By Moses AMADI
Borrowing has always been a window of financial opportunity and a veritable platform for critical infrastructure development for both developing and developed nations. A study shows that for Nigeria to bridge its infrastructure gap, it needs about N36trn on an annual basis for the next 30 years. Such fund may pose a burden if it comes from regular budgetary allocation.
Sources of external borrowing for Nigeria come in different categories: multilateral, commercial and bilateral loans. The bulk of Nigeria’s external debt has been multilateral loans from the World Bank Group including the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD) as well as the African Development Bank (AfDB). Statistics show that multilateral loans make up about 45 per cent of Nigeria’s external loans. Commercial loans which are largely eurobonds and diaspora bonds represent about 40 per cent of external loans. Chinese loans fall into the bilateral category. The Chinese Eximbank is the bulk of it. In assessing the aggregate debt stock of Nigeria in dollar terms ($79b), what Nigeria has taken from China is quite huge according to information from the Debt Management Office (DMO).
Major attraction for Chinese loans is that they come cheap relative to other loans in terms of interest rate and tenure. The loan Nigeria took last year from China came at 2.5 per cent for 20 years with 7 years moratorium. Chinese loans appear favourable and they come with fewer conditions. Most of the Chinese loans don’t come as cash; they come by way of projects, or they are project-tied. Chinese loans unlike other loans accommodate other means of repayment. Borrowers may not necessarily repay Chinese loans with cash. There are countries that are using their resources to repay although that also has its limitations. China has the greatest exposure in Africa in Angola which has taken over $40b from China compared to Nigeria’s debt estimate of $3.1b to China. It got to a point that Angola started repaying with its oil resources, and so, it became a case of loan-for-oil agreement.
Multilateral loans will expect that credit facilities should comply with Paris Club requirements or conditions which sometimes compel borrowing nations to implement certain economic reforms as a precondition.
Apart from China, Nigeria has also taken loans from other external sources including the Japanese International Corporation Agency, First Development Bank of India and India Eximbank.
Clearly, the burden of debt in Nigeria is rising considering debt service to revenue ratio. Statistics show that 65 per cent of Nigeria’s debt stock is domestic, and domestic debts are more expensive than external debts. With debt to GDP ratio not posing many problems, Nigeria’s debt stock burden will drop if revenue is boosted.
Sadly, the evaluation from the DMO, as at the first quarter 2020 indicates that Nigeria’s debt stock stood at $79.5b. This rising debt has put a lot of pressure on government resources as it spent $1.69b, an equivalent of about N609.13b to service domestic debt in the first quarter of 2020 alone. In 2020 budget, there’s a provision of N2.9trn for debt servicing, an amount almost equal to N2.14trn earmarked for capital expenditure.
Nigeria’s growth is undermined by huge debts and corruption. It’s not about borrowing but the judicial use of the money that matters. All these years, Nigeria has been borrowing but the country still has lamentable infrastructure deficit. The federal government needs to do more to reduce the country’s debt profile so as not to lose its sovereign debt sustainability.
Applying for loans to address critical needs is not ugly in itself. What’s important is that such loans are expended on purposes for which they are borrowed. There must be high level of sincerity and integrity, honesty, sacrifice to achieve the intended goals. The absurdity will be in not considering the borrowing strategy and terms of agreement to the letter.
Nigeria’s debt profile has been mounting in recent times. There are concerns about the clauses relating to the loans both bilateral and multilateral that the country has entered into. This has elicited reactions in public discourse especially the capacity of government to effectively service these debts and at the same time, meet the country’s needs and aspirations of the citizenry.
Some of the loans include the $500m Chinese loan meant for the now completed Abuja-Kaduna rail which was signed between 2010/2011 under the administration of President Goodluck Jonathan. That administration hired an Italian firm to supervise the Chinese company which constructed the rail project. The idea therefore was to ensure that the quality of work went beyond Chinese expertise so as to measure up to the European standard.
The rail was completed up to 80 per cent during Jonathan’s government. As a result, President Muhammadu Buhari in his speech on the day of the commissioning named Agbor Station after former President Jonathan. The funding for the remaining 20 per cent of the Abuja-Kaduna rail project was sourced from the regular budgetary cycle to complete the rail and put the coaches on the track. This was achieved under the present administration which has already paid about $96.15m out of the $500m loan according to DMO records. President Buhari commissioned the 187km Abuja-Kaduna project in the first year of his administration.
Another credit facility was the $400m loan agreement between Nigeria and China meant for the National Information Technology Infrastructure Backbone Phase 2 Project that was signed in 2018.
There was a pending loan to the China Eximbank incurred by the Jonathan administration totaling about $8.7b for the construction and maintenance of Lagos-Kano rail which experts estimate can contain 30 million tons of cargo; Lagos-Ibadan rail; Kano-Kaduna rail and Abuja-Lagos rail. With the interest shown by the present administration to acquire the loan, China Eximbank has advanced $1.6b to construct Lagos-Ibadan rail while there are plans to release the remaining funds for other rail lines. For Kano-Kaduna rail, the repayment plan seems to be in place. Approval has been obtained to open an escrow account so that whatever is in excess of the running cost, will be paid into the account to assist in repayment of the loan.
However, one of the loans under investigation by the House of Representatives is the $500m facility. The House Committee on Treaties, Protocols and Agreements met and what emerged from that meeting was that Nigeria’s sovereignty is under threat. This speaks to whether there was no understanding of the basic issues and concepts involved.
