The Republic of Nigeria has witnessed a significant increase in its debt to China over the past year, reaching a total of $4.73 billion as of June 30, 2023. This marks an $800 million increment compared to the figure of $3.93 billion reported on June 30, 2022, indicating a substantial 20.36% rise in just one year, according to data sourced from the Debt Management Office (DMO).
The details surrounding the terms and conditions of the loans acquired by the Nigerian government from China have often been shrouded in secrecy, with limited official disclosure. However, the DMO has occasionally provided some insights into these arrangements. In June 2020, the DMO stated that the Chinese loans, totaling $3.121 billion as of March 31, 2020, were concessional loans with a fixed interest rate of 2.5% per annum, a generous tenor of 20 years, and a seven-year grace period. These terms, the DMO claimed, are in line with the provisions of Section 41 (1a) of the Fiscal Responsibility Act of 2007. The low interest rate was intended to reduce the government’s interest costs, while the extended tenor was designed to facilitate the repayment of the principal sum over an extended period.
The DMO’s documentation also highlights that the Chinese loans have financed a diverse range of projects in Nigeria, spanning water supply, power generation, railways, airport terminals, communication infrastructure, and agricultural processing.
However, it is crucial to note that these loans are not uniform in terms of interest rates. While the DMO had previously stated a consistent 2.5% interest rate for all Chinese loans, it appears from the latest findings that interest rates can vary, with some loans carrying rates of up to three percent.
Regarding repayments, it was observed that Nigeria serviced Chinese loans with a total of $263.14 million within the specified timeframe. Notably, there were no recorded debt service payments for Chinese loans in Q2 of 2022 and 2023, raising questions about the payment schedule.
The growing concerns surrounding the possibility of Nigeria forfeiting national assets in case of loan default prompted the Director-General of the DMO, Patience Oniha, to reassure Nigerians in 2021 that the loans were mainly concessional, and no national assets were used as collateral.
This is in the context of reports suggesting that China’s lending to Nigeria has the potential to influence the Nigerian government. The U.S. Department of State’s Integrated Country Strategies document, updated in June 2023, described China’s financing of infrastructure projects in Nigeria as “sub-prime financing,” which could potentially add to Nigeria’s debt burden and increase Chinese influence over the Nigerian government.
The report also highlighted that Chinese companies, particularly the China Civil Engineering Construction Corporation (CCECC), have played a significant role in Nigeria’s railway projects, worth billions of dollars.
Despite Nigeria’s initial efforts to secure additional loans from Chinese lenders for various infrastructure projects, it was reported that China became cautious about lending more money due to concerns about Nigeria’s ability to repay the loans, exacerbated by a National Assembly probe.
However, there have been recent developments in Nigeria-China relations, with the Chinese government expressing its commitment to refinance and complete key railway projects, including the Abuja-Kano and Port-Harcourt-Maiduguri railways. This pledge came during a bilateral meeting between the President of the People’s Republic of China, Xi Jinping, and a Nigerian delegation led by Vice President Kashim Shettima.
In addition to railway projects, China also promised increased investment in Nigeria’s power generation and digital economy while calling for the protection of Chinese nationals working in Nigeria.