55.2 F
London
October 9, 2024
PI Global Investments
Infrastructure

Nigerian rail projects drive home China’s belt and road commitment to African infrastructure development


Building railways and bridges in Africa are a key focus for Beijing, after senior diplomat for African affairs Wu Peng announced that China will support infrastructure development in Nigeria, while on a trip to the West African nation last month.

It is a sign that China is still committed to enhancing ties and financially backing growth in African nations. But observers have also said that a change in banks financing a major rail project in Nigeria points to China’s desire to commercialise its overseas lending.

Wu, the Chinese foreign ministry’s director general of African affairs, previously announced the signing of a finance agreement for the Kaduna-Kano railway, a landmark project in the Belt and Road Initiative in Nigeria.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

It came after a promise in October by Chinese President Xi Jinping to finance and complete the Abuja-Kano and Port Harcourt-Maiduguri railway projects during a meeting with Nigerian Vice-President Kashim Shettima on the sidelines of the third Belt and Road Forum in Beijing.

China had agreed to provide 85 per cent financing for the construction of the two railway projects, while Nigeria was to pay the remaining 15 per cent. This money has since been earmarked by Nigeria for the project, according to Shettima’s office.

Nigerian Vice President Kashim Shettima with Chinese Presidet Xi Jinping at the Belt and Road Forum in Beijing last year. Photo: Presidency of Nigeria/Anadolu via Getty Images alt=Nigerian Vice President Kashim Shettima with Chinese Presidet Xi Jinping at the Belt and Road Forum in Beijing last year. Photo: Presidency of Nigeria/Anadolu via Getty Images>

The funding was originally meant to come from state-owned policy bank China Eximbank, but it pulled the plug back in 2020, citing the Covid-19 pandemic and concerns about Nigeria’s ability to repay the loan.

But now the money is being provided by another state-owned policy bank, the China Development Bank (CDB). According to observers, this illustrates China’s wish for the commercialisation of overseas loan financing.

And it is not an insignificant sum. For example, with the 203km (126-mile) Kaduna-Kano railway section, after China Eximbank stopped its funding in 2020, Nigeria courted CDB last year.

Previous estimates had put the total cost of the Kaduna-Kano section of the line at US$1.2 billion. The Nigerian government committed US$380 million, with the revised cost to be borrowed set at US$973 million.

Documents put before Nigeria’s parliament in April 2023 showed that the Chinese lender would advance a 15-year loan at an interest rate of 2.7 per cent plus the six-month Euro Interbank Offered Rate.

China Civil Engineering Construction Corporation (CCECC) has been responsible for most of the project, which will connect the northern city of Kano with the capital Abuja.

The rubber-stamping of the rail project, according to observers, points to a predicted rise in Chinese lending to Africa in 2024 – a year, they noted, in which Beijing is expected to host the Forum on China-Africa Cooperation (FOCAC).

Tim Zajontz, a research fellow at the Centre for International and Comparative Politics at Stellenbosch University in South Africa, said the financing agreement shows that Nigeria’s infrastructure sector remains important for China.

Not only are Chinese contractors widely mobilised across the Nigerian market, “one must also not forget that Abuja has actively sought funding from non-Chinese sources after China Eximbank had pulled out,” he said.

“Considering the intensifying geopolitical competition over African infrastructure, President Xi’s recent commitment to continue to fund Nigeria’s ‘railway renaissance’ is not surprising,” said Zajontz, who is also a lecturer in global political economy at the University of Freiburg.

Although China Eximbank and CDB are both state-owned policy banks, the switchover is “an example of China Eximbank’s more restrictive lending policy and indicates a further commercialisation of Chinese overseas loan financing”, he said.

Zajontz, who is author of the book, The Political Economy of China’s Infrastructure Development in Africa: Capital, State Agency, Debt, also talked of a wider shift in China’s overseas development finance.

“Chinese funding is now more restrictive and the focus has shifted from concessional to commercial lending,” he said.

Yunnan Chen, a senior research officer at the London-based Overseas Development Institute think tank, said the CCECC is hugely dominant in Nigeria, so it makes sense that they would be the natural contractor for the project.

“CDB loans will likely be more costly and less favourable in terms,” she added.

Eximbank also withdrew funding for a section of a railway in Kenya. It had previously financed the US$5 billion leg from the coastal port city of Mombasa to capital Nairobi, with an extension to the central Rift Valley town of Naivasha.

But the bank declined to fund the next section to Malaba, a town on the border with Uganda due to concerns over the project’s commercial viability.

However, Kenya is in a much weaker bargaining position than Nigeria, Chen said. “Nigeria is always in a more comfortable position to borrow, at least for the time being, because it has the oil revenues, which make it creditworthy.”

According to Chen, Kenya is trying to negotiate the terms of its existing Standard Gauge Railway (SGR) loans, while also trying to ask for new financing for the extension to Uganda. “It’s a difficult bargaining position to be in.”

Mark Bohlund, a senior credit research analyst at REDD Intelligence, said that Nigeria – similar to Tanzania – is one of the major African economies with a relatively low level of Chinese borrowing. “And it is in this perspective that I view this new loan,” he said.

“My assumption is that China Eximbank will be more active than CDB in Africa over the medium term but I think Nigeria might be an exception to the rule in this regard as their oil export revenue allows them, in theory, to take on more debt at commercial terms, which is the majority of CDB’s lending, than other African countries.”

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.





Source link

Related posts

CO2 infrastructure project in Rotterdam advances

D.William

China’s 300 million migrant workers key to boost consumption, not lavish infrastructure, ex-adviser says

D.William

Capitalising InVITs to bridge the infrastructure financing gap in India

D.William

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.