public external debt, “which increased more than fivefold to $696 billion from 2000 to 2020.” Across the continent, there is a wave of repayment crises, with some countries asking for renegotiations of terms and deferment of interest payments as a result of the global economic meltdown and growth contraction occasioned by the Russia/Ukrainian war. This is also attributed to the slow recovery from the impact of COVID-19. The devaluation of local currencies against the US dollar and other legal tenders, which were used to obtain the loans, has also exacerbated the crises.
For instance, the Ghanaian economy ran into its worst crisis in 2022, with the Cedi becoming the worst performing currency in the world, after reportedly losing 45.1% of its value to the US dollar. Part of the causative factors of the crisis were unsustainable Chinese loans for large scale projects. This put the nation at risk of ceding its future energy sales and earnings from mineral resources to the Chinese government, if the conditions for the country’s eight collateralised loans are unmet, according to the International Monetary Fund (IMF).
Also, in late May 2023, in what was seen as an attempt at gaining information on the volume of debt owed to Beijing, Reuters reported what it described as “years-long series of digital intrusions against key ministries and state institutions” in Kenya by the Chinese government. The report noted that further “compromises may occur as the requirement for understanding upcoming repayment strategies becomes needed,” which is expected, owing to the straining revenue crisis in the country.
Nigeria is not left out of the concentration of corrosive capital in the continent. By the way, corrosive capital, an initiative popularised alongside constructive capital by the Center for International Private Enterprise, are inflows either in the form of loans, foreign direct investment (FDI) or aid generally characterised by opacity, the lack of due diligence and accountability frameworks, and which are usually not market oriented. The overriding goal of corrosive capital is to feed corruption in both the receiving and originating countries, and to ultimately weaken democratic institutions in the receiving country.
With a debt profile of N77 trillion, Nigeria is the sixth largest recipient of Chinese loans in the continent. A 2022 World Bank International Development Association report shows that China accounts for 66% of debt-service payments by Nigeria, and the total bilateral debt owed China, according the Debt Management Office, as of 30th June, 2022, was about $3.9 billion. This was as the nation reportedly spent 96.3% of its revenue on debt servicing same year. It was also projected, during the presentation of the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP), that the government will spend N6.31 trillion on debt servicing in 2023, accounting for about 74.6% of the nation’s projected revenue of N8.46 trillion.
The point of this intervention is not to say that all Chinese loans are outright corrosive, but one must be wary of the lack of transparency and due diligence surrounding the inflow of capital into the country. The point must also be noted that no creditor wants a bad debt, hence the opacity and non-disclosure of clauses, with little consideration for the capacity of the receiving country to pay back, is not in any party’s best interest, and we should all be bothered by and interrogate the fact that collateralisation clauses are inserted into conditions for these loans.
In fairness to the Chinese government and other lenders, African leaders are not forced into obtaining these loans, and loan credit in itself is not a bad economic choice, but the lack of a sustainability plan built into these loans, with some of them obtained to fund recurrent expenditure and feed the corruption of leaders, is disturbing.
The nation’s fiscal handlers under the current administration must beware of and retrace their steps to avoid slipping deeper into a debt trap. To neutralise corrosive capital, the new administration must entrench transparency measures in its operations. It must strengthen the public procurement process and encourage the participation of stakeholders, especially the civil society, in monitoring its activities. Data from the Center for Fiscal Transparency and Integrity Watch’s (CeFTIW) Transparency and Integrity Index (TII) has shown the paucity of information on government’s procurement processes, which has become a conduit for public sector corruption. Digitisation must therefore be a top priority.
The government must urgently seek ways of generating revenue internally, and only obtain constructive and market oriented foreign capital. To demonstrate commitment to fighting corruption, the administration must expedite an e-procurement drive, which remained a rhetoric during the last administration.