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Thoughts on Nigeria and Chinese Loans – Reuben Abati

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The relationship between Nigeria and China with regard to loans obtained from the latter to fund Nigeria’s infrastructural projects suddenly became a matter of legislative intervention and public scrutiny last week when the House of Representatives summoned the Minister of Transportation, the Minister of Finance, Budget and National Planning and the Minister of Communications and Digital Economy to appear before it on August 17. The Ministers are expected to explain certain clauses in the Agreement signed between Nigeria and the Export-Import Bank of China with regard to a loan of $400 million for the country’s National Information and Communication Technology (ICT) Infrastructure Backbone Phase II Project. The agreement was signed in September 2018 by the Federal Ministry of Finance on behalf of Nigeria (the borrower). Nigeria’s lawmakers have raised eyebrows about a clause therein which waives Nigeria’s sovereign immunity if it defaults in its repayment plan.

The contentious clause is Article 8(1) which provides inter alia that “the borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceedings pursuant to Article 8(5) thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets.” This has been interpreted to mean that Nigeria is in danger of losing its sovereignty to China.

The opposition People’s Democratic Party (PDP) has seized upon it to proclaim that it has been vindicated because it has always argued that the mission of the ruling party, the All Progressives Congress (APC) has always been to mortgage the future of Nigeria. PDP Presidential candidate in the 2019 General elections, Alhaji Atiku Abubakar, quickly added that Nigeria faces the risk of embracing the fate of Zambia with regard to Chinese loans. Groups and stakeholders in civil society, including lawyers and the Socio-Economic Rights and Accountability Group (SERAP) have asked that all agreements ever signed between Nigeria and China should be brought forward and subjected to close scrutiny, just in case any government official either out of ignorance or incompetence has committed Nigeria to a debt-trap, to the disadvantage of future generations.

From the government’s side, the only man who has spoken up is Rotimi Amaechi, the Minister of Transportation, but his explanations do not seem to address the issue. He says for example, that the waiver of immunity in the agreement is merely “a contract term”, a sovereign guarantee. Nobody is convinced. Amaechi and his colleagues who have been summoned by the House of Representatives would have to do much better than that. Nigerians no longer trust their government when it comes to international agreements. The quoted Article 5(1) in the said agreement with the Export and Import Bank of China rings too familiar and too topical in the light of recent revelations about the handling of Nigeria’s agreement with a certain Process & Industrial Development (P&ID). In that case, still on-going, a sum of $9.6 billion is still pending against Nigeria, just because some Nigerian officials signed an agreement that put the country into trouble.

Now, again, in the case of China, the aforementioned Article 8(1) refers to such words as “arbitration”, “property”, “enforcement of arbitral award”. These are the same key words in the P&ID case. Hence, additional questions need to be raised about the Chinese agreement: who signed the agreement? Was due diligence carried out? Was Nigeria thrown under the bus by the negotiators as has been alleged in the P&ID case? Ordinarily, a waiver of sovereign immunity does not mean that China will take over the running of Nigeria. Sovereign immunity is a principle in customary international law which simply means that a state cannot be pushed around by another state without its own consent to be so treated, in a foreign court. Hence, in every agreement that may go to arbitration, there is usually an agreement as to the place of arbitration and other details.

What exactly did Nigeria sign up to on September 5, 2018 with the China EXIM bank? To the extent that the Nigerian people have a right to know, I am convinced that the House of Representatives is in order to raise the questions before us.

