Nigeria has a lot to learn from the difficulties currently facing Kenya over the repayment of its Chinese-financed standard gauge railway (SGR). The $3.3 billion SGR cargo train is one of Kenya’s largest infrastructure projects since independence. Long before the pandemic, passenger traffic and cargo volume had fallen below expectations. With the third wave of COVID-19 at hand, Kenya is experiencing anaemic economic growth and increasing deficit. The twin combination of economic downturn and Belt and Road Initiative (BRI) loans have created elevated risk of debt distress in the country. Monthly, Kenya Railways records an estimated $9.2 million shortfall, making it impossible to repay the Chinese creditors at the current rate. Kenya Railways has already defaulted on a $350 million payment to Africa Star. Africa Star operates the SGR as a subsidiary of the China Road and Bridge Corporation.
Since 2014, President Uhuru Kenyatta’s administration has taken loans from China to build roads, bridges, power plants and the standard gauge railway (SGR). In what had earlier been viewed as a win-win for both sides, the Chinese view the railway as the model for its Belt and Road Initiative (BRI) and Kenyatta staked his legacy on developing big infrastructure projects. Last week, Kenyatta asked to borrow from the International Monetary Fund (IMF) to pay back Chinese loans. The failure of Kenya’s SGR would be disastrous for Kenyatta and China too will suffer reputational loss, which could impact its African AGENDA. In many African countries, China has built economic links as part of its efforts at broadening trade and boosting its political influence. With the Mombasa port as collateral, China is heavily guarded and protected.
Nigeria should learn from Kenya’s predicament as we create our own debt overhang and covet Chinese loans. Unlike previous debt write offs from multilateral agencies and so forth, the Chinese do not take prisoners. The key point is that inspite of the Freedom of Information Act, no one is privy to any agreements around these loans. The details, collaterals, method of repayment, time span, key issues are the fine prints involved. That is China’s strength. It is good at drafting opaque contract terms and dodgy processes. No one purchases an insurance policy without looking at the fine prints. As Prime Minister Margaret Thatcher passed a law that the point size of any insurance agreement must not be less than NINE points.
The question is: What is Nigeria’s debt strategy? The Buhari administration imperils the country by not having even a rudimentary debt strategy and exit framework. What is the strategic imperative upon which to anchor a repayment strategy? People who borrow start by cutting the costs of the machinery of government to rein in the recurrent expenditure burden. For example, at the onset of the “Austerity Measures” of 1962, as part of an admirable “national democratic agreement”, cuts to salaries and emoluments of 10 per cent were effected across the board, from the prime minister to local government councillors, even though we were operating the federalist 1960 Independence Constitution. At that time, the austerity measures were a response to falling commodities prices and not a debt crises. The key point is that the measures taken portrayed an intensity, which conveyed to the country that the situation was dire. In contradistinction, the present government seeks to create an alternative reality, as in see-no-evil-and-speak-no-evil about a looming danger. There is nothing like that taking place now. By the way, how many people followed Buhari to New York and at what cost to the country? Whatever the cost, it certainly does not reflect a country burdened with debts, which are looking problematic. The austerity measures of 1962 saw a complete freeze on government purchases, including cars, office tea, foreign trips, etc. Is this going on now?
The Kenyans and just about the entire African continent, with the honourable exception of the Republic of South Africa, are finding out the hard way that you must have a debt strategy in dealing with China. The South Africans have “strong independent institutions of the state”, which means that there is transparency. The framework also produces savvy negotiators. The lawyer, Olisa Agbakoba has correctly pointed out that Nigeria’s economic policy should have been trajected on negotiating trade deals to gain and give access to markets. The quantum of foreign currency denominated loans does not matter, as long as the exports market can be obtained to pay back. You can print naira but you cannot print dollars and the yuan. Unfortunately our trade facilitation is primitive. Ships and cargo aircrafts are going back empty. This brings to the fore the inability to repay. Nigeria is in a debt crises and should brace up for a rocky road ahead.
Credit: Bamidele Ademola-Olateju, PT