Written by the Editorial board of The Guardian Newspaper
The Nigerian and Chinese Presidents did not issue any official communiqué at the end of what has been variously termed Muhammadu Buhari’s week-long state visit to China. But it is safe to say that its summary would read something like this: many promises made, many agreements signed, prospects good but much work still needs to be done.
Notwithstanding the purported benefits of the trip given by the State House, the full list, that would have otherwise formed a part of the communiqué, would wait till the end of May for the conclusions of the technical committees which were directed by Buhari to thrash out the new joint Nigeria/China rail, power, manufacturing, agricultural and solid mineral projects. Buhari’s visit was hatched during the 70th Session of the UN General Assembly in New York in September 2015 when Presidents Muhammadu Buhari and Xi Jinping met. The six-month intervening period before the trip was enough for the relevant officials on both sides to negotiate beforehand the details of the projects in order to make the agreements available for formal signing to highlight the visit.
Buhari in China bemoaned the bilateral trade imbalance which leaves China with 80 per cent of the total trade volume. Ruefully, the factors responsible for the situation are of the Federal Government’s doing. Firstly, some Nigerian agencies wittingly laid the foundation for the trade imbalance and de-industrialisation of the country: they armed China-based firms (as in other Asian countries) with Nigerian product specifications and licensed them to manufacture final products for the Nigerian market. Amidst the numerous constraints, Nigeria-based manufacturers could not compete. Secondly, owing to unorthodox and lax access to the available foreign exchange, unscrupulous elements on both sides made substandard versions of the goods for export and dumping in Nigeria. And thirdly, treated as a revenue generating arm rather than the protector of domestic industries, the Nigeria Customs Service is often a buddy of smugglers and all manner of wreckers of the economy.
As if unconcerned about the above Nigerian “normal” state of affairs, Buhari in Beijing merely appealed to the business communities in both countries to reduce the trade imbalance. Towards that end, he invited Chinese firms to set up factories in Nigeria and promised that, unlike the failed previous attempts, his administration would be deliberate in pursuing import substitution industrialisation policy. By contrast, the Chinese, intent on continuing to exploit Nigeria’s mismanagement of its forex receipts, offered a bait in the form of a currency swap arrangement. Unless well rained, the currency swap offer will not only reinforce the bilateral trade imbalance but will also leave the Nigerian economy open for the Chinese to take wholesale possession of. Alongside the adverse trade position should be placed some unwelcome Chinese practices, namely, one, Chinese loan-funded joint projects are executed wholly with imported Chinese workers thereby hampering technological transfer; two, the Chinese buy up large areas of land with scant regard for neighbouring residents; and three the Chinese engage in deforestation and harvest protected tree species in some parts of the country.
Nigerians need transparently equitable, mutually beneficial and reciprocal economic relations with China. Buhari should, therefore, go beyond moral suasion. Firstly, in the areas of trade and industrialisation, there should be appropriate legislation to reverse the domestic de-industrialisation activities of agencies such as the National Agency for Food and Drugs Administration and Control (NAFDAC) and the Standards Organisation of Nigeria (SON). Target dates should be set for foreign-based firms already licensed by the agencies to locate manufacturing branches in Nigeria. They should observe labour and immigration regulations and promote accelerated technological transfer to Nigerians. Secondly, Nigeria and Chinese Customs services should collaborate. The latter should undertake to check export of substandard products from China to Nigeria. Thirdly, all imports into the country should be channeled orthodoxly and be paid for through Nigerian banks. Fourthly, both governments and business communities in the two countries should commit themselves to actualising an equitable 50-50 balance in bilateral trade before the renegotiation of the relevant agreements in the next three years.
With regard to delivering federal infrastructure projects, China’s record is lacklustre. Instructively, some beans were spilled when it came to light that the Federal Government was in default of its counterpart obligations. Buhari pledged to honour agreements made by previous governments and complete “in the shortest possible time all joint power, rail, road and aviation projects that will directly and quickly improve the lives of Nigerians.” However, his self-contradiction when he singled out the Mambila Power Project for actualisation while new infrastructural projects were being discussed is regrettable. For instance, the Abuja-Kaduna Rail Project, which has been long overdue, recently featured in the National Assembly. The disclosures included the absence of a covering memorandum of understanding, the inflation of its cost by $10 million, and the fact that the last federal administration had paid out sums of money to the Chinese upon demand without raising any questions. Were the payments not part of the counterpart obligations? Anyway, are such opaque goings-on, undocumented details and secrecy surrounding the Chinese-funded project the motivation for visiting China to seek new joint projects without prior groundwork? Generally, it will require a shorter period of time to complete and commission partly executed previous projects for public use than to embark on new ones with their complement of counterpart obligations. Therefore, fulfilling the outstanding counterpart obligations on the previous projects should be accorded priority over any new projects in the 2016 budget or by means of a supplementary budget.
In the course of the visit, Nigerian and Chinese companies initiated agreements for various joint investments in Nigeria. In fact, Buhari made provision for an external loan in the 2016 Budget on account of low foreign interest rates. The administration is even considering floating yuan-denominated bonds because they are cheaper than Eurobonds.
A little economic context is in order. Last March, Nigeria’s inflation rate was 12.8 per cent as against 2.3 per cent for China. CBN Standing Lending Facility rate was 14 per cent (the apex bank has disclosed at the IMF Headquarters that the rate will rise) as against China central bank rate of 4.35 per cent. Also, Nigeria’s unemployment rate is over 23 per cent while the corresponding Chinese rate is 4.05 per cent, the normal attrition rate.
Considering Nigeria’s currently unutilised banking sector lending potential which tops N70 trillion, the loan requirements could be financed by local banks in the overall national economic advantage if the level of interest in China prevailed here. Given that outcome, there would be a host of otherwise viable private sector investments, all of which cannot be undertaken today. Foreign direct investment funds (add the various private company loans initialed in China and the $6 billion kept on the shelf in China) are a pittance in relation to the idle credit potential in Nigeria. It must also be noted that government agrees that only massive investments in the various sectors of the economy (economic diversification) will lead to a substantial reduction in the unemployment rate. So the humongous unutilised bank credit is not a mark of good economic management. Pertinently, it has been shown incontrovertibly that the country already attracts and generates more than enough forex to meet the needs of investments financed using local bank credit. The prospects of forex inflows in the future are even rosier.
Government is not unaware that the country’s high inflation, excessively high interest rates and artificial/unrealistic naira exchange rate (all of which underpin the high idle bank credit potential) have a single root cause, namely, excessive fiscal deficits resulting from the improper substitution by the CBN (at the dictation of successive presidents) of deficit financing for Federation Account dollar allocations. Therefore, it amounts to fiscal tourism for Buhari to frequent China and other successful economies to covet the same economic fruits which the insistently wrong fiscal and ensuing monetary policy preferences of successive presidents have banished from Nigeria. It is good to go to China but doing so on fiscal tourism is mere escapism that is incapable of developing the country. Therefore, Buhari should break forthwith the denial to Nigerians of the coveted benefits of a sound fiscal deal in their own land.