To go further, the various stakeholders who have asked for a proper audit of all agreements with China are definitely aware of how the $6.6 Billion judgment against Nigeria which became $9.6 billion (because of accrued interest) in the P&ID case poses a serious risk to the country’s economic survival. They are also probably aware that there are similar cases relating to lack of due diligence in the signing of agreements that Nigeria is also grappling with. This includes the international arbitration in Paris with Sunrise Power and Transmission Company over the Mambilla Hydro Power Plant. Sunrise went to arbitration accusing the Nigerian government of breaching a 2003 agreement when it granted a separate contract to Chinese companies. The same Export-Import Bank of China was on the sidelines of that agreement. I understand the matter has been resolved but 17 years after the initial agreement, the country is yet to make any significant progress with the Mambilla Hydro which if things had progressed as scheduled would have emerged as the second largest hydro power plant in the whole of Africa. In this case, as in others, Nigeria remains behind because some characters failed to do the right thing. Similarly, the Ajaokuta Steel Company Limited which was meant to be a game-changer for Nigeria’s industrial growth process, was also held down for years by disagreements over agreements and a prolonged legal tussle between the Federal Government and a company called Global Infrastructure Nigeria Limited (GINL). Ajaokuta Steel is a living archetype of how all good intentions in Nigeria fail. In one word, legal tussles and arbitral disputes over contracts, obligations and commercial agreements have over the years, exposed the failure of public policy and the incompetence of state officials in Nigeria.

Minister Amaechi is concerned that if the same controversy is brought to the door-step of the Chinese, they may simply refuse to provide necessary loans for the Ibadan-Kano rail line. Amaechi appeals to the patriotic instincts of Nigerian lawmakers: he wants them to suspend all further enquiries until Nigeria gets an additional $5.3 billion from the Chinese. He means well no doubt, he wants Nigeria to get that Chinese money that Nigeria needs, but in his appeal lies the bigger question about Sino-Africa relations, and the place and conduct of African leaders within that matrix.

Amaechi is certainly an admirer of China’s romance with Africa. He begs his own country’s parliament to “mechionu” as Igbos would say, so Nigeria can get more Chinese money and sign more agreements. Someone needs to tell Rotimi Amaechi that Nigeria’s engagement with China cannot and should not be reduced to an Abiriba, Aba, or Alaba market transaction business model: “my brother, bring money make we do business, chop together.” But he is not alone. Many African leaders are like that and as they engage China, they fail to look at the sub-text.

In the 70s, China was far behind many African countries. I grew up in a country where any product that was made in China or Taiwan was derisively dismissed. China and Taiwan were the standard euphemisms for fakery, inferiority and cheapness. In those days, Nigerians talked about the British Standard (BS). Nigeria’s economy was doing well. The Naira was at par with the pounds sterling. Nigerians travelling to London on Fridays aboard Nigeria Airways, stopped by at Liverpool market and the Main street and spent money as if it was going out of business as a legal tender. This was the age of the oil boom. No Nigerian would touch anything Chinese. I grew up being told that anything Chinese or Taiwan does not last. Even when this COVID-19 break-out began, I heard some older Nigerians insisting that if indeed the virus originated from China, it would not last, because nothing that comes from China can be relied upon. Unfortunately, China pulled itself up by the boot-straps. China re-invented itself while other countries either went to sleep or became complacent. It is ironic that today, Nigeria adores China. In our class at the University of Maryland, College Park, 1996 -97, in an American Foreign Policy Process class taught by Hodding Carter III, in the Department of Government and Politics, we read a book titled “The Coming Conflict with China”. That conflict then was at best hypothetical. Today, it is a reality. China is one country that has leap-frogged into the future in an unimaginable manner. The emergent conflict between China and the Western world will be the most definitive factor of this century and the next to come. Africa and the developing world are both at the centre of that conflict.

With China thus on the ascendancy, its leaders defined for that country, broad geo-political ambitions. With the West in retreat and increasingly navel-gazing, protectionist and isolationist, China launched a muscular approach to foreign policy with its Belt and Road Way Initiative through which it sought to engage developing economies by way of financial support through loans and grants. The focus has been so far, infrastructural development but there is a lot more in there. Strategically, therefore, long before COVID-19, China tried to fill a vacuum that Western nations created. As Western creditors prescribed more and more stringent conditions for bilateral and multilateral loans, China offered cheap, easy and accessible alternative financing arrangements: interest-free government to government credits, and preferential loans from China EXIM and the China Development Bank. The latter, that is preferential loans, represents the bulk of China’s overseas lending. Developing countries were over-excited. They swooped on China’s offers like bees after nectar. Today, China is the world’s largest creditor to the developing world. Since 2008, China has been Africa’s main trading partner. There is even now in place, a Forum

