Economy
Nigeria Key Beneficiary of Chinese Loans to Africa—Report
By Dipo Olowookere
A research and analysis done by global law firm, Baker McKenzie and IJGlobal, has disclosed that the value of loans from Chinese lenders to energy and infrastructure projects in Africa almost trebled between 2016 and 2017, from $3 billion to $8.8 billion, with policy lenders China Development Bank and China Exim particularly active in helping bridge Africa’s infrastructure gap.
It was revealed that almost half of the total $19 billion of Chinese outbound loans poured into infrastructure projects in sub-Saharan Africa since 2014 were made in 2017.
Notably, Chinese lenders accounted for more than 40 percent of all infrastructure finance in sub-Saharan Africa in 2017 and its policy banks made more the four fifths of a lending by Development Finance Institutions (DFIs) in the region.
According to the analysis, Chinese commercial and policy bank lending for infrastructure projects in sub-Saharan Africa totalled $3.6 billion in 2014, $3.4 billion in 2015 and $3 billion in 2016, before spiking almost 300 percent to $8.8bn in 2017, driven by a series of large power projects across Africa.
This research came as leaders from the BRICS bloc – Brazil, Russia, India, China and South Africa met last week in Johannesburg for their annual summit.
According to a statement made available to Business Post, data was drawn exclusively from fully financed projects and excludes recent announcements of government funding commitments.
Speaking from the BRICS Energy event, which preceded the BRICS Summit, Kieran Whyte, Head of Energy, Mining and Infrastructure at Baker McKenzie in Johannesburg, said the rising impact of Chinese policy lending in Africa is increasingly visible.
“Chinese president Xi Jinping’s recent tour of African countries ahead of the Summit is proof of the increasing interdependence of the maturing but still fast growing Chinese economy and developing economies in Africa,” says Whyte.
“This is much more sophisticated outbound lending than the cliché about China investing in African minerals and rail to get commodities to China to feed manufacturing – the data clearly shows Chinese lending predominantly shifting towards African power projects,” he says.
“All countries need power generation, transmission and distribution assets which are reliable and meet demand; without this, wider development is a distant dream,” said Jon Whiteaker, editor of IJGlobal. “It is little surprise then that the power sector has grown to be by far the biggest recipient of Chinese policy lending in Africa. The US government may have recently jump-started its Power Africa programme, but it has increasingly been Chinese lenders which African and Middle Eastern countries have turned to get power projects financed.”
Globally, infrastructure deals featuring significant Chinese financing have risen more than threefold since 2012, driven among other things by China’s Belt & Road Initiative (BRI), going from 31 deals in 2012 to 105 deals in 2017. The BRI is a world scale Chinese development strategy that combines the creation of a 21st Century Maritime Silk Road and a Silk Road Economic Belt.
Whyte explains that this shift towards power is because China is comfortable operating in the energy sector and is aware power acts as a catalyst for the growth of other sectors in Africa, providing foundations for long term economic development.
“It’s also true that in terms of infrastructure development, many of China’s construction companies are world leaders in the power sector and Chinese goods and equipment are used in the construction process, which further benefits China’s economy,” he says.
Whyte adds that as one of South Africa’s largest trading partners, China plays an important role in infrastructure investment in that country. At the BRICS Summit Energy event this week, China pledged to invest USD 14.7bn in South Africa and to grant loans to state owned enterprises Eskom and Transnet.
Against the background of a geopolitical shift in trade relations, China has noted that it is looking to work with African countries in a participative and inclusive way.
Another recent report by Baker McKenzie and Silk Road Associates; Belt & Road: Opportunities & Risks – the prospects and perils of building China’s New Silk Road details how key opportunities in Africa with regards to the Belt & Road Initiative will be transactions related to major projects in the power and infrastructure sector and related financing.
Notable projects
Recent examples of large power deals in Africa where at least 50% of the finance was provided by Chinese lenders include Mambila Hydropower Plant (Nigeria) valued at $5.8 billion; Lamu Coal-Fired Power Plant (Kenya), a $2 billion PPP; Medupi Coal-Fired Power Plant (South Africa), worth $1.5 billion, and Kafue Gorge Lower Hydro Power Plant (Zambia) in 2015, worth $1.5 billion.
