Is a “debt crisis” the reason for asking for loans from Europe?
Indeed, after two national railway lines, costing $3.2 billion and $11.2 billion and was to be funded by China, did not materialize, Amaechi declared: “We’re stuck with a lot of our projects because we can’t get the money. The Chinese no longer fund. So we are now looking for money in Europe.
These comments led to a slew of reports that China had cut lending due to concerns over the the continent’s growing debt.
Of course, this is not the first time that “debt crisis” hysteria has broken out. Throughout the pandemic, there have been persistent allegations of a “Nigerian Debt Crisis” or that Nigeria is heading towards a “fiscal cliff”.
What truth is behind these stories?
Is Nigeria indicative of a “weakening” of Sino-African relations? Is China really shrinking its finances due to debt problems? Well, these titles aren’t even-handed – and they miss some key nuances.
First, before we dive into the stories about loans and debts, we need to start the conversation by looking at Nigeria’s infrastructure deficit. Too often, the media adopts a narrow focus on debt and therefore ignores precisely what that debt is trying to accomplish.
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The fact is, despite having the largest economy in Africa, Nigeria has persistent infrastructure gaps that need to be addressed. According to Global Infrastructure CenterNigeria has an investment gap of $221 billion, or 51.2% of its GDP.
This gap is five times larger than that of Ghana, West Africa’s second largest economy and can be broken down into sectors with infrastructure gaps for roads ($84 billion), energy ( $61 billion), telecommunications ($47 billion) and railways ($21 billion). These challenges are reflected in the fact that 45% of the Nigerian population still does not have access to electricity and, as we note in our Guide to Debt in Africa, Nigeria would need to improve road infrastructure by 79% to reach Chinese levels!
This brings me to my second point – increasing debt to finance these gaps is not necessarily ‘bad’, and Nigeria’s debt-to-GNI levels certainly do not warrant hysteria over a ‘ imminent debt crisis.
While Nigeria’s debt levels have increased in recent years – reaching $54.8 billion in 2019 – we need to contextualize these figures to take into account Nigeria’s strong economic performance. This is reflected when we look at the debt-to-GNI ratio – which in 2020 stood at just 16.9% – a far cry from the 120.8% debt peak in Nigeria in 1993, caused by rising interest rates. interest following the oil shocks of the 1980s. The importance of contextualizing debt was reiterated just three months ago by Finance Minister Zainab Ahmed.
To address infrastructure gaps, the Nigerian government has proactively secured financing from a wide range of external creditors. However, we should not exaggerate China’s role.
China is often assumed to be Nigeria’s biggest lender – and therefore the main perpetrator of the so-called ‘debt crisis’. It is simply not true.
In 2021, we have found than 50% of Nigeria’s creditors came from multilateral sources, followed by commercial bondholders at 37%, with only 13% coming from bilateral sources. And although China is Nigeria’s largest bilateral donor – accounting for 11% of that 13% – it also reflects what the others are. do not Make.
Also recent research by the Center for Global Development has shown, development partners often fail to align with African needs. For example, several projects of the Program for Infrastructure Development in Africa (PIDA) – part of the continental framework of the AU – lack funding.
For example, the 330 kV Nigeria-Niger-Benin/Togo-Burkina interconnection project is part of the ECOWAS Master Plan for the production and transmission of electric power and can facilitate electricity between four countries – Nigeria included – and could reduce electricity costs and increase access. However, the project, costing $698 million, was in the feasibility phase since 2017. These are the regional projects that development partners could – and should – support.
Based on this, numerous reports have argued that Amaechi’s comments signal a continued trend by Chinese stakeholders to cut funding to African countries following the “realization” of risky loans and a general weakening of Sino-Chinese relations. African.
However, as my colleagues have stressed elsewhere, the Dakar Action Plan contains an explicit commitment to concessional lending with a commitment to establish 10 connectivity projects, which could easily overcome the “missing” $15 billion – while the plan also makes reference to alignment with the AU’s PIDA.
At the end of the line
So, while Chinese lending will likely become more regional, it is highly unlikely that we will see China disappear completely from the financing map.
In all, infrastructure gaps need to be filled. We need to shift the focus from an ever-looming “debt crisis” to analyzing how stakeholders can meet Africa’s needs.
The more actors that commit to filling this gap – on accessible, concessional and fair terms that align and work with African demands – the better.