Are Chinese loans going to develop Nigeria?

Imagine, for a minute, that all the steel that would be used in all the railway projects being financed with borrowed money from China were to come from Ajaokuta Steel Company.

Such magnitude of order – which would actually be in billions of dollars — would have turned Ajaokuta into a major player in the global steel market.

Not only that. Steel is everywhere — from cars to construction to bottle caps, every industry needs it. So, Nigeria would be on the path of prosperity if Ajaokuta was a factor in all the railway projects bandied about.

But this is not the case, as it were. Ajaokuta is comatose.

So, like many projects in Africa, the raw materials for these railway projects would come from China – the country financing these projects. With these projects, Nigeria’s import bills actually skyrocket.

Things are already very bad. The minister of science and technology, Ogbonaya Onu, estimates that Nigeria spent about N49 trillion between 2010 and 2016 importing raw materials and products. This estimate is roughly 7 times the federal government’s budget for 2017.

And with the surplus and cheap steel in China, the more construction loans are given to Nigeria, the more steel workers prosper in China. China might not really care about Ajaokuta.

Unfortunately, these loans from abroad also result in massive importation of labour. This makes Nigeria’s trade deficit to increase, as well.

The minister of finance, Kemi Adeosun, recently told the Senate that the $5.85 billion loan offered to Nigeria by the Chinese EXIM bank comes with a conditionality: Chinese construction firms must execute the railway construction contracts. This condition is actually not new with Chinese loans in African. It is part of China’s foreign policy.

It doesn’t matter if Nigeria thinks a British, Polish or local firm could execute the contract at a lower cost. The conditions attached to most railway contracts in Nigeria renders the BPP redundant and, of course, impacts on the cost of these projects. But Nigeria has no choice. It needs these loans.

The implication of this is that the main components of the railway contracts – which are raw materials and skilled labour – are likely to come from abroad – China in this case. The bulk of the borrowed money would likely go back to where it’s coming from.

With major procurement contracts going abroad, massive projects of this nature fail to stimulate the kind of short-term growth that would have been expected from them. These projects only employ low level manpower in the host countries. The fraction of contract sum spent in Nigeria could be insignificant compared to what is spent abroad.

The multiplier effect of all the expenditure on these railway construction projects would be enormous in China. Businesses in China are also competing for these monies which Nigeria has to pay back.

Granted, we need these railway projects for our long-term growth. But it will be unfair to Nigerians to have to pay back sums that never really came to Nigeria in the first place. Even our capacity to pay back these loans is another issue.

To balance our trade deficit as the minister of science and technology hopes to do, Nigeria needs a comprehensive industrialization policy before going for any loan with strict conditions. Such industrialization policy should have Ajaokuta Steel Company firing on all cylinders before the country embarks on massive construction projects that require millions of tons of steel.