Nobody saw the catch, and countries were caught flat-footed. China has been accused of debt-trap diplomacy. Many countries embraced that diplomacy with their hands tied behind their backs and today, their countries are in the throes of debt servitude. China gives but it takes! China helped Sri Lanka to build the port of Hambantota. Both countries signed an agreement, similar to the one Nigeria signed with the Export-Import Bank of China. Today, China runs that port with Chinese personnel. In Djibouti, the Chinese are in charge of the ports too, just because Djibouti borrowed money it could not pay back. In Zambia, for similar reasons, China is now controlling the Zambia National Broadcasting Corporation (in other words, China is in charge of mind control in Zambia). China is also planning to take over the Zambia National Electricity Company. Djibouti took loans from China to build a new port and two new airports, Unable to repay its loans, China has also taken over a part of Djibouti’s sovereign rights and possession of its new port, and has since set up in that country, its first military overseas base. There have been issues as well, with China’s relations with Kenya, Democratic Republic of Congo and other African countries.

But should we blame China?

Whatever travails developing countries may have gone through in the hands of China, in the form of damages to their sovereignty, we must all agree on certain basic points. One, “there is no free lunch”. China is not offering anyone a free lunch. Its cheap loans are tied to its own strategic interests in the world. African nations are the ones submitting themselves as pawns to China’s global strategic agenda. African leaders are most certainly complicit. Two, “when you borrow, you pay”. Chinese negotiators are often focused. If you don’t pay in cash, you will pay in kind. The Chinese only give out their loans even under the Belt and Road Initiative to countries that have something to offer in return. Many developing countries are so economically narrow and badly managed, they end up giving up national resources for borrowed funds that translate into debt servitude. Three, and this is the worst part, is that Chinese loans are often opaque. This is one of the reasons China is not a member of the Paris Club. It may have committed to the G-20 process on the moratorium for debt service re-payments for example, but China has stubbornly refused to participate in data calls. It is the biggest player in Africa’s infrastructure boom but it may never disclose the full details.

China’s influence in Africa even runs far deeper. In Nigeria, that influence has gone beyond loan agreements that touch on sovereign rights to an increasing ubiquity of Chinese presence in Nigerian lives. It is so real that the Chinese have now taken over a rather complicated business chain in the country from manufacturing to retail, including internet services, hospitality, car sales and ride hailing services. One of these days, we may wake up to see a Chinese roasting corn by the road-side in Nigeria, properly licensed to do so!

Nigerian lawmakers have a responsibility to shout out about Nigeria’s sovereignty, and the integrity of agreements with China or others. We certainly don’t want to hear that a certain Amaechi has signed off Nigeria’s Presidential Villa to the Chinese to get cheap loans to build a rail line to Port Harcourt! If that were to be the case, the Chinese will take over that Villa and like P&ID, look at us all in the face, talk about the sanctity of agreements, and dare Nigeria to go to the court of international arbitration. The onus is on Amaechi and co to tell us what we need to know. The Chinese knee is on our necks today, simply because our leaders have failed to lead us aright.

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Aviation

Re: NIGERIA DESIGNATES FIVE AIRPORTS FOR FREE TRADE ZONE

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By Nuhu Adam

The recent announcement of the designation of five international airports – Murtala Muhammed International Airport Lagos, Nnamdi Azikiwe International Airport Abuja, Aminu Kano International Airport Kano, Akanu Ibiam International Airport Enugu and Portharcourt International Airport Omagwa – by the Minister of Aviation, Senator Hadi Sirka to support the implementation of both the African Continental Free Trade Area (AfCFTA) and the Single African Air Transport Market (SAATM) agreements is not only a welcome development but a commendable bold move by the government.

Of the five airports, Port – Harcourt airport has the advantage of a complimentary existing Onne Oil and Gas Free Zone. The logistics hub of this zone should take advantage and set the ball rolling immediately to sustain the gains for Oil and Gas cargo, while building capacity at the airport for agro allied export and others using the aviation logistics hub.

