CENTRE FOR TRADE & DEVELOPMENT INITIATIVES 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

(December, 2008)

NIGERIA-CHINA TRADE AND ECONOMIC RELATIONS: Executive Summary  

 

By E. Olawale Ogunkola, Tel: 234-802 351 8576 Email: waleogunkola@yahoo.com Adeolu Adewuyi, Olugboyega Oyeranti, and Abiodun Bankole c/o Trade Policy Research and Training Programme (TPRTP), Department of Economics, University of Ibadan, Ibadan, NIGERIA      

 

 

Contents Background.............................................................................................................................3 

Nigeria‐China: A comparative View........................................................................................5 

Transmission mechanism .......................................................................................................8 

Trade Channel.........................................................................................................................9 

Investment Channel..............................................................................................................12 

Aid Relations.........................................................................................................................17 

Main Findings and Policy Implications .................................................................................18 

 

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Background

Nigeria’s relation with China has blossomed in recent years. This relation governed by agreements, protocols and treaties spanned a spectrum of areas including political, trade, investment, aid, technical, scientific, cultural, education, health and military. The implementation of these agreements appeared to be lopsided as China seems to be on the fast-track while Nigeria appears to be lagging behind.

Within the China-Africa relation, Nigeria stands to benefit in many ways from the eight measures proposed at the Beijing Summit of Forum on China-Africa Co-operation (FOCAC)1. The same year, 2006, China published its Africa Policy (Ministry of Foreign Affairs of the Peoples Republic of China (PRC) 2006), which re-affirmed older principles of co-operation, but added trade and investment as the basis for engagement.

The recent developments in China-Nigeria relation present Nigeria with both opportunities and challenges. Opportunities to learn from China’s growth, development and poverty-reduction strategy and maximising the spill-over from China’s growth in terms of supply of required inputs and services are important for Nigeria’s development strategy. This is important for Nigeria given the size of Chinese market and its growth trajectory in recent time. The relation with China also provides the country with alternative markets for sourcing inputs for the industrial sector and finished products for consumption purposes. Hence it has potential of meeting Nigeria’s quest for the much needed diversification of markets for Nigeria’s merchandise. In this vein it is important to ensure that appropriate responses to the opportunities offered by the relation are realised.

The challenges posed by the relation stem from the diversity, the speed of implementation of the elements of the relation and the structure of the Nigerian economy. The relation is between a relatively advanced country with strong established institutions and a country with a weak institution. Coordinating the various elements of the relation with a view to ensuring that binding constraints to Nigeria’s development are addressed is very important.

Thus, a careful cost-benefit analysis of the relation is very important as benefits and costs are likely to be scattered over different areas of interaction. This is particularly so given the special nature of China’s relation in terms of financial and technical aid.

China’s approach to financing has also been identified as another unique factor in the explanation of recent developments in China-Nigeria relations. China’s official financial support to Africa generally differentiates between social services and business development projects with the former attracting grants and quasi-grants and the latter attracting trade credit and commercial loans and in most cases repayment is linked to the output of the projects (especially crude petroleum). Thus China’s official assistance is characterised by:

• Aligning debt financing with commercial projects

• Using aid to leverage financing from non-government sources, and

                                                                 1 FOCAC was inaugurated in 2000. The eight measures proposed by China at Beijing 2006 summit of the Forum are for the African countries that have established diplomatic ties with China: (i) To increase the aid provided to Africa by doubling China’s assistance by 2009; (ii) to provide $3 billion of preferential loans and $2 billion of preferential export buyer’s credit to Africa in the next three years; (iii) to establish China-Africa Fund with the total amount gradually reaching $5 billion; (iv) to assist in the building of African Union Conference Centre; (v) to cancel all interest-free government loans which Africa heavily-indebted poor countries (HIPCs) and least developed countries (LDCs) having diplomatic relations with China have failed to repay in due time by the end of 2005; (vi) to further open the market to Africa and grant zero-tariff treatment to more commodities from African LDCs having diplomatic relations with China by expanding the coverage from 190 tariff lines to over 440; (vii) to establish 3 to 5 overseas trade and economic cooperation zones in African countries in the next 3 years; and (viii) to strengthen cooperation in areas such as human resource development, agriculture, medical care, social development and education.

