Chinese Extending Its Financial Muscle In Africa

 

When Muhammadu Buhari, Nigeria’s president, headed to the triennial Forum on China-Africa Co-operation in Beijing in September, in part to pursue an additional $6bn in infrastructure loans from Chinese state banks. At the two-day summit, Xi Jinping, China’s president, pledged $60bn for development across Africa.

But Mr Buhari rejected criticisms that Nigeria was falling victim to debt and dependency to its Chinese creditors — at present, a common anxiety on the continent. He was quoted in local media as saying: “Some of the debts incurred are self-liquidating. Our country is able to repay loans when due in keeping with our policy of fiscal prudence and sound housekeeping.”

Over the past decade, Chinese state banks and contractors have helped build a 186km rail line between the cities of Abuja and Kaduna, with another line between Lagos and the northern city of Kano under construction. China Civil Engineering Construction Corporation is also working on new international terminals for Nigeria’s four largest airports.

“From agriculture to transportation, China has helped rebuild rail lines, roads and bridges that Nigeria could not do itself,” says Jonathan Coker, a former Nigerian ambassador to China. “The cost came out so much cheaper for us than going to the traditional friends such as France, the UK, Canada.”

But some Nigerians are becoming apprehensive as several of China’s debt-fuelled infrastructure projects in Africa have triggered a domestic backlash.

In Zambia, concerns are growing that the country is disguising the extent of its indebtedness to China and that the government could be forced to make a debt-for-assets swap

Zambia’s finance ministry has denied that the government is in financial difficulty or that it has defaulted on any loans to Chinese lenders. But this has failed to assuage concerns in Nigeria. “Lately there has not been positive sentiment about Chinese investment in Nigeria, especially as we look to cases like the [alleged] Zambian defaults,” says Abas Idaresit, a Nigerian investor and entrepreneur who also points to Beijing’s alleged bugging of the African Union headquarters, built by the Chinese in Ethiopia’s capital Addis Ababa. China called the story, in French newspaper Le Monde, “preposterous”.

However, proponents of China’s continued investment in Nigeria say the country can use its economic clout — the latter’s economy is more than 14 times larger than Zambia’s — as a lever for a more balanced relationship.  “Nigeria can work out its relationship with China in a way that does not hurt the Nigerian people as long as the relationship is well managed . . . We are developing other things, such as mineral resources and gas, which can replace oil [revenues],” says Mr Coker. “You have to work to pay back your debts when the time comes.”

Despite the rhetoric, annual Chinese direct investment in Nigeria does not yet rival the $14bn in bilateral trade, though estimates of foreign direct investment can be tricky to find. The American Enterprise Institute estimates the value of Chinese investments and construction contracts in Nigeria at $7bn this year, and $21bn over 2016-18. Chinese manufacturing and cheap imports have come to dominate certain sectors of Nigeria’s consumer goods market, often at the expense of local manufacturers.

In 2015, about 13 per cent of both public and private Chinese investment into Africa went to the manufacturing sector, according to the China Africa Research Initiative at the Johns Hopkins School of Advanced International Studies in Washington. Chinese manufacturers have done particularly well in ceramics, which can rely on mostly local inputs of clay and pigments and thus avoid the frequent customs delays foreign and domestic businesses face.  “Since our end market is in Nigeria, why not just manufacture here as well?

The costs of manufacturing here are lower,” says a spokesperson for Chinese manufacturer Sun Ceramics. Nearly all the company’s raw materials are sourced in Nigeria and it is disassembling and moving machinery from its factory in Shandong province to Ogun state in southern Nigeria. Chinese entrepreneurs say they would invest more, and faster, if conditions allowed. But they, too, are struggling to operate in Nigeria’s business climate. New factories must pay to connect to the faulty power grid and water main lines. Rampant corruption requires frequent payment of bribes, they say, adding to overheads.

“If you are directly investing in Nigeria, the biggest challenge is facing local corruption,” says Victor Wang, a Shanghai-based businessman who owns several health products factories across Nigeria. “Every level of bureaucracy has its own threshold to cross, so to speak, which you need to address, so operational uncertainty is rather high.” As a result, most Chinese entrepreneurs launch export-import businesses instead, says Mr Wang, which allows them to spend more time in China. “When you are just doing trade, you do not need to understand every layer of Nigerian society.”