Practice in developed and developing countries indicates the existence of numerous and heterogeneous free zones as well as the different role which they have in the economic development of countries that have implemented them. Different industry-specific economic zones can be created to fill certain business needs with the ultimate goal of empowering the economic potentials of the countries in which they are situated. It is along this premise that we make bold to say the free trade zone would offer a huge potential for continental aviation given the potentials of Nigeria dominant market in the West and Central Africa.

The Nigeria aviation logistics hub is about to experience a game changer if the Free Trade zone is well coordinated and implemented and private sector driven.
Aside the increase in the dynamics of economic activities, it will also encourage the advancement of Foreign Direct Investments (FDI) in aviation value chain – OEM supply chain, FBO, capacity building and generation of new entrepreneurial opportunities in e – commerce fulfilment, this is in addition to the likely changes in the real estate market in the airport and its environs among other services.

Benefits accruable by the establishment of a Free Trade Zone
There are loads of advantages available to a company operating within a Free Zone including, but not limited, to the following depending on the model approved for the airport free trade zone:
• No pre-shipment inspection and issuance of Bank Form M required prior to shipment of material from the country of origin. Customers with Bank Bonds executed with the Customs can take their goods into the Nigerian territory after examination and within a very short time.
• While importing cargo the traditional way, you’re subject to clear your material and equipment and pay Customs Duty within 30 days. In the Free zone you are enjoying unlimited time to custom clear your consignment.
• This makes for increased shipments and cargo movements.
• Better cash flow management – Customs Duty Scheduling System. With a Bank Bond/Guarantee in place, you will be able to obtain Customs release of cargo required in the Customs territory. Payment of duty/perfection of Customs entries is then scheduled to be completed within 14 days after delivery – thus deferring Customs Duty payment and obtaining a better cash flow…… Not too sure with AfCTA
• This further translates into increased revenue and earnings in the associated private sector (airlines, clearing/forwarding agencies, banking/finance, services and supplies), increased government revenue and earnings (for Nigerian Customs, Nigerian Civil Aviation Authority, Federal Airports Authority of Nigeria, Cargo Handling Companies, Federal Inland Revenue Service, among others).
• Creation of job opportunities and entrepreneurial development of budding investors.
• Technology transfer and enhancement of local content participation in the nation’s Aviation industry.
• No VAT and withholding tax chargeable on Free Zone storage facilities, services and activities.
• No corporate and personal income tax payable.
• Easy facilitation of expatriate employees working in the Free Zone. No expatriate quota and residence permit are required for the expatriate staff working and domiciled within the area delineated as the Free Zone territory.

Concluding Remarks
Airport Free Zones have proven to be success stories in some countries of the world. The Suvarnabhumi Airport, Bangkok, the Dubai Airport Free Zone, Abu Dhabi Free Zone and Sharjah International Airport Free Zone – all within the United Arab Emirates – are good examples. They have continued to support the economic development of their host nations. All considered, the socio-economic potentials derivable from this development will be felt in a long time to come, especially in Nigeria’s Aviation industry and within the precincts of the neighbouring countries.
More importantly for me, aside the cargo volumes increase is an MRO being championed within a Free Zone to turn Nigeria into the Hub for maintenance, repairs and overhaul of Aircraft in West and Central Africa, while also attracting business from the rest of the aviation and aerospace world will be a catalyst for the new phase of aviation in the region

The MROs in FTZ will result in cost savings to Airlines based in Nigeria and reduce the demand for foreign currency required for Aircraft maintenance.
Labour, which is a major cost item is available locally and at cheaper rates…. More jobs opportunities.
MROs in FTZ would also serve as a platform for capacity building and ensure the development of local labour into highly skilled, certified world-class experts in various aviation related fields.
The aviation logistics value chain will be enhanced in Nigeria and the West and Central Africa Region.

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Economy

FG MAY SLASH CIVIL SERVANTS’ SALARIES, MERGE AGENCIES, OTHERS TO CUT COST- ZAINAB AHMED

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The Minister of Finance, Budget and National Planning, Zainab Ahmed, has said that President Muhammadu Buhari has directed the salaries committee to review payroll and also review the number of agencies.

The government will also remove some redundant items from the budget as a move to cut the cost of governance in the country.