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• Focusing on capital expenditure and development of productive sectors.

And these features help explain the changing financing unit and growing Chinese financial

flows to Africa. In addition to the recent dimension, scope and nature of China-Nigeria relations, China seems to be driving the relations and hence there is the need to examine both the short and long-run implications of the recent trend with a view to ensuring maximum net positive gains for Nigeria.

The main objective of this study is to undertake a detailed assessment of the key features and patterns of the past, current and future evolution of the economic relations between China and Nigeria with a view to establishing an adequate understanding of the aggregate and sector-specific impact of the relationships, the associated opportunities and challenges for the development prospect of Nigeria, and putting in place an appropriate overall and sector-specific policy measures. The specific issues/objectives are to:

1. Identify and analyse key features, patterns and developments in the main channels through which the impacts of the growth of China are transmitted to Nigeria;

2. Critically analyse the current trade and investment (including pattern and magnitude)

relationship between China and Africa, especially Nigeria;

3. Identify factors explaining the surge in Nigeria’s trade and investment relationship with China;

4. Identify potential gainers and losers (producers, consumers and sectoral impact) from increased Nigeria’s relations with China;

5. Critically assess in detail China’s trade and investment policy and the role and place of

African countries with special emphasis on Nigeria;

6. Discuss scenarios in terms of strategic relationship and expected outcomes: either continue with the current trend or what should be the modalities for future engagement;

7. Examine past bi-lateral trade and investment relationships between Nigeria and China with

emphasis on policy lessons for Nigeria;

8. Identify sector-specific opportunities and challenges faced by Nigeria due to the effects of growth and economic relationship with China;

9. Examine possible goals and objectives for Nigeria in the establishment and enhancing a

strategic relationship with China;

10. Map-out strategy for the next steps to carry the agenda forward, and

11. Recommend policy options which Nigeria could take to optimally benefit from the strategic relationship with China.

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Nigeria-China: A comparative View

A comparative view of the two economies reveals that the relationship is between unequal equal partners. China outperforms Nigeria on a number of economic and social indicators:

• Size of the two economies: From an economy with a GDP of about $300 billion in 1998, with

a sustained near double-digit growth, the size of the Chinese economy was about $2.23 trillion in 2005, exceeding significantly that of Nigeria of about 99 billion (Table 1).

• Per capita Gross National Income (GNI) of $2360 in 2007 in China more than double that of Nigeria of $930 in 2007 (figure 1)

• China’s population increased from about 1.1 billion in 1988 to about 1.3 billion people in 2005. Nigeria’s population also increased from about 85 million to t 131 million during the same period;

• China’s population growth rate is below the rate for Nigeria. China’s annual population growth

rate fell from 1.36% in 1988, to about 0.64% in 2005. During the same period, Nigeria’s annual population growth fell from 2.9% about 2.17% in 2005.

Table 1: China and Nigeria Economic Indicators, 1988-2005.

GDP, billion $

GDP growth (annual %)

GDP per capita (constant 2000 US$)

1988 307.2 11.3 373.5 1990 354.6 3.8 391.7 1995 728.0 10.9 658.0 2000 1198.5 8.4 949.2 2005 2234.3 10.2 1448.8

Chi

na

2007 3280.1 11.9 n.a. 1988 22.9 9.9 352.8 1990 28.5 8.2 386.3 1995 28.1 2.5 380.5 2000 46.0 5.4 391.0 2005 99.0 6.9 459.3 N

iger

ia

2007 165.7 6.3 n.a. Source: World Development Indicators (2008)

Notwithstanding its huge population, China has been able to increase its per capita income tremendously; from about $373 in 1988 to about $1449 in 2005. However, from almost a similar figure in 1998 about $353 in 1988, Nigeria’s per capita income stood at about $459 in 2005 (see Table 1 and Figure 1). While average real GDP growth in China has been higher than in Nigeria, opposite is the case with the population growth rate. Figure 1

The capita income observed in the figure summarises various performance characteristics. At the very broad level it can be viewed as the interactions between income of the Chinese national and their population figures. The observed trends in both income and population reflect underlying policies. On the population, Chinese constituted about 20% of the world population and as at 2007, the population figure stood at 1.3 billion. Two important lessons for Nigeria are: First, the high level of quality of human capital which is deep-rooted in

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Chinese culture2. This is advanced by the strong work ethic promoted by appropriate incentive structure with almost no room for rent-seeking behaviour and zero tolerance for corruption. These factors made Chinese workers dedicated to their various callings. Thus, the strong culture of working round the clock of the Chinese is unprecedented.