There is a procedure precedent that all approvals and permits in relation to loan facilities comply with. The conventional practice for external borrowing is that any agreement that is being conceived is passed through the National Assembly for approval. When that approval is secured, the other bureaucratic processes in putting up a draft agreement are now carried out.
The draft agreement, as processed, is passed onto the Office of the Attorney General of the Federation and Minister for Justice, for vetting and ensuring that the national interest element is effectively factored and accommodated. After this stage, it is taken back to the affected ministry which now has a further responsibility to present same before the Federal Executive Council (FEC) for consideration and deliberation. If the Council finds the content, spirit and terms of the agreement acceptable, it can approve the agreement. The relevant MDAs are given the go-ahead to facilitate same.
In essence, the process is a multi-agency and multi-sectoral arrangement that allows cross-fertilisation of ideas and consensus building, targeted at ensuring that the interest of the nation is adequately protected. If for any reason, there are certain breaches that have crept into the process by neglecting or undermining the importance of any relevant agency in providing the desired technical support or input in the agreement, it usually translates to criminal prosecution. Such was the situation with P&ID where procedural breaches marred the contractual agreement.
In line with Section 21 of the DMO Act 2003, the $500m loan was approved by the House of Representatives. Apart from the role of the National Assembly as an approving authority, the essence of oversight function vested in them is to ensure compliance especially in relation to milestones.
However, the House of Representatives raised concerns as to the controversial clause said to be in the $500m loan agreement which according to its Committee, suggests waiving of the sovereign immunity of Nigeria if the country defaults in its repayment plan. The ugly reality is that the plan for loan application for the construction of the Port Harcourt-Maiduguri rail may suffer a setback following the controversy surrounding this loan. By implication, the clamour from the south-east geopolitical zone to be included in the rail project may become a distant hope.
For the purpose of clarity, it’s important to understand the concept of immunity with particular reference to international diplomatic immunity and commercial transactions among nations. Once a country decides to go outside its territory and goes to another country to borrow, it now brings into focus two distinct and separate international laws for consideration. To come to terms, there have to be certain compromises and concessions. For instance, Nigeria cannot go to China seeking to borrow and then insist that the Nigerian law will operate in China, neither can China come into Nigeria for the purpose of executing a project and insist wholeheartedly that the Chinese law will operate in Nigeria. That’s where the balancing and concessions come into play. The two countries will come together and see what concessions they can make within the context of international diplomatic immunity. It’s an international engagement that takes place without necessarily allowing a country’s interest to be substantially affected negatively.
International diplomatic immunity relates to the independent existence of a state while commercial immunity is a commitment to relinquish an asset in the event of default for repayment of an advanced amount of money.
One of the ways of addressing cases of default is for nations to enter into respective agreements, and in the process, surrender their jurisdictional immunity. This means that the countries or institutions involved have agreed to a choice of territorial jurisdiction for the purpose of arbitration in determining dispute when they arise. In other words, they will agree to meet at locations or jurisdictions for the determination of a trade dispute.
According to experts, Nigeria has not given away any of its territories in the loan deal with China. Nigeria enjoys diplomatic immunity, and so, its sovereignty or independence is still intact, neither was any concession made in relation to its institutions.
Law authorities are of the opinion that concessions in relation to immunity for the purpose of provision of commercial guarantee are normal, traditional and usual. The lending nation is entitled as a matter of right to extract an undertaking, guarantee, commitment and understanding that at the end of the day, the loan advanced must eventually be paid when the need for so doing arises.
Commercial immunity is essentially a mere guarantee that allows an advancing state the opportunity, right and power to claim back the financial advances made to another. If a country is making a request for a loan facility, it’s only logical that the advancing nation makes a request for protection and guarantee of repayment. It’s about the workability of a commercial understanding.
Commercial immunity is restrictive and exclusive to a commercial asset in tandem with Section 41 of the Fiscal Responsibility Act of 2007. Put differently, only the asset, as contained in the loan document will be taken over in the event of default for the purpose of repayment of the loan. It does not in no way amount to concession of diplomatic immunity by which a country surrenders its rights, privileges and independence.
There have been situations where the rules and regulations of commercial transactions were observed in the breach. An example is the vessel owned by the government of the Philippines which got into commercial transactions, carrying goods. The case went to court and eventually the Philippine government, which tried to exercise sovereign immunity, was held liable.
Similarly, there was a case of Trendex vs CBN in 1975. The CBN acting on the instruction of the Ministry of Defence ordered for 240,000 tons of cement. In 1976, CBN reversed the order and instructed that Trendex should no longer be paid because it (CBN) did not need the cement anymore. Already, arrangements have been made, funds deposited in Midland Bank in England, and Trendex was expecting to be paid. What was at play was that CBN acted on behalf of the federal government and claimed sovereign immunity.
Experts believe that we have gone from the concept of sovereign immunity to restrictive immunity especially in the area of commercial transaction. According to them, these are standard clauses that are found in agreements including the current $500m credit which the House of Representatives should ordinarily be aware of, having gone through the loan document before approving it.
The misconception is to the effect that the House of Representatives may have in essence been looking at the international diplomatic immunity as against commercial immunity which in its right operates only to guarantee the repayment of an advanced loan.
The misunderstanding may have arisen largely against the backdrop of the experiences of countries like Zambia, Zimbabwe, and to some extent, Kenya. In Madagascar, there were insinuations that the Madagascar Port constructed with Chinese loan was taken over by China. Even in that sense, what has happened is only in relation to commercial immunity, and not international diplomatic immunity. There is no report that China has taken over Madagascar as part of her colony. Madagascar remains an independent nation.