Osinbajo Explains Nigeria’s Rising Indebtedness to China

•Says China offers 1.5% interest on concessional loans

Gboyega Akinsanmi

Vice President Yemi Osinbajo has justified Nigeria’s preference for China’s concessional loans, disclosing that the loans only attract interests of between 1.5 per cent and two per cent. Osinbajo stated this at a meeting with business magnates and strategic investors at the Council for Foreign Relation (CFR), New York. The meeting held during his recent visit to US Vice President Mike Pence.

The CFR, a US non-profit think-tank specialising in foreign policy and international affairs, organised the meeting under the theme, “Nigeria’s Economic Prospects: A Conversation with Vice President Yemi Osinbajo.”

Chinese credit accounts for 80 per cent of all bilateral loans to Nigeria, according to recent data from the Debt Management Office (DMO). China provides loans for Nigeria to build railways, power plants and airports, helping to bridge a huge infrastructure gap in the country. Lending from China makes up only three per cent of Nigeria’s total debt stock of $81 billion, the DMO had disclosed.

However, with the interest rate not exceeding two percent in most cases, Osinbajo insisted that China’s concessional loans were more competitive, progressive and development-driven, compared with about eight per cent that sovereign lenders from other regions offered.

The conversation, which was moderated by a Consumer News and Business Channel (CNBC) contributor, Michelle Caruso-Cabrera, had prominent US investors in attendance. Most of them were seeking more clarification on Nigeria’s business environment and ease of doing business.

In a transcript of the conversation at the council, the Nigerian vice president acknowledged that Nigeria subscribed to China’s Belt and Road Initiative, a global development strategy the Chinese government adopted, which involves infrastructure development and investments in 152 countries in Africa, the Americas, Asia, Europe and the Middle East.

With respect to China’s Belt and Road Initiative, Osinbajo said Nigeria, “Subscribes to it. We are part of that initiative. With respect to infrastructure, we want competitive capital. Our preference is to have private capital doing infrastructure, especially where they can see an income stream.”

The vice president emphasised Nigeria’s search for cheap concessional loans, which according to him, China offered to a large extent. Unlike other regions that offered between seven and eight per cent, Osinbajo said China offered Nigeria relatively “cheap loans for infrastructure.”
However, he acknowledged that sometimes there “are difficulties with negotiations because when you are offering a cheap loan, you want a few extra conditions here and there. What we have found is that it works for us in the areas where the Chinese have given us concessional loans.”

In railways, for example, the vice president cited the case of the Lagos-Kano railway, which he claimed China’s concessional loan had made possible.
He stated, “It is a good example. We think it works for us when we compare with what other regions offer or when we look at what the competition is, especially in areas where private capital does not want to go.

“Nobody wants to build a railway for you. No private capital is going to do that. They want to take the concession when you build the railway and you put on the rolling stock. So, we find that it is a good option for us.
“It is a good option. Of course, however, we try as much as possible to be as savvy as possible in the negotiations. For one thing, the Chinese would prefer that a Chinese company executed the project. There are several good Chinese.

“But we have Executive Order 5 where we insist that unless you cannot find Nigerian engineers who can do the work, we will not accept engineers from other countries, whatever those countries may be.

“What you tend to find is that where you are dealing with fairly complicated construction work, we will give what we call expatriate quarters to some of their own engineers. But we insist in a lot of our agreements, following Executive Order 5, that we must have the participation of Nigerian engineers.”

Asked to expatiate on the competitiveness of China’s offers, Osinbajo said it was hard “to say because it just depends on what sort of money. It is hard to make those comparisons. For example, if you look at generally the sorts of loans you would get, it would most likely be commercial loans if you are not going through a multilateral institution.

“Very few governments would be like the Chinese government. Very few governments will give us 1.5 percent or two percent. So, you are most likely going to find something in the region of seven percent, perhaps even higher. But these days, I think, with increasing competition we can negotiate, maybe better concessional loans.”

When further probed on the interest issue, Osinbajo insisted that China’s concessional loan “is much cheaper. It is much cheaper. But you also find, again, that if you throw it open to competition, you might be able to get not just necessarily a better deal, but also, you know—depending also on technology – you might find that this is the technology you prefer.

“You may not be able to afford it, but it’s a better technology and all of that. So there are factors that have to be weighed. It is not always about the cheap money, if you see what I mean. I mean, it is not always about the cheapest.
“We might be prepared to pay a little more because this is where we will find the best technology. By and large, if you are offering me good, cheap money, I’m more likely to be friendly.”

On the fifth generation cellular network technology, Osinbajo disclosed that the federal government had not rolled out 5G technology, but observed that it had nothing to do with any complication.
The vice president also noted that the federal government “will welcome every company that wants to do business with us. Huawei are in Nigeria as well. But all the other technology companies are welcome to compete for it.”

He, however, said the indigenous industry “is going to do 5G. I don’t think we will be using Huawei. As a matter of fact, we think that we are going to do the 5G ourselves. I don’t think…”
Ultimately, the vice president told his audience that the Federal Executive Council (FEC) had not come “to any kind of point of great decision-making in terms of whether or not 5G or who will do 5G.”

On the anti-graft war, Osinbajo acknowledged that the country’s rating on the global corruption index had been stagnant despite Buhari’s war on corruption. He, however, pointed out that the country “has not dropped. I think that the most important issue with respect to that is the work that we’re doing. I mean the anti-corruption work we are doing. Everyone would probably appreciate that one of the major planks of our policies is the anticorruption war.

“We have done tremendously in that respect, especially with respect to grand corruption, official corruption, etc. This is borne out by the fact that President Buhari was recently nominated as the anti-corruption champion for Africa. There is still a lot that needs to be done.”
He explained, “We are working through, especially processes that require interaction with bureaucrats. President Buhari, almost two years ago, signed Executive Order 1, which basically speaks to the question of timelines for ensuring that a delivery on whether you are processing documents or approvals and those sorts of things.

“Now, part of what we’re trying to achieve is to remove whatever bottlenecks may encourage petty corruption. That is why Executive Order One was signed. We’re also looking at how to ensure that there is less interference or less discretion, which is why we’re doing a lot of stuff.
“We’re going electronic in so many different things—company registration, approval processes, etc.
“I think when we are next assessed we are bound to do much, much, much better, especially on the anti-corruption index.”