Nigeria Secures Loan From China for Massive Railway Project

Filed under: Business |
high speed rail 300x163 photo

Nigeria is spending billions on a rail network

Nigeria’s Federal Capital Territory,  Abuja and its surrounding areas will soon be benefiting from a new railway system, thanks to a loan agreement signed between the Nigerian government and the Chinese Export-Import bank (Exim), the ccountry’s Finance Ministry announced yesterday.  The amount of the loan is to be $600 million; terms agreed at 2.5 percent over a 20 year period with a seven year grace period.

Traffic congestion and the current dangerous state of roads in Nigeria, particularly in the capital Abuja, have caused much complaint and criticism in the oil-rich West African country.  The poor road infrastructure is also a hindrance to traders and producers, as much it is a peril to local citizens.

As such, the new plan envisages a wide-spread railway network linking Abuja to multiple commuter locations, and also the international airport terminal.  $500 million of the agreed loan amount is expected to be spent on the construction of the new railway; which is to be carried out by the Chinese state-owned China Civil Engineering Construction Corp.  While the project was supposed to be completed by 2015, the works are already suspected to be running behind schedule, as such it remains to be seen whether sufficient progress will be made to achieve the ambitious deadline.

Hopes are high for the impact the new infrastructure will have, with the Finance Ministry highlighting the benefit it will have on the lower echelons of society in terms of promoting work.  Certainly, the railway will provide those living in more rural and commuting-distance locations with better access to the capital city and the work opportunities to be found there.  Finance Minister Ngozi Okonjo-Iweala told attendees at the signing ceremony in Beijing that: “The light rail in Abuja will improve transportation for all residents, especially the working class”.

The remaining $100 million of the loan money will go towards Nigeria’s Galaxy Backbone project.  The Galaxy Backbone project is an initiative of the Federal Government, which aims to promote digital access and inclusion throughout the territory of Nigeria and beyond.  The project was incorporated as a public enterprise in 2006, and now the company provides a number of services focused on overcoming regional infrastructure issues including digital infrastructure – with the overall aim of creating and operating a unified Information and Communication Technology infrastructure platform.

African countries have seen a wave of loans being granted from China in the past years, in particular loans to resource rich countries.  China has displayed a particular interest in creating relations with oil-rich nations, and countries boasting high-stocks of materials such as uranium and copper.  Being the world’s second largest economy, and the nation with the highest population statistics, China is in dire need of friendly economic ties with countries capable of providing a stable source of natural resources.

Thus it has increasingly become a trend for China to grant cheap, below market rate loans to such states, in order to finance much-needed infrastructure projects on the African continent.  Not only does this set-up bolster African resource trade with China, but has also served to boost the Chinese construction industry, as more often than not Chinese contractors are chosen to implement the infrastructure projects.  Hence while Africa is gaining vital new infrastructure, China is also benefiting from a double set of incentives.