China has yet to release funding for two major rail projects in Nigeria, a sign of a wider reduction in its commitment to expensive and risky projects in Africa.
Mu’azu Sambo, the Nigerian Minister of Transport, said that although China has agreed to finance 85% of the construction of the Abuja-Kano and Port-Harcourt-Maiduguri railway projects, Chinese lenders have not yet disbursed the funds. funds, more than a year since the launch of the projects.
Sambo said Nigeria had paid 15% of the project cost as per the contract with the Chinese contractor. However, he said Chinese funding had not yet been forthcoming, which was delaying the projects.
Both railways are part of multi-billion dollar rail projects across Nigeria, Africa’s most populous country with around 200 million people. The construction is mainly carried out by the China Civil Engineering Construction Corporation.
“The Abuja-Kano and Port-Harcourt Maiduguri rail projects are ongoing, but the 85% foreign loan has yet to be secured. We have driven these two projects solely by ownership, which is part of the 15% Nigeria is expected to contribute,” Sambo said over the weekend.
“Until we have the 85% component, the project will have to be continuously financed by credit.”
Neither the Chinese government nor the contractor responded to the minister’s remarks.
Nigeria first raised the issue in February, when Sambo’s predecessor as transport minister, Rotimi Amaechi, said projects had been delayed due to withheld funds and Nigeria was “stuck with a lot of of our projects because we can’t get any money”.
“The Chinese are no longer funding,” Amaechi said then. “So we are now looking for money in Europe.”
In the months that followed, however, Nigeria has yet to secure alternative funding from Europe or elsewhere.
According to Nigeria’s debt management office, as of June 30, Nigeria’s debt to China stood at nearly $4 billion, more than 83 percent of its debt to other countries.
Nigeria’s funding woes point to a broader trend for China’s political banks to become more risk averse, analysts said. Across Africa, China has provided hundreds of billions of dollars in loans to develop infrastructure under its Belt and Road Initiative.
But recently, lenders like the China Export-Import Bank (Exim) and the China Development Bank – which have already financed mega infrastructure projects, including ports, railways, power dams, highways, bridges, ports and airports – have taken a more cautious approach to lending amid over-indebtedness in Africa, exacerbated by the Covid-19 pandemic.
Yun Sun, head of the China program at the Stimson Center in Washington, said China has been cutting lending for some time. “Especially for countries already struggling on debt sustainability, the Chinese have tightened the portfolio,” she said.
“Exim Bank does not give free grants, it gives loans. If China is not sure that the loans can be repaid, the disbursement decision will not be supported.
Christoph Nedopil Wang, director of the Green Finance & Development Center at Fudan University’s Fanhai International School of Finance in Shanghai, said China’s political banks have adjusted their risk assessments for overseas lending.
“Debt sustainability has become an even more important aspect of China’s international work, also based on the 2019 debt sustainability framework signed by several international finance ministries,” Wang said.
“This has made lending often more restrictive as the ‘bankability’ of projects is increasingly important.”
Other donors, Wang noted, should be interested in such “bankable” projects. “If the project is less bankable, for example if projected revenues are low or if revenues cannot be secured due to challenges in sovereign balance sheets, it may be necessary to reassess and redesign the project accordingly,” he said. he added.
Beijing has also hinted that it will shift from mega infrastructure projects to smaller but profitable companies under its Belt and Road Initiative.
Addressing a Belt and Road Symposium last November in Beijing, Chinese President Xi Jinping said high-quality “small and beautiful” projects that are sustainable and improve people’s livelihoods should be a priority in overseas cooperation.
China’s central bank has since issued new regulations capping foreign lending by the country’s banks.
Chinese lending to Africa peaked in 2013, the year Beijing announced the initiative. Additionally, at the Forum on China-Africa Cooperation in Senegal last November, Beijing signaled a continued shift towards trade finance and support for Chinese equity-based investment in Africa, rather than infrastructure lending.
At the Dakar session, Chinese President Xi Jinping pledged $10 billion in trade finance to support African exports and another $10 billion in credit lines for financial institutions – but did not say how much would go. the financing of bilateral projects.
“Chinese lenders have always been hesitant to lend to projects in Nigeria, which is perhaps understandable given the track record of past infrastructure projects such as the Ajaokuta steel mill and gas-fired power plants” which had stalled , Mark Bohlund, senior credit research analyst at REDD Intelligence, said.
Bohlund said Chinese lending to Africa had been on a downward trend for several years, but the decline was particularly steep following the Covid-19 pandemic and Zambia’s late-2020 default. .
“The rise in Chinese distressed loans follows the pattern of previous entrants to the bilateral loan market and most likely would have happened even without the Covid pandemic,” Bohlund said.
China has continued to disburse funds for major projects in Angola and Cameroon, he said, but these have to a greater extent become contingent on keeping those countries on track with payment. debt service.
“New projects are unlikely to be commissioned and/or launched,” Bohlund added.
Tang Xiaoyang, professor of international relations at Tsinghua University in Beijing, said he did not believe there had been a change in China’s lending policy, which supports financially sound infrastructure projects and economically productive.
He said the so-called promises were probably just verbal or informal communications. “If contracts are signed, Chinese banks and companies generally continue to implement them according to the terms and will pay compensation if changes are needed,” Tang said.