Evening the odds for future Sino-Nigerian relations

Nigeria is currently China’s second-largest export market and trade partner in Africa, after SA, write Dawn Dimowo and Kadiri Otaru.

#Focac: According to modern economic stratification, China and Nigeria are developing nations with huge populations that serve as wide markets which have attracted significant investments in recent times.

China is the world’s second largest economy and its most populous nation, just as Nigeria is Africa’s No.1 economy and has the largest population on the continent.

But with a GDP of over $11 trillion to Nigeria’s $510 billion there is no doubt China is way ahead. China has witnessed a tremendous economic turn-around since its adoption of a mixed economic system in the late 1970s.

In the years that followed there could be no doubt as to its emergence as a world power – it has assumed its seat on the United Nations’ Security Council, joined the World Trade Organisation and become the largest exporting nation in the world; and in an interesting development for the balance of international relations, become a major provider of aid to developing nations, particularly in Africa.

Nigeria and China have had a long standing positive relationship despite the lack of historical ties between the two nations. During Nigeria’s ‘isolation’ from the global economy in the 90s owing to oppressive military rule and the sanctions consequently attracted, Sino-Nigerian relations began to grow significantly, almost as an alternative to relations with the West (Europe and North America).

Following the return to civilian rule, bilateral trade relations between China and Nigeria have expanded considerably in terms of trade and cooperation, culminating in 2005 in the signing of a China-Nigeria Strategic Partnership.

Notably the volume of trade between the two partners grew from $2billion in 2002 to $13 billion in 2012. Nigeria is currently China’s second largest export market and trade partner in Africa, after South Africa.

While all these paint a very positive picture of the relationship between the two countries, questions remain as to how much benefit Nigeria really derives from its current partnership with China.

The value of trade between both countries in 2014 was put at $18.1 billion (N38.01 trillion) and while this may seem impressive, Chinese exports to Nigeria – mostly industrial, mechanical and electrical products – still account for almost ninety percent of the trade between the two countries.

Over the years, Nigeria has consistently increased its sales to China, with exports up 118% last year from the year before, but these are mostly for raw materials and the truth remains that the balance of trade between the partners is heavily in favour of China.

Chinese officials are also keen to point to the increasing levels of investment from Chinese businesses (mostly non-financial direct investment, it was estimated at $1.8 billion last year) but at the same time, Nigeria is heavily in debt to China having received billions of dollars in loans for infrastructure projects.

Since 2006, the Chinese government has provided over US$1 billion worth of loans towards the modernisation of Nigerian railways. China Railway Construction Corp. Ltd. (CRCC) in 2014 signed an official construction contract with the Nigerian government to build a Lagos-Calabar railway line linking Nigeria’s south-west to the south and south-east regions.

The Abuja-Kaduna railway line is another project that received US$500 million from China’s EXIM Bank.

The fall in commodity prices has not helped Nigeria, as oil and gas account for almost 80% of the total value of Nigeria’s exports to China.

Between 2011 and 2013, it was considered that the best way to even the odds was to increase oil trade between the two countries and China quickly became one of the major buyers of Nigerian crude.

Slowed growth in China over the last two years has considerably reduced its demand for Nigerian crude while the import restrictions imposed this year by the Central Bank to support Nigeria’s currency will not be able to make up for that loss in revenue.

Another important fact that should not be overlooked is that Chinese loans are often tied to commodity arrangements, meaning the oil price slump puts Nigeria in a more difficult position with its creditor-partner.

Indeed there were indications ahead of the ongoing China-Africa summit that Nigeria will make approaches with respect to renegotiating its loan and may be seeking a moratorium.

The Chinese have made commitments towards other sectors in the Nigerian economy such as agriculture, mining and energy.

China Power International Development Ltd was one of several foreign investors to show keenness towards collectively investing over US$80 billion in the Nigerian energy sector as of January 2014.

Subsequently in July 2014, the PAN Steel Corporation of China indicated its interest in the steel sector while pledging about US$5 billion towards the establishment of steel production plants.

During the same month in 2015, a Memorandum of Understanding (MoU) was signed off between a Chinese delegation and a consortium of Nigerian businessmen towards promoting business in the agri sector.

Furthermore, the Minister of Agriculture & Rural Development, Audu Ogbeh recently stated Nigeria’s desire to reach a deal with China by year end to import equipment to set up 40 rice mills across the federation.

However Nigeria’s huge infrastructure gaps, some of which we already noted China is helping address, prevent it from deriving the benefit of most of these commitments in the short to midterm.

With capital expenditure under the 2016 budget increased to N2 trillion from N1.31 trillion this year, infrastructural development in Nigeria is set to expand but Chinese companies seeking to do business in construction and infrastructural projects are also keen to leverage on this.

The Cross Rivers State government recently announced the conclusion of arrangements with China’s Henan province for $10 billion worth of infrastructure projects in the state.

It is in the normal scheme of international relations for nations to seek the utmost benefit for themselves. The issue then is not so much the nature of Chinese expansion, as the inability of successive Nigerian governments to make the most of the relationship.

President Buhari has indicated his administration will pursue a more assertive foreign policy, and this is certainly important in eventually negotiating favourable trade terms or loan facilities as the case may be.

However a more aggressive economic policy at home is also key. Just as ‘soft diplomacy’ can be employed to encourage China to buy even more raw materials from Nigeria, increasing regulatory enforcement by Nigerian agencies can help address dumping of inferior goods.

Issues of technical capacity transfer must be considered while the Nigerian private sector should be encouraged to seek and take advantage of partnerships with Chinese counterparts that will bring capital to Nigeria. Most important of all, trade between the two states will experience increased growth in favour of Nigeria if it can diversify its exports to China as quickly as possible.

The rise of China’s yuan as a globally recognised instrument of exchange also present an opportunity for Nigeria to strengthen ties with the Chinese economy by investing more in its currency via external reserves. Last year, Nigeria’s Central Bank of Nigeria announced plans to increase the yuan proportion of Nigeria’s external reserves from 2% to 7%.

This should be seriously considered as Nigeria’s economic condition improves, as it would serve as an alternative to the dollar and a form of protection against a slump in the latter.

Notwithstanding its current economic difficulties Nigeria remains an important investment destination and in order to make the most of Chinese commitments and investments, an enabling environment must be provided for the investors as much as policies that will protect the interests of Nigeria’s growing economy must be developed to ensure Nigerian businesses, and ultimately the Nigerian people, benefit.

It is said that Nigeria is now at the same point China was twenty years ago, perhaps the biggest benefit we can derive is in studying China’s evolution more closely and adopting, and adapting, some of that country’s policies to successfully grow our economy and achieve a more even keel in the years to come.

THE STAR