Nigeria Looks To Europe For Funding As Chinese Lenders Move Away From Costly Projects In Africa
ABUJA (SOUTH CHINA MORNING POST) -- Nigeria is looking to Europe for funding to complete infrastructure projects such as railways, with a senior official in the West African nation saying Chinese loans are drying up.
Analysts say Nigeria's situation reflects a broader Chinese move away from funding these expensive projects in Africa, where China has provided hundreds of billions of dollars in loans to develop infrastructure as part of its Belt and Road initiative.
Analysts say Nigeria's situation reflects a broader Chinese move away from funding these expensive projects in Africa, where China has provided hundreds of billions of dollars in loans to develop infrastructure as part of its Belt and Road initiative.
Last weekend, Transport Minister Rotimi Amaechi told Nigerian newspaper The Guardian that the country was "stuck with lots of our projects because we cannot get money". "The Chinese are no longer funding," he said. "So, we are now pursuing money in Europe."
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In Abuja on Wednesday, Amaechi said Nigeria had approached Standard Chartered Bank for funding of two existing rail projects, Reuters reported.
He had said in July that Standard Chartered had agreed to provide US$3.02 billion for the Port Harcourt-to-Maiduguri railway project and that Credit Suisse was expected to fund the Kano-to-Maradi line, according to the report.
"We have gone to Standard Chartered Bank. They have not done financial closure but they have approved some level of funding for Kano-Maradi," Amaechi was quoted as saying on Wednesday.
Nigeria's funding difficulties indicate a wider trend of Chinese policy banks becoming more risk-averse, according to analysts.
Tim Zajontz, a research fellow with the Centre for International and Comparative Politics at Stellenbosch University in South Africa, said lenders were more cautious in assessing projects now.
That included more realistic feasibility studies and consideration of the potential reputational damage for China, particularly with regard to potentially unsustainable debt, he said.
In Nigeria, the administration of President Muhammadu Buhari has for some time been trying to diversify funding - including looking to European lenders - for its ambitious railway development programme.
Zajontz said that for projects such as Kano-Maradi, Port Harcourt-Maiduguri and the remaining phases of the Lagos-Kano railway, the government had sought to combine commercial loans with concessional funding to keep debt servicing manageable.
But he said European lenders had tough requirements for the economic feasibility of projects, as well as their social and environmental impact. "I am therefore not entirely convinced by Minister Amaechi's optimism about securing funding from European sources for all these projects," said Zajontz, who is also an international relations lecturer at the University of Freiburg in Germany. "His comments might also serve the strategic purpose of getting Chinese financiers back to the negotiation table."
China has invested billions of dollars in infrastructure projects in Nigeria, Africa's most populous country with about 200 million people. Nigeria is also the continent's second-largest importer of Chinese goods - in 2020 it imported goods worth US$16.78 billion, with Nigerian exports to China worth US$2.45 billion.
Between 2000 and 2019, Nigeria received US$7.2 billion from Chinese lenders, according to the China Africa Research Initiative at Johns Hopkins University and Boston University. Most of the loans went into funding projects in the transport and power sectors, and information and communication technology.
But the general trend now is a shift away from costly infrastructure projects in Africa, according to Yun Sun, director of the China programme at the Stimson Centre in Washington. "There are real concerns about debt sustainability, and also the availability of Chinese financial resources given the economic slowdown," Sun said.
European lenders would also be careful about loan terms and project quality, she said. "It all goes back to the financial viability of the project. Good projects should not worry about the availability of funding," she said. "Investors chase quality projects."
Chinese lending to Africa peaked in 2013, the year Beijing announced its belt and road trade and infrastructure scheme. At November's Forum on China-Africa Cooperation in Senegal, Beijing signalled a continued shift towards trade financing and support for Chinese equity-based investment in Africa, rather than infrastructure loans. During the Dakar talks, Chinese President Xi Jinping promised US$10 billion in trade finance to support African exports and another US$10 billion in credit lines for financial institutions, but he did not say how much would go to bilateral project finance.
W. Gyude Moore, a senior policy fellow with the Centre for Global Development in Washington and a former Liberian public works minister, said China appeared to have become more stringent in its financing criteria. "Projects that would have secured funding five years ago may not cut today," he said.
In general, African governments that fall behind on loan repayments or default on outstanding debts will find it difficult to get new loans from China, according to Bradley Parks, executive director of AidData, a research lab at the College of William and Mary in Virginia.
"China's state-owned banks are primarily motivated by profit, so they don't like to throw good money after bad if they can avoid it," Parks said.
