Looking Beyond the Clauses in Article 8(1) Of the Nigeria-China Commercial Loan Agreement

Introduction

On July 28, 2020, there was cause to reflect on the Beijing money once again. The headlines from the papers further troubled the troubled minds of Nigerians battling with societal ills and the pandemic. Headlines like “GALAXY BACKBONE: REPS UNCOVER CLAUSES CONCEDING NIGERIA’S SOVEREIGNTY TO CHINA” left hands of puzzled Nigerians resting on chins; also seen were intelligent remarks from lawyers and finance enthusiasts/experts interpreting the notorious Article 8 (1) of the Commercial Loan Agreement as safe and avant-garde.

This paper considers Article 8 (1) of the Commercial Loan Agreement signed between Nigeria and Export-Import Bank of China (EXIM Bank) which allegedly “wills the sovereignty of Nigeria” in the $500 million loan for the Nigeria National Information and Communication Technology (ICT) Infrastructure Backbone Phase II Project, signed in 2018. A critical look beyond Article 8 (1) of the Loan Agreement determines either of two things: Whether the Beijing Money is a subtle predatory deal with hegemonic intentions? Or whether China’s Belt and Road Initiative (BRI) is a fair lending practice targeted at strengthening infrastructures of developing countries?

While the clause in Article 8 (1) of the Loan Agreement is not one that surrenders the sovereignty of Nigeria to the Republic of China, the ripple effects of China’s advancement of excessive credits to Nigeria could indeed cause Nigeria her sovereignty. Sovereignty is a product of political and economic control devoid of external interference and if held as accurate, we just might be looking at neo-colonialism.

The Uncovered Ignorance

The members of the House of Representatives raised alarm over “lethal clauses” in Article 8 (1) of the commercial loan agreement. For ease of reference, Article 8 (1) provides as follows:

The Borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets.

From its wording, the borrower merely waives its jurisdictional immunity and its immunity from execution as is typical in loan agreements of this sort. The alarm by the House Committee on Treaties and Agreements on grounds of the above provision is possibly a case of not appreciating the term, “sovereign immunity”. It is the position that sovereign immunity, or state immunity, is a principle of customary international law, under which one sovereign state cannot be sued or brought before the courts, arbitral tribunals, to mention a few, of another sovereign state without its consent.

Reading this definition into Article 8(1) will reveal that Nigeria consents to waive its sovereign or jurisdictional immunity as well as its immunity to the execution and enforcement of an arbitral award. It was not a waiver of Nigeria’s right to political will and independence or her right to self-governance without interference from China.

From the understanding above, it may not be accurate to conclude that the Nigerian Government used her sovereignty as a bargaining chip as that goes beyond the scope of a waiver of sovereign or jurisdictional immunity. Also, the grounds for a waiver are rather inexhaustible and it comes down to the decision of the state wanting or willing to contract. Easier to answer however are the ways by which a state can waive its immunity. They are:

• By prior written agreement,
• By instituting proceedings without claiming immunity  
• By submitting to jurisdiction as a defendant in a suit; and
• By intervening in or taking any steps in any suit (other than to claim immunity).

It is safe to say that the waiver of jurisdictional immunity was done by way of written agreement vide Article 8 (1) of the Commercial Loan Agreement.

BEIJING MONEY – BEYOND THE BRI

China, through its Belt and Road Initiative (BRI), has funded loan agreements in many African Countries. They have a track record of assisting these developing countries in very key infrastructural projects and since their interest concession is cheaper than most creditors’ rates, they are the go-to-guys.

In those developing states, similar clauses of waived sovereign immunity are in place as well as terms and conditions where the borrower defaults in servicing debts – save for military or diplomatic assets, China recovers its loans by taking hold of the infrastructures of its borrowers as contained in the commercial loan agreement.

It is called Beijing money because there seems to be enough to loan. The loans advanced are often in large figures that may take a miracle for developing countries to eventually honour their debt at the maturity date of the loan deal.

With a huge loan facility in Beijing’s fat purse, developing countries often fight their temptations in short while only to give in to the possibility of concluding big projects that could propel economic activities and swell the Gross Domestic Product (GDP) enough to offset its indebtedness to the Chinese Government.

Most times, and from recent ordeals, the borrowers regret their choices. To cite a few examples, on June 25, 2018, the New York Times reported the fate of Hambantota, Sri Lanka. With the rate of Sri Lanka’s debt ballooning under Mr Rajapaska, Hambantota port was handed over to the Chinese Government and 15, 000 acres of land around it for 99 years in December.

Scary too is the 2006 loan to Tonga sought to rebuild infrastructure where from 2013 to 2014, the country suffered a debt crisis. The EXIM Bank of China, to whom the loans were owed, did not forgive them. The loans claimed 44% of Tonga’s GDP.

In Zambia, the EXX Africa’s research shows how the Chinese Government sought control over Glencore’s Zambian operation Mopani and the country’s largest producer, First Quantum Minerals. The research also shows that the Chinese firms are seeking to capitalize on the liquidation of Konkola Copper Mines, a subsidiary of London-based Vedanta Resources (Zambia is Africa’s second-largest producer of copper).