While European DFIs increasingly focus only on lending to renewable energy projects in Africa, coal is still an essential part of energy baseload and vital in a region where grid capacity is almost non-existent and almost two-thirds still live without ready access to power.
Countries
The African countries seeing most Chinese lending are Kenya and Nigeria, which alone have swallowed up almost 40 percent of the $19 billion of lending to projects in sub-Saharan Africa since 2014.
However, Chinese banks have been active lenders to infrastructure projects in 19 different countries in the past four years. Chinese policy lending is also set to widen, with Senegal recently becoming the first West African country to sign up to supporting the BRI.
Infrastructure projects in Ethiopia have received $1.8 billion since 2014, Kenyan projects $4.8 billion, Mozambique infra deals $1.6 billion and Nigerian projects $5 billion from Chinese lenders. South African infrastructure projects have received $2.2 billion from Chinese lenders since 2014, Zambia has received $1.5 billion and Zimbabwe has seen $1.3 billion in loans from Chinese policy lenders since 2014.
Sectors
The power sector in sub-Saharan Africa has received $17.5 billion in loans from Chinese lenders since 2014 ($8.8 billion of this amount was in 2017). The oil and gas sector has received $3.2 billion ($1.7 billion in 2017) and the transport sector in sub-Saharan Africa received $5.5 billion from Chinese lenders since 2014 (with $500 million received in 2017).
Whyte notes that for investors in Africa, “A big attraction of China’s Belt & Road Initiative for both African governments and project sponsors is that it assists the speed of project implementation. Project stakeholders advise that the whole process is a lot quicker than other options. Chinese policy lenders assist in providing liquidity and contribute to the speed of implementation of projects in Africa, which is necessary for Africa to participate in the roll-out of the fourth industrial revolution and the global energy transition,” he adds.
By Adedapo Adesanya
Brent futures climbed $1.06 or 1.3 per cent to $83.55 a barrel on Friday amid ongoing uncertainty about the negotiations in progress that determine control of and reopening of the key shipping artery of the Strait of Hormuz.
In the same vein, the US West Texas Intermediate (WTI) futures finished at $78.18 a barrel after it chalked up 89 cents or 1.15 per cent.
Iran is reviewing a bill to ban American and Israeli vessels from the Strait of Hormuz, through which roughly a fifth of the world’s oil and liquefied natural gas normally passed before the war began at the end of February.
Market analysts noted that while this week’s signals on a potential deal have sent a roller-coaster ride in market sentiment, the market remains in the dark as to what needs to happen for the agreement to be clinched.
Part of the question being asked is whether the Iran-Oman agreement would allow a US-flagged vessel to transit the Strait of Hormuz or allow a vessel headed for an American port to go through.
Shipping through Hormuz remains heavily constrained as Middle East oil production is still well below pre-war levels while attacks on commercial vessels have continued even as negotiators discuss possible arrangements for the waterway.
Some also said that this week’s developments have signalled that hostilities between Iran and the US are not yet over. This is because the proposed deal is not easily workable because of sanctions and restrictive insurance clauses on any payments by the US government.
Iran is seeking fees of between 5 per cent and 7 per cent of the price of cargoes from ships using the strait, while Oman is discussing fees of about 3 per cent, while the Donald Trump administration wants no fees at all.
Citi has raised its third-quarter Brent crude forecast to $80 per barrel from $75 as the war drags on and repeated attempts at a deal fail to restore normal oil flows through the strait.
The bank still expects the conflict to be resolved, but the five-month war has lasted longer than Citi anticipated and kept more geopolitical risk in crude prices. Citi left its fourth-quarter Brent forecast unchanged at $70 per barrel and still sees the benchmark averaging $65 in 2027.
By Adedapo Adesanya
Nigerian businessman and chief executive of Dangote Industries Limited, Mr Aliko Dangote, has unveiled plans for a new phase of investments and acquisitions as the conglomerate pushes towards its target of generating $100 billion in annual revenue by 2030.
Mr Dangote disclosed this while receiving a delegation of senior executives from global investment banking and financial services firm Goldman Sachs, led by co-chief executive of Goldman Sachs International and Global Co-Head of Investment Banking, Mr Anthony Gutman, during a tour of the Dangote Petroleum Refinery & Petrochemicals and Dangote Fertiliser Limited complex in Lagos.
