Is the debt crisis really the reason Nigeria is seeking loans in Europe?


Last week marked the 51st anniversary of diplomatic relations between Nigeria and China. However, such an event has been muted following recent statements by Nigerian Minister of Transport, Rotimi Amaechi, who hinted that there was a significant shift in a crucial aspect of the relationship – infrastructure funding. Indeed, Amaechi said; “We’re stuck with a lot of our projects because we can’t get the money. The Chinese no longer fund. So we are now looking for money in Europe,” after two national rail lines, costing $3.2 billion and $11.2 billion respectively and which were to be funded by China, failed to materialize.

Those comments led to a slew of reports that China had cut lending due to concerns about the mainland’s growing debt. Of course, this is not the first time that “debt crisis” hysteria has broken out. Throughout the pandemic, there have been persistent allegations of a “Nigerian debt crisis” or that Nigeria is heading for a “fiscal cliff”. So what truth is behind these stories? Is Nigeria indicative of a “weakening” of Sino-African relations? Is China Really Shrinking Its Finances Due To Debt Problems? Well, these titles aren’t even-handed – and they miss some key nuances. First, before we dive into the stories about loans and debt, we need to start the conversation by looking at Nigeria’s infrastructure deficit. Too often, the media adopts a narrow focus on debt and therefore ignores precisely what that debt is trying to accomplish.

The fact is, despite having the largest economy in Africa, Nigeria has persistent infrastructure gaps that need to be addressed. According to the Global Infrastructure Hub, Nigeria has an investment gap of $221 billion, or 51.2% of its GDP. This gap is five times larger than that of Ghana, West Africa’s second largest economy and can be broken down into sectors with road infrastructure gaps amounting to $84 billion, the energy ($61 billion), telecommunications ($47 billion) and railways ($21 billion). These challenges are reflected in the fact that 45% of the Nigerian population still lacks access to electricity, and as we note in our Guide to Debt in Africa, Nigeria should improve road infrastructure by 79% to reach Chinese levels! This brings me to my second point – increasing debt to finance these gaps is not necessarily ‘bad’, and Nigeria’s debt-to-GNI levels certainly do not warrant hysteria over a ‘ impending debt crisis.

While Nigeria’s debt levels have increased in recent years – reaching $54.8 billion in 2019, we need to contextualize these numbers to take into account Nigeria’s strong economic performance. This is reflected when we look at the debt-to-GNI ratio – which in 2020 stood at just 16.9% – a far cry from the 120.8% debt peak in Nigeria in 1993, caused by rising interest rates. interest following the oil shocks of the 1980s. The importance of contextualizing debt was reiterated just three months ago by Finance Minister Zainab Ahmed. To address infrastructure gaps, the Nigerian government has proactively secured financing from a wide range of external creditors. However, we should not exaggerate China’s role. China is often assumed to be Nigeria’s biggest lender – and therefore the main perpetrator of the so-called ‘debt crisis’. It is simply not true. In 2021, we found that 50% of Nigeria’s creditors came from multilateral sources, followed by commercial bondholders at 37%, with only 13% from bilateral sources. And while China is Nigeria’s biggest bilateral donor – accounting for 11% of that 13% – it also reflects what the others are not doing.

As recent research from the Center for Global Development has shown, development partners often fail to align with African needs. For example, several projects of the Program for Infrastructure Development in Africa (PIDA) – part of the continental framework of the African Union (AU) – lack funding. For example, the 330 kV Nigeria-Niger-Benin/Togo-Burkina Interconnection Project is part of the ECOWAS Master Plan for Electric Power Generation and Transmission and can facilitate electricity between four countries, including the Nigeria, and could reduce electricity costs and increase access.

However, the $698 million project has been in the feasibility phase since 2017. These are the regional projects that development partners could – and should – support. Based on this, numerous reports have argued that Amaechi’s comments signal a continued trend by Chinese stakeholders to cut funding to African countries following the “realization” of risky loans and a general weakening of Sino-Chinese relations. African. As my colleagues have pointed out elsewhere, the Dakar Action Plan contains an explicit commitment to concessional lending with a commitment to establish 10 connectivity projects, which could easily overcome the “missing” $15 billion – while the Plan also refers to alignment with the AU PIDA. So, while Chinese lending will likely become more regional, it is highly unlikely that we will see China disappear completely from the financing map.

Overall, infrastructure gaps need to be filled. We need to shift the focus from an ever-looming “debt crisis” to analyzing how stakeholders can respond to Africa’s needs; the more actors that commit to filling this gap on accessible, concessional and fair terms that align and work with what Africa is asking for – the better.

Scarfe, the project manager for Development Reimagined’s Africa Unconstrained project submitted this article.

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