China $3.1bn loan to Nigeria:
Capital market Professor allays fear on sovereignty waiver
* China can only take assets of the loans – Says Prof Uwaleke
As controversy surrounding China’s loan to Nigeria and the country’s sovereignty continues, a professor of Capital Market, Uche Uwaleke, has said that China can only take over Nigeria’s assets built with the loans obtained from them.
In exclusive chat with Financial Business News, he said, “It is important that Nigerians are not misled with respect to the ‘sovereignty waiver’ clause in the country’s loan agreement with China.
“The fact is that China can only take over a country’s assets, built with the loans, which served as Collateral Security for that purpose”.
He went on, “The relevant clause usually invoked in the event of default relates to waiver of commercial sovereignty, which is a standard clause in bilateral loan agreements of this type.
“This is in no way tantamount to waiver of Diplomatic Sovereignty on independence of the country in question. As a non-aligned Creditor Country, not belonging to the Paris Club of creditors, China needs such a sovereign guarantee in bilateral commercial deals to facilitate enforcement of loan terms”.
Speaking further, Prof Uwaleke, explained, “Nigeria is not at risk of default with respect to credit facilities from the China EXIM bank, considering that the entire $3.1 billion owed the bank as disclosed in the DMO March 31 2020 Nigeria’s public debt report, represents less than 4 percent of the country’s total debt stock of about $79 billion”.
He pointed out, “In any case, adequate provisions have been made in the Medium Term Expenditure Framework (MTEF) for servicing of public debts, the bulk of which about 65 percent is domestic debt.
“Unlike Eurobonds, which constitute circa 40percent of the country’s external debt and contracted on commercial terms, China loans are largely concessional.
“Currently, and to my knowledge, Nigeria is enjoying facilities from China EXIM Bank at 2.5percent for 20 years with 7 years moratorium. Like Infrastructure bonds such as Sukuk, they are project-tied.
“In addition, the money goes straight to Chinese firms handling the projects, thereby minimising the likelihood of funds diversion “.
He emphasised, “I think this funding model suits our infrastructure development needs at this critical time and should not be jettisoned”.
Figures of the loan:
By March 31, 2020, the total amount Nigeria borrowed from China stood at $3.121 billion (₦1,126.68 billion at $/₦361). This amount represents 3.94 percent of Nigeria’s total Public Debt of $79.303 billion (₦28,628.49 billion at USD/₦361).
More so, in terms of external sources of funds, Loans from China accounted for about 11.28 percent of the External Debt Stock of $27.67 billion at the same date.
His Background :
Nigeria’s first Professor of Capital Market, Uche Uwaleke, holds a B.Sc degree in Accounting; M.Sc in Economics- specialising in Finance. Also, he holds a PhD in Finance, with more than 20 years of lecturing experience in reputable institutions in Nigeria.