Thursday, 19 May 2022 06:33

China’s lending cutbacks stall Buhari’s infrastructure goals - Bloomberg

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Nigeria’s outgoing president promised to leave a legacy fashioned from concrete, stone, and steel. Instead, billions in stalled financing from China is forcing him to temper his aspirations to seed the country with ambitious public works.

Muhammadu Buhari, a former military ruler, was elected to lead Africa’s most populous nation in 2015 on pledges to tackle a deadly Islamist insurgency, clamp down on corruption, and build critical infrastructure. With only a year left before the end of his second and final term in office, it appears he put too much faith in the appetite of Chinese lenders to fund the roads, railways, and power plants that could transform Nigeria.

“It is obvious that things are below expectations,” says Ovigwe Eguegu, a Nigerian policy analyst at Development Reimagined, a Beijing-based consulting firm. “It would greatly help the ruling party’s chances in the polls next year if they deliver on these major infrastructure projects.”

Although Buhari has scored significant victories, more than $25 billion worth of projects that were meant to be completed before his departure are either far behind schedule or yet to start.

Africa’s largest economy is crying out for investment in infrastructure to spur growth and diversify beyond oil production. The public and private sectors need to spend $2.3 trillion over 23 years to tackle the country’s infrastructure deficit, with the heaviest allocations directed toward transport and energy, according to a finance ministry report published in late 2020.

About 40% of Nigeria’s 200 million people live in poverty, and the government generates barely enough revenue to service the nation’s debt, trapping it in an endless cycle of borrowing. Like many developing countries, it’s turned to loans from Chinese state-owned banks to finance major public works.

“Buhari got into power and looked at his options at how to provide infrastructure to Nigeria,” says Abdul-Gafar Tobi Oshodi, a political science lecturer at Lagos State University. “China is known for that. China is the leading state financier in Africa, not only in Nigeria.” From 2000 to 2020, China’s lenders committed almost $160 billion to African governments and state-owned companies, according to a database run by Johns Hopkins University and Boston University.

Project-specific lending to Nigeria from the Export-Import Bank of China totals $3.6 billion, according to data published in December by the nation’s Debt Management Office. The loans enabled Buhari to complete two rail lines that cover almost 350 kilometers (217 miles)—one started from scratch linking the commercial hub of Lagos with the city of Ibadan and another begun by his predecessor connecting the capital, Abuja, to the northern city of Kaduna. Funding from the same lender is paying for the upgrade of a 220km highway and a 700-megawatt power plant, with both projects expected to be completed before the end of Buhari’s term.

Those are notable achievements in a country where previous leaders have spent billions of dollars on projects that remained unfinished for decades or swiftly fell into disrepair. Buhari’s government even revived and finished a third rail segment that one of his predecessors began building in the 1980s. But these exploits are far more modest than the ambitions outlined by the president and his allies when they swept aside the political party that had governed Nigeria since the restoration of democracy in 1999.

A conspicuous failure is the 740 miles of rail track that will travel northward from Ibadan to the trading center of Kano. Buhari has frequently extolled the benefits of this line, estimated to cost $5.3 billion, which he says will streamline and turbocharge commerce between Lagos’s seaports and Nigeria’s second-largest city.

Ahead of the president’s reelection in 2019, the ruling All Progressives Congress party told Nigerians that Buhari’s second term would bring the construction of two additional rail projects priced at $14 billion and a giant 3,000MW hydroelectric plant that’s been on the drawing board for 50 years. Since then, the state-owned energy company has commenced work on a $2.6 billion gas pipeline intended to increase domestic consumption of the country’s abundant reserves and reinvigorate power-deprived industries.

At various times, Buhari or his officials have announced the government has obtained or would shortly secure loans from China to pay for the bulk of these developments. Yet the funds haven’t materialized, so projects are being kept on life support with government money or are on pause until financing can be resolved.

Rotimi Amaechi, Nigeria’s transport minister at the time, voiced his frustration in February, telling reporters, “We were waiting on the Chinese to give us the loans we applied for, and till today they’ve not replied.” According to Amaechi, the finance ministry had to turn to London-based Standard Chartered Plc to arrange financing for the rail lines.

Unfortunately for Buhari, China’s enthusiasm for underwriting these capital-intensive endeavors appears to be waning. When President Xi Jinping addressed the eighth triennial Forum on China-Africa Cooperation in October, his financial pledge to the world’s least industrialized continent fell for the first time in more than a decade, decreasing a third from the $60 billion committed at the same event in 2018.

Xi’s government “is facing tight budget limits domestically and needs to balance different priorities overseas,” says Ye Yu, associate research fellow at the Shanghai Institutes for International Studies. In Africa “the focus has shifted to vaccines and multilateral aid” channeled via organizations such as the International Monetary Fund and the World Bank, she says.

Also, concern about the capacity of some African nations to repay their debts is “discouraging Chinese financial institutions’ lending in lower-income countries,” Ye says.

There are steps Nigeria could have taken to improve its chances of unlocking at least some of the promised Chinese funding. One of Xi’s most senior envoys informed Buhari in 2019 that China Eximbank couldn’t finalize $4 billion in loans for a 700MW hydroelectric facility until his government resolves a long-running legal dispute involving a Nigerian firm.

The experience of a subsidiary of the state-owned China Civil Engineering Construction Corp., which builds Nigeria’s new railway, has also played a role, according to Eguegu. The company’s reports of “delays and problems” to China Eximbank “definitely makes securing the rest of the loans much harder,” he says.

The armed groups that are active across much of Nigeria are also deterring potential financiers. So-called bandits blew up a section of the Abuja-Kaduna line and then opened fire on a passenger train in late March, killing nine and kidnapping dozens more. The abductees are still missing, and service on the line has yet to resume.

A China-backed project that appears to be progressing more seamlessly is one in which the Nigerian government has taken a back seat, participating as a minority shareholder in the development: a much-needed new deepwater port outside Lagos designed to decongest two existing facilities in the city. A $629 million loan from state-owned China Development Bank and $221 million in equity funding from majority shareholder China Harbour Engineering Co. are financing most of the $1 billion project, which is expected to start operations in the first quarter of next year.

With a presidential vote looming early next year, Chinese lenders may choose to sit on the sidelines until there’s a successor to Buhari. “The fact that China has been reluctant now places it in a powerful position to renegotiate and reengage” once the dust settles after the election, Oshodi says.

It’s too soon to write off some of the Chinese-funded projects that have stalled, Oshodi says, noting that the three rail lines Buhari inaugurated were conceived of, and in two cases started, by previous heads of state. “Hopefully [the next president] may be in the position to complete many of these ambitious projects,” he says.

 

Bloomberg


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