China’s USD 40 Billion Investment in Nigeria
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By Alvin Cheng-Hin Lim

China’s USD 40 Billion Investment in Nigeria

Jan. 18, 2017  |     |  0 comments


On January 11, 2017, during his visit to Nigeria, Chinese foreign minister Wang Yi announced that China will be investing an additional USD 40 billion in Nigeria, on top of China’s USD 45 billion in existing investments in the country. This USD 40 billion investment package is also on top of a USD 60 billion aid package that China had pledged to its African partners, including Nigeria, at the last Forum for China-Africa Cooperation Summit in Johannesburg. Wang Yi’s announcement followed Nigeria’s official acceptance of the One China policy (Ogunsina, 2017).


Following the meeting between Wang Yi and Nigerian foreign affairs minister Geoffrey Onyeama, Nigeria ordered Taiwan to close its trade mission — which also serves as its unofficial embassy — in the capital Abuja and relocate it to a smaller venue “with a skeleton staff” in Lagos. At a press conference, Onyeama confirmed that this order was to “highlight Nigeria’s commitment to its ties with China and the one-China principle” (Chung and Huang, 2017). As he explained:


“Taiwan will stop enjoying any privileges because it is not a country that is recognized under international law and under the position we have taken internationally, we recognize the People’s Republic of China, the One-China Policy” (“Nigeria closes,” 2017).


Experts note that this is the latest move in China’s campaign to extend Taiwan’s diplomatic isolation that escalated after last year’s election of pro-independence leader Tsai Ing-wen as Taiwanese president. In Africa, following China’s successful moves last year to flip Gambia and São Tomé and Príncipe from diplomatic recognition of Taiwan, Kuo (2017) notes that Taiwan is now left with “only two diplomatic partners on the continent, Swaziland and Burkina Faso, and 21 in the world.”


Following the order to relocate its trade mission from Abuja to Lagos, the Taiwanese government has complained that since Nigeria had not granted Taiwan diplomatic recognition to begin with, “what Nigeria did in collaborating with mainland China by saying that it is no longer recognising Taiwan as a country and was ending formal ties with us … is unreasonable” (Chung and Huang, 2017). Kuo (2017) however points out that this action shows that Beijing “may no longer be content to just block diplomatic recognition of Taiwan,” and now “wants to limit Taiwan’s international space, even through unofficial channels like trade missions.”


For Nigeria, the decision to back China over Taiwan was an easy one, given their relative importance to the economy. As Kaletovic (2017) notes, “Taiwan-Nigeria trade was just $800 million through all of 2016 — a mere fraction of the $6.46 billion in trade with China for first six months of the same year.” In addition, Nigeria is currently “in desperate need of investment due to falling oil prices and lagging production,” and in fact “has been asking for China’s financial support in the wake of the oil price crash and Niger Delta militancy that has further crippled the oil industry, bringing Nigeria close to a full-year recession (the first since 1991).” Nigerian President Muhammadu Buhari’s state visit to China last year was geared towards achieving greater Sino-Nigerian economic cooperation. As the Nigerian foreign minister elaborated:


“We know that in the area of infrastructure, which is one of the priority areas, and the diversification programme of this government from oil, the Chinese government has been showing a lot of cooperation with us in this area, especially in the area of transportation” (Ogunsina, 2017).



“Taiwan-Nigeria trade was just $800 million through all of 2016 — a mere fraction of the $6.46 billion in trade with China for first six months of the same year.”


Greater foreign direct investment from countries like China in the construction and development of infrastructure will be essential for Nigeria’s future growth as the country is currently estimated to lose “at least 2 percent of gross domestic product growth annually due to a deficit in infrastructure, mainly electricity” (Scott, Shi, and Ibukun, 2017).


While China’s dramatic increase in economic cooperation with Nigeria should be seen in the context of its complex relations with Taiwan as well as the larger context of China’s long history of engagement with Africa, it should also be seen as a precautionary measure to shore up its international support ahead of Donald Trump’s inauguration as US President on January 20. This is especially given that China’s USD 40 billion investment package was pledged at a period of drastically falling foreign exchange reserves and tightening capital controls in Beijing (Lim, 2015; Lockett, Hancock, and Clover, 2016).


Even before his inauguration, Trump has stated that his administration will “only commit to the One China policy” on the basis of China’s progress on “trade and currency issues.” For China, the One China policy is an issue of sovereignty and hence is non-negotiable (Marois and Lin, 2017). China’s coming clash with the Trump administration does not end with the Taiwan issue. Rex Tillerson, Trump’s nominee for Secretary of State, has suggested that the US should adopt a “much firmer stance on China in the South China Sea,” including blocking China’s access to its man-made islands in the disputed waters (Hunt, 2017). In addition, Trump’s trade team has been signaling a coming trade war with China (Lim, 2017).


The Nigerian government too has to prepare for the incoming Trump administration, though in this case what Nigeria and the other countries in sub-Saharan Africa should prepare for is a drastic withdrawal of US development aid, which has amounted to USD 8 billion per year under the administrations of George W. Bush and Barack Obama. This includes US military support for counterterrorism efforts in Africa (Cooper, 2017). As DuVall (2017) observes of a recent set of questions sent to the State Department by Trump’s transition team:


“Beyond humanitarian and business questions, the Trump memo also asks about potential terrorist concerns, including whether fighting Islamic extremists in Somalia and elsewhere is necessary, given that the threat from those groups is generally a regional concern, not an international one. Specifically, the memo asks why the United States is bothering to fight the Boko Haram insurgency in Nigeria, why the schoolgirls kidnapped by that group have not been rescued and why, after years of supporting efforts to defeat Somali terrorist group al-Shabaab, the goal has not been accomplished” (DuVall, 2017).


