China offers $6bn infrastructure loan to Nigeria

China has offered Nigeria a loan worth $6bn to fund infrastructure projects in Africa’s biggest economy.

“It is a credit that is on the table as soon as we identify the projects,” the Minister of Foreign Affairs, Geoffrey Onyeama, told reporters who travelled with President Muhammadu Buhari to China.

“It won’t need an agreement to be signed; it is just to identify the projects and we will access it,” he said.

Also, the Senior Special Assistant to the President on Media and Publicity, Garba Shehu, said in a statement that the Chinese President, Xi Jinping, offered $15m agricultural assistance to Nigeria for the establishment of 50 demonstration farms across the country.

The offer was in response to Buhari’s vow to make Nigeria self-sufficient in food production.

The offer, according to Shehu, was made during talks between Buhari’s delegation and high-ranking Chinese government officials led by Jinping.

During the talks, China and Nigeria also agreed to strengthen military and civil service exchanges as part of a larger capacity building engagement.

In line with this, China offered to raise its scholarship awards to Nigerian students from about 100 to 700 annually, while 1,000 other Nigerians would be given vocational and technical training by China annually.

Shehu quoted Jinping as applauding the war against corruption being waged by Buhari and assured him that Nigeria would always have a special place in the affairs of China.

Buhari shortly after the talks directed that technical committees be immediately established to finalise discussions on new joint Nigeria/China rail, power, manufacturing, agricultural and solid mineral projects.

The technical committees, he said, would conclude their assignments before the end of next month.

“China also expressed an interest in setting up major projects in Nigeria such as refineries, power plants, mining companies, and textile manufacturing and food processing industries as soon as the enabling environment is provided by the Federal Government,” the statement added.

Nigeria also agreed a currency swap deal with China as it looks for ways to shore up the ailing naira and fund a record budget deficit, possibly by issuing yuan-denominated bonds in China.

The nation is facing its worst economic crisis in decades as sinking oil prices eat into its foreign reserves and the naira weakens against other currencies.

Reuters reports that Nigeria has been for months looking for sources to help plug a projected 2016 deficit of N2.2tn as Buhari plans to triple capital spending.

During Buhari’s visit to Beijing, the Industrial and Commercial Bank of China Limited, the world’s biggest lender, and the Central Bank of Nigeria signed a deal on yuan transactions.

“It means that the renminbi (yuan) is free to flow among different banks in Nigeria, and the renminbi has been included in the foreign exchange reserves of Nigeria,” the Director-General, African Affairs Department, China’s Foreign Ministry, Lin Songtian, told reporters.

The move comes after the Minister of Finance, Mrs. Kemi Adeosun, said on Saturday that Nigeria was looking at panda bonds or yuan-denominated bonds sold by overseas entities on the mainland, which she noted would be cheaper than Eurobonds.

The CBN had said it planned to diversify its foreign exchange reserves away from the dollar by switching a stockpile into yuan. It converted up to a tenth of its reserves into yuan five years ago.

Lin said a framework on currency swaps had been agreed with Nigeria, making it easier to settle trade deals in yuan.

Similarly, the ICBC signed a $2bn loan deal with the Dangote Group, owned by Africa’s richest man, Aliko Dangote, to fund two cement plants.

“The interest rate is okay, quite favourable with me,” Dangote said, without elaborating. “It’s for my two cement companies that we are establishing in Nigeria.”

China’s official Xinhua news agency cited President Xi as telling Buhari that there was huge potential for economic cooperation, naming oil refining and mining.

In a speech to business leaders, Buhari said both countries wanted to work together in the areas of agriculture, fishing and the manufacturing of cars, construction materials and textiles.

Aly Khan Satchu, a portfolio manager at Rich Management, said the deal would pave the way for panda bonds but this would not be enough to ease pressure on the naira.

Buhari has rejected calls to devalue the currency.

“Nigerian FX policy remains the elephant in the room and China or a panda bond is not going to be enough to stop what will eventually become a tsunami of a devaluation,” he said.

An economic expert and Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukuwu, said the deal would help boost trading between both countries.

According to him, the currency swap agreement will allow Nigerian banks to issue Letters of Credit in renminbi (yuan) in place of the dollar or euro.

Chukwu said, “It will facilitate trade deals between Nigeria and China. The ongoing foreign exchange scarcity has been affecting the amount of Nigeria’s import from China. The new deal may ease pressure on the dollar since demand for yuan/renminbi will start rising.”

A Professor of Economics at the Olabisi Onabanjo University, Sherriffdeen Tella, said the currency swap deal was good to the extent of the amount of commodities Nigeria had to export to China.

Unless Nigeria has substantial export to China, ease of payment of trade deals between both nations may not be enough reason to ink such a deal, he said.

Tella stated, “China must be encouraged to buy our crude oil, gas and other products that we may have for exports. Otherwise, we will soon run out of renminbi if it is being demanded only for the purpose of importing commodities from China.

“We have to encourage China to buy our products so that we can have enough renminbi in our reserves.”

The International Monetary Fund had in November agreed to add the Chinese yuan to its reserve currency basket.

The decision, which marked another step in China’s global economic emergence, came after the IMF evaluated the Asian nation’s standing as an exporter and the yuan’s role as a “freely usable” currency.