It would appear that the victims could not stop borrowing the Beijing money; sad as debt reliefs, renegotiation and restructuring proved abortive. This is more than a BRI; the questionable motives of China should preach caution to the Nigerian Government.

The Beijing money has been in circulation Nigeria since 2002 to 2018 and, according to one of the legislators, Ben Igbakpa, the EXIM Bank of China is Nigeria’s biggest bilateral creditor in nearly two decades having lent Nigeria a loan facility of $6.5 billion (N1.9 trillion) since 2002.

As at last count, Nigeria is the recipient of 17 Chinese loans to fund different categories of capital projects. The implication of this is that Nigeria would still be servicing the Chinese Loans till its maturity date come 2038. With cheap concession rates and Nigeria’s constant debt servicing, the Government continues to borrow.

The real question is ‘can Nigeria truly repay?’ Answering this, Dr Bongo Adi, the Director of Centre for Infrastructure Policy Regulation and Advancement (CIPRA), Lagos Business School, in an interview with Channels TV, had this to say:

We have to look at the total debt and the capacity to repay not just to China but to our creditors. Our Debt independent revenue is at 96% now. That means for every N1 we earn, 96 kobo is used to refund loans. That has passed the critical threshold.

What it means is that we lack the ability and we don’t have the headroom anymore to repay because our independent revenue has been strangulated by our enormous debt hanging over the Federal Government as it stands now.

If we do the math correctly, it would be agreed that we are not generating revenue that can be recycled; we are getting revenue for offsetting loans. From Dr Bongo Adi, China is not our only creditor yet the statistics from Nairametrics, as at 21st May 2020, showed that Nigeria owes China about $3.1 billion (more than 10% of the $27.6 billion external debt stock).

If the $5.3 billion loan advancement from the EXIM Bank of China comes to fruition in October 2020, the debt further stockpiles. Experts believe that Nigeria will be unable to repay the large credits upon maturity date and a layman would be spot on in tying our inability to honour debts to lack of accountability, transparency, and responsibility to refund its loans.

Slowly, we could be walking into the Chinese debt-traps – caution is the message as a reflection on the analysis of Nigeria’s sovereign debt sustainability (with the harsh realities brought the polity by the pandemic; the sudden crash of oil price; and the looming recession reported by the World Bank) shows that we are likely to be incapable of generating surpluses to meet debt payments.

The Curiosity

The debt-trap diplomacy is the deliberate extension of excessive credit to a debtor country with the alleged intention of extracting economic or political concessions when it becomes unable to honour its debts. It is characterized as being exploitative and is mostly associated with China.

China’s loan deal has been characterized by the World Bank and International Monetary Fund (IMF) as nontransparent. There is a need to have a microscopic view of the similar traits of a typical debt-trap situation in many affected developing nation-states with the recent developments in Nigeria.

It is curious how the National Assembly were bypassed by the Government to secure the commercial loan agreements which ran contrary to s.21 (1) of the DEBT MANAGEMENT OFFICE ACT ESTABLISHMENT (E.T.C.) ACT 2003 which provides that:

No external loan shall be approved or obtained by the Minister unless its terms and conditions shall have been laid before the National Assembly and approved by, its resolution.

It is curious how during the probe, relevant documents pointing to the details, clauses, terms and conditions of the commercial loan agreement, were not before the Housing Committee conducting the investigation. It is therefore curious that the sole interest of Rotimi Amaechi, the Minister of Transport, was in the postponement of the inquiries till sometime in December or January when the loan must have been granted.

He feared that further probing would make China withdraw its earlier promises of$5.3 billion loan advancement when the real fears should have been whether we are ready for a recession as our economy is splintered from the recent shocks.

It is curious how China Civil Engineering Construction Corporation (CCECC Nigeria Railway Company Limited), a subsidiary company to China Civil Engineering Constructing Corporation, remains the sole contractor for the railway projects despite its being blacklisted by the World Bank on grounds of fraud and corruption.

According to Nairametrics and Business Traffic, 5 other Chinese firms have been blacklisted by the World Bank. It is indeed curious that notwithstanding the counterpart funding, agreed by the Nigerian Government is that since China was financing the projects through the CCECC, the contractors had 100% execution right on them – this means that the materials and skills are imported from China thus undermining local industry and jobs.

The Beijing money funds the project and creates a non-competitive bid such that only its own company executes the projects. If the creditors get the 100% execution rights such that our natives cannot be entitled to employment opportunities to bring a boost in GDP, then it is not out of place to inquire the side the BRI is on.

Fears – In Conclusion

With 17 loan agreements financed and executed by China in Nigeria, a default means we lose strategic assets. While borrowing is a form of economic activity that could lead to a futuristic surplus when the borrowed money commissions lucrative projects, borrowing is a pathway to sovereign debt unsustainability.

Come August 17, 2020, there is need for the Lawmakers to “calm down” and consider the commercial loan agreements entered between Nigeria and China because the ripple effects of excessive credits cum an implosive bad economy could birth economic colonialism as seen in Sri Lanka, Zambia, et al. A country is never independent when deprived economic freedom. The message is a caution!