In the case of Nigeria, this coming retrenchment of US support will put increased strain on the government, as its national revenues from energy sales have been significantly impacted by the global collapse in oil prices. Apart from its normal expenses, the Nigerian government also has to deal with a looming humanitarian crisis in its northeastern states, where the Boko Haram insurgency has created conditions for a massive famine; deadly sectarian violence in the north-central states between nomadic herdsmen and farming settlements; and militant insurgents in the oil producing Niger Delta (Gaffey, 2016; Muhammad, 2017; “Nigeria grapples,” 2016). Increased Chinese support during this period of US retrenchment will likely accelerate the international realignment towards Beijing, but this will be contingent on Beijing’s ability to fulfill its generous pledges, especially when its own resources will likely be stretched thin by the coming conflicts with the Trump administration.


References


Chung, L., and Huang, K. (2017, January 12). Taiwan “feeling the squeeze” as Nigeria tells island to close trade office. South China Morning Post. Retrieved from http://www.scmp.com/news/china/policies-politics/article/2061589/taiwan-accuses-nigeria-collaborating-beijing-after-it


Cooper, H. (2017, January 13). Trump Tteam’s queries about Africa point to skepticism about aid. New York Times. Retrieved from https://www.nytimes.com/2017/01/13/world/africa/africa-donald-trump.html


DuVall, E. (2017, January 14). Trump Africa memo implies skepticism about U.S. policy, spending. UPI. Retrieved from http://www.upi.com/Top_News/World-News/2017/01/14/Trump-Africa-memo-implies-skepticism-about-US-policy-spending/2611484421449/


Gaffey, C. (2016, April 20). Nigeria’s herdsmen and farmers are locked in a deadly, forgotten conflict. Newsweek. Retrieved from http://europe.newsweek.com/nigerias-herdsmen-and-farmers-are-locked-deadly-underreported-conflict-450293


Hunt, K. (2017, January 13). Tillerson sets stage for showdown with Beijing over South China Sea. CNN. Retrieved from http://edition.cnn.com/2017/01/12/politics/china-tillerson/index.html


Kaletovic, D. (2017, January 13). As oil crunch bites, Nigeria chooses China’s $40B over Taiwan. OilPrice.com. Retrieved from http://oilprice.com/Latest-Energy-News/World-News/As-Oil-Crunch-Bites-Nigeria-Chooses-Chinas-40B-Over-Taiwan.html


Kuo, L. (2017, January 12). After getting a $40 billion pledge from China, Nigeria ordered Taiwan’s unofficial embassy to move out. Quartz. Retrieved from https://qz.com/883767/after-a-visit-from-chinas-foreign-minister-nigeria-has-ordered-taiwans-unofficial-embassy-to-move-out-of-its-capital/


Lim, A. C. H. (2015, March 23). Africa and China’s 21st Century Maritime Silk Road. The Asia-Pacific Journal. Retrieved from http://apjjf.org/2015/13/10/Alvin-Cheng-Hin-Lim/4296.html


Lim, A. C. H. (2017, January 4). The coming trade war between the US and China. IPP Review. Retrieved from http://ippreview.com/index.php/Home/Blog/single/id/321.html


Lockett, H., Hancock, T., and Clover, C. (2016, December 7). China’s forex reserves drop $70bn as outflow accelerates. Financial Times. Retrieved from https://www.ft.com/content/f5243188-bc55-11e6-8b45-b8b81dd5d080


Marois, M. B. and Lin, L. (2017, January 15). One-China policy can’t be bargaining chip, Beijing warns Trump. Bloomberg. Retrieved from https://www.bloomberg.com/politics/articles/2017-01-14/one-china-policy-can-t-be-bargaining-chip-beijing-warns-trump


Muhammad, B. (2017, January 14). Niger Delta: Nigeria’s oil-rich powder keg. Deutsche Welle. Retrieved from http://www.dw.com/en/niger-delta-nigerias-oil-rich-powder-keg/a-37134909


Nigeria closes Taiwan office in Abuja. (2017, January 12). Xinhua. Retrieved from http://news.xinhuanet.com/english/2017-01/12/c_135975523.htm


Nigeria grapples with starvation amid Boko Haram battle. (2016, December 7). Al Jazeera. Retrieved from http://www.aljazeera.com/news/2016/12/nigeria-grapples-starvation-boko-haram-battle-161207050536444.html


Ogunsina, B. (2017, January 12). As Nigeria, China sign One China agreement: China To invest additional $40bn in Nigeria. Leadership. Retrieved from https://leadership.ng/news/cover-stories/566882/as-nigeria-china-sign-one-china-agreement-china-to-invest-additional-40bn-in-nigeria


Scott, B., Shi, T., and Ibukun, Y. (2017, January 12). Nigeria snubs Taiwan as China pledges $40 billion investment. Bloomberg. Retrieved from https://www.bloomberg.com/politics/articles/2017-01-12/nigeria-closes-taiwan-office-in-capital-abuja-china-says

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