South China Morning Post
Sat, April 8, 2023
Nigeria has turned back to China, after trying and failing for three years to secure alternative funding for its railway modernisation project, which stalled when the Chinese lender withdrew its support.
The West African nation approached Standard Chartered Bank last year for a loan to replace the Export-Import Bank of China (Eximbank) funds. The then transport minister Rotimi Amaechi suggested Nigeria was also looking to Europe to plug the gap.
The Chinese policy bank withdrew its funding for the 203km (126-mile) Kaduna-Kano section of the railway in 2020, citing the Covid-19 pandemic and concerns about Nigeria's ability to repay the loan.
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.
This time around, Nigeria has courted China Development Bank (CDB), which was endorsed by the Nigerian parliament this week as the project's new financier, at a revised cost of US$973 million.
Previous estimates put the cost of the Kaduna-Kano section at US$1.2 billion, with the Nigerian federal government committing US$380 million.
Nigeria's Senate on Tuesday approved the lower chamber's change of financier to the project, with CDB to advance a 15-year loan at interest of 2.7 per cent plus the six-month Euro Interbank Offered Rate.
China Civil Engineering Construction Corporation (CCECC) has been responsible for most of the project, which will connect the commercial centres of northern Nigeria with Kano, the largest city in the north, and the capital Abuja.
The project is part of outgoing President Muhammadu Buhari's US$22.8 billion plan to modernise the railway network across Africa's most populous country - with about 200 million people - and boost the economy.
But funding hitches have plagued the infrastructure projects in the oil-rich country, forcing Buhari to hand over the reins of the uncompleted plan to president-elect Bola Tinubu when he takes over in May.
While the Kaduna-Kano rail link's future looks more secure, observers said Nigeria's funding difficulties pointed to a wider trend among China's policy banks of a more risk-averse attitude.
China has provided hundreds of billions of dollars in loans to develop infrastructure across Africa, as part of its Belt and Road Initiative.
But in recent years, lenders like Eximbank and CDB - which have financed mega projects including ports, railways, power dams, highways, bridges, ports and airports - have taken a more cautious approach to lending, as debt distress in Africa was exacerbated by the pandemic.
Tim Zajontz, a research fellow with the Centre for International and Comparative Politics at Stellenbosch University, said Eximbank's 2020 decision was driven by the extreme politicisation of Chinese-owned debt.
"Back then, Nigerian lawmakers ordered a parliamentary probe into all railway-related loans which caused political controversies over Nigeria's supposed dependency on Chinese loans," he said.
Three years on from Eximbank's withdrawal, the Nigerian government was pushing ahead with the ambitious Lagos-Kano railway project, after actively seeking funding from Chinese and non-Chinese sources, Zajontz noted.
The CDB funding agreement was concluded against a changed backdrop of increasing competition from Western infrastructure initiatives, he said.
Zajontz said Chinese firms had invested heavily in Nigerian infrastructure and were widely mobilised across the country. For example CCECC recently funded a transport university in northern Nigeria.
Nigeria's indebtedness to China stood at nearly US$4.29 billion - about 85 per cent of its bilateral debts to other countries - at December 31, 2022, according to government data.
CDB is yet to make any announcement on the latest deal, but it appears to have been brokered by CCECC Nigeria Ltd.
During Tuesday's plenary session of the Nigerian upper house, Senator Sadiq Umar said CCECC Nigeria and the federal transport ministry had engaged CDB as the new financier for a US$973.5 million loan.
"This was occasioned by the Covid-19 pandemic whereof China Exim Bank withdrew its support to finance the project," he said.
Senate President Ahmad Lawan said the CDB financing did not constitute a new loan, but was a modification of the previously approved, but yet to be obtained, funding.
"This issue started in 2018, but we approved it in 2020. We are not talking about the approval of the loan. It is the financier that backed out and there is now another financier," Lawan said.
Mark Bohlund, a senior credit research analyst at REDD Intelligence, said CDB's terms were likely to be more commercial than Eximbank's, which is tasked with promoting Chinese exports through a combination of concessional and non-concessional financing.
Bohlund said it would be premature to make too much of this individual loan but it appeared to show a shift in focus between the two banks.
"I think it fits into a pattern, where CDB edges towards operating as a private-sector lender by financing more commercially-oriented projects at non-concessional interest rates and China Eximbank focuses on more policy-driven projects at concessional and semi-concessional rates," he said.
Yun Sun, head of the Stimson Centre's China programme in Washington, said she suspected Eximbank's decision to drop out of the financing deal in Nigeria "has something to do with debt sustainability and repayment issues".
"If CDB can take over and continue the project, it is not bad news. But we will have to see what the terms look like because CDB lending has different goals," Sun said.
Zajontz, who is also a lecturer in international relations at Technische Universitat in Dresden, said that although Eximbank and CDB were both state-owned, there was a division of labour between them.
While Eximbank usually underwrote concessional loans and export credits with grant elements, CDB loans usually came on commercial terms, he said.
"The often politically motivated funding spree for infrastructure that we witnessed in the 2010s is over. Chinese funding is now more restrictive and the focus has shifted from concessional to commercial lending.
Eximbank has also withdrawn funding for a section of railway in Kenya running to its Ugandan border, after financing the US$5 billion leg from the coastal port city of Mombasa to the capital Nairobi, with an extension to the central Rift Valley town Naivasha.
Eximbank declined to fund the next section to Malaba, a town at the border with Uganda, after raising concerns over the project's commercial viability.
Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.
Sat, April 8, 2023
Nigeria has turned back to China, after trying and failing for three years to secure alternative funding for its railway modernisation project, which stalled when the Chinese lender withdrew its support.
The West African nation approached Standard Chartered Bank last year for a loan to replace the Export-Import Bank of China (Eximbank) funds. The then transport minister Rotimi Amaechi suggested Nigeria was also looking to Europe to plug the gap.
The Chinese policy bank withdrew its funding for the 203km (126-mile) Kaduna-Kano section of the railway in 2020, citing the Covid-19 pandemic and concerns about Nigeria's ability to repay the loan.
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.
This time around, Nigeria has courted China Development Bank (CDB), which was endorsed by the Nigerian parliament this week as the project's new financier, at a revised cost of US$973 million.
Previous estimates put the cost of the Kaduna-Kano section at US$1.2 billion, with the Nigerian federal government committing US$380 million.
Nigeria's Senate on Tuesday approved the lower chamber's change of financier to the project, with CDB to advance a 15-year loan at interest of 2.7 per cent plus the six-month Euro Interbank Offered Rate.
China Civil Engineering Construction Corporation (CCECC) has been responsible for most of the project, which will connect the commercial centres of northern Nigeria with Kano, the largest city in the north, and the capital Abuja.
The project is part of outgoing President Muhammadu Buhari's US$22.8 billion plan to modernise the railway network across Africa's most populous country - with about 200 million people - and boost the economy.
But funding hitches have plagued the infrastructure projects in the oil-rich country, forcing Buhari to hand over the reins of the uncompleted plan to president-elect Bola Tinubu when he takes over in May.
While the Kaduna-Kano rail link's future looks more secure, observers said Nigeria's funding difficulties pointed to a wider trend among China's policy banks of a more risk-averse attitude.
China has provided hundreds of billions of dollars in loans to develop infrastructure across Africa, as part of its Belt and Road Initiative.
But in recent years, lenders like Eximbank and CDB - which have financed mega projects including ports, railways, power dams, highways, bridges, ports and airports - have taken a more cautious approach to lending, as debt distress in Africa was exacerbated by the pandemic.
Tim Zajontz, a research fellow with the Centre for International and Comparative Politics at Stellenbosch University, said Eximbank's 2020 decision was driven by the extreme politicisation of Chinese-owned debt.
"Back then, Nigerian lawmakers ordered a parliamentary probe into all railway-related loans which caused political controversies over Nigeria's supposed dependency on Chinese loans," he said.
Three years on from Eximbank's withdrawal, the Nigerian government was pushing ahead with the ambitious Lagos-Kano railway project, after actively seeking funding from Chinese and non-Chinese sources, Zajontz noted.
The CDB funding agreement was concluded against a changed backdrop of increasing competition from Western infrastructure initiatives, he said.
Zajontz said Chinese firms had invested heavily in Nigerian infrastructure and were widely mobilised across the country. For example CCECC recently funded a transport university in northern Nigeria.
Nigeria's indebtedness to China stood at nearly US$4.29 billion - about 85 per cent of its bilateral debts to other countries - at December 31, 2022, according to government data.
CDB is yet to make any announcement on the latest deal, but it appears to have been brokered by CCECC Nigeria Ltd.
During Tuesday's plenary session of the Nigerian upper house, Senator Sadiq Umar said CCECC Nigeria and the federal transport ministry had engaged CDB as the new financier for a US$973.5 million loan.
"This was occasioned by the Covid-19 pandemic whereof China Exim Bank withdrew its support to finance the project," he said.
Senate President Ahmad Lawan said the CDB financing did not constitute a new loan, but was a modification of the previously approved, but yet to be obtained, funding.
"This issue started in 2018, but we approved it in 2020. We are not talking about the approval of the loan. It is the financier that backed out and there is now another financier," Lawan said.
Mark Bohlund, a senior credit research analyst at REDD Intelligence, said CDB's terms were likely to be more commercial than Eximbank's, which is tasked with promoting Chinese exports through a combination of concessional and non-concessional financing.
Bohlund said it would be premature to make too much of this individual loan but it appeared to show a shift in focus between the two banks.
"I think it fits into a pattern, where CDB edges towards operating as a private-sector lender by financing more commercially-oriented projects at non-concessional interest rates and China Eximbank focuses on more policy-driven projects at concessional and semi-concessional rates," he said.
Yun Sun, head of the Stimson Centre's China programme in Washington, said she suspected Eximbank's decision to drop out of the financing deal in Nigeria "has something to do with debt sustainability and repayment issues".
"If CDB can take over and continue the project, it is not bad news. But we will have to see what the terms look like because CDB lending has different goals," Sun said.
Zajontz, who is also a lecturer in international relations at Technische Universitat in Dresden, said that although Eximbank and CDB were both state-owned, there was a division of labour between them.
While Eximbank usually underwrote concessional loans and export credits with grant elements, CDB loans usually came on commercial terms, he said.
"The often politically motivated funding spree for infrastructure that we witnessed in the 2010s is over. Chinese funding is now more restrictive and the focus has shifted from concessional to commercial lending.
Eximbank has also withdrawn funding for a section of railway in Kenya running to its Ugandan border, after financing the US$5 billion leg from the coastal port city of Mombasa to the capital Nairobi, with an extension to the central Rift Valley town Naivasha.
Eximbank declined to fund the next section to Malaba, a town at the border with Uganda, after raising concerns over the project's commercial viability.
Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.
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