But he said Chinese lenders with especially high levels of financial exposure to a particular borrower could offer new loans to help them repay the old ones.
"As the old adage goes, if you owe the bank a little, the bank owns you. But if you owe the bank a lot, you own the bank," Parks said. "This is why we are beginning to see Chinese lenders offer balance of payments loans rather than project loans to some of their biggest borrowers," he said.
"We may also see Chinese lenders minimise repayment risk by lending to project companies and joint ventures rather than government borrowers with unsustainable levels of sovereign debt."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
In Abuja on Wednesday, Amaechi said Nigeria had approached Standard Chartered Bank for funding of two existing rail projects, Reuters reported.
He had said in July that Standard Chartered had agreed to provide US$3.02 billion for the Port Harcourt-to-Maiduguri railway project and that Credit Suisse was expected to fund the Kano-to-Maradi line, according to the report.
"We have gone to Standard Chartered Bank. They have not done financial closure but they have approved some level of funding for Kano-Maradi," Amaechi was quoted as saying on Wednesday.
Nigeria's funding difficulties indicate a wider trend of Chinese policy banks becoming more risk-averse, according to analysts.
Tim Zajontz, a research fellow with the Centre for International and Comparative Politics at Stellenbosch University in South Africa, said lenders were more cautious in assessing projects now.
That included more realistic feasibility studies and consideration of the potential reputational damage for China, particularly with regard to potentially unsustainable debt, he said.
In Nigeria, the administration of President Muhammadu Buhari has for some time been trying to diversify funding - including looking to European lenders - for its ambitious railway development programme.
Zajontz said that for projects such as Kano-Maradi, Port Harcourt-Maiduguri and the remaining phases of the Lagos-Kano railway, the government had sought to combine commercial loans with concessional funding to keep debt servicing manageable.
But he said European lenders had tough requirements for the economic feasibility of projects, as well as their social and environmental impact. "I am therefore not entirely convinced by Minister Amaechi's optimism about securing funding from European sources for all these projects," said Zajontz, who is also an international relations lecturer at the University of Freiburg in Germany. "His comments might also serve the strategic purpose of getting Chinese financiers back to the negotiation table."
China has invested billions of dollars in infrastructure projects in Nigeria, Africa's most populous country with about 200 million people. Nigeria is also the continent's second-largest importer of Chinese goods - in 2020 it imported goods worth US$16.78 billion, with Nigerian exports to China worth US$2.45 billion.
Between 2000 and 2019, Nigeria received US$7.2 billion from Chinese lenders, according to the China Africa Research Initiative at Johns Hopkins University and Boston University. Most of the loans went into funding projects in the transport and power sectors, and information and communication technology.
But the general trend now is a shift away from costly infrastructure projects in Africa, according to Yun Sun, director of the China programme at the Stimson Centre in Washington. "There are real concerns about debt sustainability, and also the availability of Chinese financial resources given the economic slowdown," Sun said.
European lenders would also be careful about loan terms and project quality, she said. "It all goes back to the financial viability of the project. Good projects should not worry about the availability of funding," she said. "Investors chase quality projects."
Chinese lending to Africa peaked in 2013, the year Beijing announced its belt and road trade and infrastructure scheme. At November's Forum on China-Africa Cooperation in Senegal, Beijing signalled a continued shift towards trade financing and support for Chinese equity-based investment in Africa, rather than infrastructure loans. During the Dakar talks, Chinese President Xi Jinping promised US$10 billion in trade finance to support African exports and another US$10 billion in credit lines for financial institutions, but he did not say how much would go to bilateral project finance.
W. Gyude Moore, a senior policy fellow with the Centre for Global Development in Washington and a former Liberian public works minister, said China appeared to have become more stringent in its financing criteria. "Projects that would have secured funding five years ago may not cut today," he said.
In general, African governments that fall behind on loan repayments or default on outstanding debts will find it difficult to get new loans from China, according to Bradley Parks, executive director of AidData, a research lab at the College of William and Mary in Virginia.
"China's state-owned banks are primarily motivated by profit, so they don't like to throw good money after bad if they can avoid it," Parks said.
But he said Chinese lenders with especially high levels of financial exposure to a particular borrower could offer new loans to help them repay the old ones.
"As the old adage goes, if you owe the bank a little, the bank owns you. But if you owe the bank a lot, you own the bank," Parks said. "This is why we are beginning to see Chinese lenders offer balance of payments loans rather than project loans to some of their biggest borrowers," he said.
"We may also see Chinese lenders minimise repayment risk by lending to project companies and joint ventures rather than government borrowers with unsustainable levels of sovereign debt."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.
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