Ahmed disclosed this at the ongoing ‘National Policy Dialogue on Corruption and Cost of Governance in Nigeria’ held in Abuja on Tuesday.

The programme was organised by the Independent Corrupt Practice Commission.

Zainab Ahmed Minister Of Finance Budget And-National-Planning

The government had approved a N13.88trn budget with a deficit of over N5.6trn.

The government projected a revenue of N7.98trn to fund part of the 2021 budget.

“We still see government expenditure increase to a terrain twice higher than our revenue,” Ahmed said.

The Finance boss said all agencies must come together to trim its cost amid the country’s dwindling revenue.

She said, “We need to work together, all agencies of the government to cut down our cost. We need to cut down unnecessary expenditures. Expenditures that we can do without.

“Our budgets are filled year in year out with projects that we see over and over again and also projects that are not necessary.

“Mr President has directed that the salaries committee that I chair, work together with the head of service and other members of the committee to review the government pay rolls in terms of stepping down on cost.”

She revealed that the FG will also review the number of government agencies in terms of their mandates.

Ahmed disclosed that for agencies with the same mandate the government will look at “how to merge the two.”

The Chairman of the ICPC, Bolaji Owasanoye, noted during the stakeholders meeting that the cost of governance is the “driver of corruption in Nigeria.”

He said the government has committed to improving the country’s revenue from new and existing sources.

Owasanoye said the government’s commitment to streamline payroll, removal of subsidies and reduction of the cost of contracts and procurement are all for the benefits of the “poor and vulnerable.”

He said a critical area of concern was “payroll padding” and the “phenomenon of ghost workers.”

He also lamented the duplication of projects such as the constituency projects of lawmakers.

The ICPC boss said funding for such projects are usually released without any mechanism for monitoring and evaluation and reconciliation of the funding.

He cited a project executed by the Redeemed Christian Church of God which was inadvertently diverted as an executive project.

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Economy

Another Increase In Electricity Tariff Imminent, as NERC Considers Appraisals For DisCos

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The stage appears set for an upward review of electricity tariff following the release Monday of indications by the Nigerian Electricity Regulatory Commission (NERC) that it is concluding the Extraordinary Tariff Review process for the 11 Electricity Distribution Companies (DisCos).

With the parameters released by NERC for the review, it is obvious that there will be an upward rather than a downward review.

The reviews, it said, would put into consideration changes in inflation, foreign exchange, gas prices and available generation capacity. Most of these have been on an upward climb, while generation capacity is not known to have improved substantially.

The regulatory body said it would also consider Capital Expenditure (CAPEX) required to evacuate and distribute the said available generation capacity in accordance with EPSRA and other extant industry rules.

In a notice to the general public and industry stakeholders posted on its website, the commission said the review was pursuant to the provisions of the Electric Power Sector Reform Act (EPSRA).

Extraordinary tariff reviews are carried out in instances where industry parameters have changed from those used in the operating tariffs to such an extent that a review is urgently required to maintain the viability of the industry, NERC said.

To worsen matters, the commission has also indicated its plans to commence the processes for the July 2021 Minor Review of the Multi-Year Tariff Order (MYTO-2020), which is done every six months.

“Further to the above, the commission held series of public hearings and stakeholder consultations in the first quarter of 2020 on the Extraordinary Tariff Review Applications of the 11 DisCos to consider their respective five-year Performance Improvement Plans (PIPs).

“However, the evaluation of the DisCos’ requests for review of the CAPEX proposed in their PIPs could not be concluded for the consideration of the commission during the Minor Reviews undertaken in 2020.

“Specifically, Section 21 of the MYTO – 2020 Order provides for consideration of DisCos’ CAPEX application upon further scrutiny and evaluation of the investment proposals,” it said.

NERC said the notice was being issued in compliance with the provisions of EPSRA, the Business Rules of the commission and the Regulations on Procedures for Electricity Tariff Reviews in the Nigerian Electricity Supply Industry.

The commission said it was aimed at soliciting for comments from the general public and stakeholders on the proposed reviews and advised them to send their comments to NERC’s headquarters in Abuja within the next 21 days.

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