Last week, Nigeria’s oil minister was in Beijing discussing contracts worth tens of billions of dollars. The hope is that an infusion of Chinese money will revive Nigeria’s hemorrhaging economy. The FT reports:
Nigeria says it has signed provisional agreements worth $80bn with Chinese companies to upgrade its oil and gas infrastructure, in a sign of Beijing’s willingness to bolster Africa’s largest economy as it grapples with its worst economic crisis in decades.
The memorandums of understanding cover all aspects of Nigeria’s energy sector, from rehabilitating decaying refineries and building new pipelines to developing the neglected gas and power sectors, the country’s state oil company NNPC said in a statement. […]
However, it was not immediately clear how the deals would be financed and industry observers are waiting to see if the agreements are implemented.
As we’ve noted before, Nigeria needs investments in its energy infrastructure now more than ever; elusive “Avenger” characters have been attacking Nigeria’s pipelines, doing so much damage that production has now fallen behind Angola’s operations. Low global oil prices were already hitting Nigeria’s pocketbook; these attacks are making things worse. Can China save the day?
Perhaps, but there are good reasons to believe that this fairytale Chinese investment is simply too good to be true. In order to secure the loans (China’s Africa aid rarely comes without strings attached), Nigerian President Buhari will have to rein in a corrupt and often incompetent bureaucracy.
Meanwhile, on the Chinese side, there will be a lot of pressure to think twice before making such a large investment. Chinese debt is rising steadily and the Middle Kingdom may not have the resources to continue pursuing the gargantuan infrastructure-for-resources deals that have been such a big driver of emerging market success stories over the past two decades. Moreover, the prospect of a looming Venezuelan default on Chinese loans is causing some rethinking in Party policy circles. Bloomberg reports:
“What we learned from the Venezuelan case is that China should be more cautious and sophisticated about its overseas lending and investment,” said Xue Li, director of international strategy at the state-run Chinese Academy of Social Sciences’s Institute of World Economics and Politics. “Compared to Latin America, Africa holds greater strategic significance for China and there’d be more at stake if things go wrong.”
Even if China doesn’t pull back, emerging markets have a tough road ahead. Oil and copper prices have come back up off their lows, but they’re still depressed. Slow growth in developed markets means there isn’t the same appetite for raw materials as there had been (or, at least, as people thought there would be). The result is likely to be that African governments will have fewer sources of revenue for government expenditures and infrastructure projects.