In a recent report, the International Monetary Fund (IMF) has warned Sub-Saharan African countries, Nigeria among them, about the potential risks associated with their close economic relationships with China. This caution comes amidst reports of Nigeria’s rising debt to China, which reached $4.73 billion as of June 30, 2023, according to data from the Debt Management Office (DMO).
This figure marked an $800 million increase in just one year, with the debt being used to finance various infrastructural projects.
Nigeria’s projects funded by Chinese loans include power generation, railways, water supply, airport terminals, agricultural processing, and communication, among others. These projects encompass critical developments such as the Nigerian National Public Security Communication System, the Wu-Kaduna section of the railway modernization project, and the Abuja light rail project. Chinese loans have played a substantial role in Nigeria’s infrastructural development.
The close economic ties between China and Nigeria have deepened over the years. In an article by Cui Jianchun, the Chinese Ambassador to Nigeria, it was revealed that from 2016 to 2021, bilateral trade between Nigeria and China increased by nearly 142 percent, with trade volume reaching $20.04 billion in the first ten months of 2022. Nigeria is China’s third-largest trading partner in Africa, and China is Nigeria’s largest source of imports.
However, in its latest Regional Economic Outlook released in October 2023, the IMF cautioned that these economic ties pose vulnerabilities for Sub-Saharan African countries, particularly in light of China’s recent economic growth slowdown. The IMF expressed concerns that this slowdown could negatively impact Nigeria and other trading partners in the region, mainly through reduced trade.
Furthermore, the IMF highlighted the potential risks to infrastructural projects, as China is a major source of funding for such initiatives in African countries. It noted that Chinese loans, primarily aimed at financing public infrastructure projects, have seen a significant increase in the late 2000s, and China has become the largest bilateral official lender to countries in the region.
Five countries, including Angola, Kenya, Zambia, Cameroon, and Nigeria, account for 55 percent of official Sub-Saharan African debt to China. The IMF also pointed out a correlation between bilateral trade and lending disbursement between China and Sub-Saharan African countries, indicating that countries with higher trade volumes with China receive more loans.
The IMF advised Sub-Saharan African countries to adapt to evolving economic ties with China, promote economic diversification, strengthen policy frameworks to reduce vulnerabilities, and enhance regional trade integration. These measures aim to mitigate the potential adverse effects of China’s economic slowdown on African economies.
However, some experts argued that Nigeria’s exposure to risks related to its economic ties with China is limited. They suggested that Nigeria should focus on addressing internal economic challenges, such as rising debt levels and high debt servicing costs, instead of overemphasizing potential risks associated with China’s economic outlook.
The IMF’s caution underscores the need for Sub-Saharan African countries, including Nigeria, to carefully assess and manage their economic relationships with China while prioritizing their domestic economic concerns.