Speaking after the visit, Mr Dangote said the refinery and associated industrial facilities underscore the transformative impact of long-term investment in Africa, stressing that the group’s ambitions extend beyond its current strategic plan.
“No matter how we try to explain what we have built, you cannot fully appreciate it until you see it. But this is only the beginning. We need to look beyond 2030.
“The next phase of our journey will include new investments and acquisitions as we continue to scale the business,” he said.
He added that detailed internal modelling had reinforced management’s confidence that the Group’s target of generating $100 billion in annual revenue by 2030 was achievable.
According to him, the projections were based on conservative assumptions and had strengthened the company’s conviction to pursue an even more ambitious long-term growth strategy.
Mr Dangote also revealed that the strong participation of employees in the refinery’s recent private placement reflected growing internal confidence in the company’s long-term strategy and future prospects.
The Goldman Sachs delegation, after an extensive tour of the 700,000 barrels-per-day refinery, described the project as an extraordinary achievement.
“It is extraordinary what Mr Dangote and the whole organisation have achieved. The ambition, the scale of the project, the quality of the project and the culture of the people is very impressive,” the executives said.
According to a statement issued by Dangote Group on Friday, the delegation was led by Mr Anthony Gutman and included Mr Adib N. Zouein, Co-Head of EMEA Emerging Markets Regional Sales and Head of the Middle East and North Africa region for Global Banking & Markets Public; Mr Ryad Yousuf, Global Head of FICC Sales Strats and Structuring; and Mr Jimi Adesanya, Head of Sub-Saharan Africa Sales (excluding South Africa).
The visitors were received by Dangote; Group Vice President, Oil & Gas, Mr Devakumar Edwin; Managing Director and Chief Executive Officer of Dangote Petroleum Refinery & Petrochemicals, Mr David Bird; Group Executive Director, Oil & Gas, Ms Fatima Aliko Dangote; Chief of Staff to the President/CEO, Ibrahim Dikko; Group Chief Branding and Communication Officer, Mr Anthony Chiejina; Group Chief Economist, Mr Hassan Mahmud; Group Chief Strategy Officer, Mr Aliyu Suleiman; and Head of Administration, Dangote Petroleum Refinery & Petrochemicals, Mr Musa Bala, among other senior executives.
By Adedapo Adesanya
The Senate Public Accounts Committee has heard that Nigeria spent N1.16 trillion on fuel subsidy in 2021, while N1.20 trillion was deducted from federation crude oil sales proceeds during the same period.
The disclosure came from the Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Mr Mohammed Bello Shehu, during the committee’s ongoing investigation into the 2021 to 2023 Nigeria Extractive Industries Transparency Initiative (NEITI) audit reports on the oil and gas sector.
According to the commission, crude and petroleum product losses cost N16.2 billion, pipeline repairs accounted for N22.05 billion, while strategic stock holding attracted N6.75 billion.
The revelations come against the backdrop of Nigeria’s long-running fuel subsidy regime, which successive governments maintained to keep the pump price of petrol artificially low despite mounting fiscal pressures.
Over the years, subsidy payments consumed trillions of Naira, significantly reducing revenues available to the three tiers of government and contributing to widening budget deficits.
The issue reached a turning point in May 2023 when President Bola Tinubu announced the removal of fuel subsidy during his inauguration speech, declaring that “fuel subsidy is gone.” The decision followed years of concerns over the rising cost of the programme, allegations of fraud, and repeated recommendations by fiscal authorities and international financial institutions that the subsidy had become unsustainable.
The removal triggered a sharp increase in the pump price of Premium Motor Spirit (petrol), leading to higher transportation and living costs across the country. In response, the federal government introduced a series of palliative measures, including cash transfers, support for mass transit, and wage-related interventions, while arguing that savings from the subsidy would be redirected to infrastructure, education, healthcare, and other critical sectors of the economy.
The commission also argued that the current method of calculating the 13 per cent derivation fund undermines the constitutional intention of the policy.
Meanwhile, the committee stood down the Niger Delta Development Commission’s presentation until next Wednesday to allow lawmakers review its submission.
The committee also expressed displeasure over the absence of the Auditor-General of the Federation, warning that he must appear before lawmakers next Tuesday or face compulsory appearance through the constitutional powers of the National Assembly.