Second, the growth rate of Chinese population has been brought under control.

Notwithstanding the large population, the Chinese population growth rate has decreased from a high rate of about 2.8% in 1970 to about 0.6% in 2005. The population growth rate in Nigeria is still high; however from an upward trend in the 1970s through early 1990s, the downward trend in the population growth in Nigeria is still sluggish.

Table 2: Trends in Value Added: China and Nigeria

Nigeria China Agriculture Industry

(Manufacturing)Services Agriculture Industry

(Manufacturing) Services

1970 41.3 13.8 (3.7) 45.0 35.2 40.5 (33.7) 24.3 1975 31.7 28.5 (5.0) 39.8 32.4 45.7 (38.1) 21.9 1980 20.6 45.6 (8.4) 33.8 30.1 48.5 (40.5) 21.4 1985 37.3 29.2 (8.7) 33.5 28.4 43.1 (34.9) 28.5 1990 32.7 41.4 (5.5) 25.9 27.0 41.6 (32.9) 31.3 1995 31.6 46.7 (5.4) 21.7 19.8 47.2 (33.7) 33.1 2000 26.3 52.7 (3.7) 21.0 14.8 45.9 (32.1) 39.3 2005 23.3 56.8 (n.a) 19.9 12.6 47.5 (33.5) 39.9 2007 32.5 39.4 (n.a) 28.0 11.7 48.1 (n.a.) 40.2

Source: WDI (2007)

The income side of the trend in the per capita income of Chinese was as a result of different developments in the economic activities ranging from significant changes in the structure of the economy to gross fixed capital formation to inflow of foreign direct investment. In terms of the changes in the structure of economy, table 2.2 shows that China was able to reduce the contribution of agriculture to the gross domestic product from about 35.2% tin 1975 to about 12.6% in 2005. This should not be construed to imply reduction in the production value of the sector. Indeed, agricultural value added increased from about $13.7 billion in 1960 to about $281.5 billion in 2005. The productivity of the sector increased tremendously, to the extent that it was able to release some hands for other sectors of the economy. Similarly, the contribution of the sector to the Nigerian economy declined gradually to about 23% in 2005 from about 41% in 1970. The value, however, increased from about $2.5 billion in 1960 to about $22.7 billion in 2005: A 9-fold increase in Nigeria compared with over 20-fold increase in China!

The phenomena contribution of the industrial sector to Nigeria’s GDP from about 13.8% in

1970 to about 57% in 2005 beclouded the contribution of manufacturing sector. The table shows that the increase in the contribution of the manufacturing sector to the GDP from about 3.7% in 1970 to about 8.7% in 1985 was not sustained as the contribution of the manufacturing sub-sector declined gradually to 3.7% of the GDP in 2000. The observed share of manufacturing sector in the GDP confirmed the domination of extractive industry especially oil and gas and contrasts sharply with the structure of Chinese industrial sector. The value added of the Chinese industrial sector increased moderately from about 41% in 1970 to about 48% in 2005 but the manufacturing sub-sector was a significant proportion of the industrial contribution to GDP ranging between 32.2% and 41% of the GDP. A major problem with the structure of the industrial sector is the instability.

The non-manufacturing industrial sub-sector’s contribution to China’s GDP was between 10

and 15%, it ranged from 22% to about 55% in Nigeria and it was not stable (Figure 2). It captured the dominant size and trend in the international crude oil price.

                                                                 2 The Confucian ethic puts strong emphasis on education (Dollar, 2007) 

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Figure 2

The services sectors of the two economies also contrast sharply. In the case of Nigeria, the sector’s contribution to GDP decreased gradually from about 45% in 1970 to about 20% in 2005. In the case of China the contribution of the sector increased gradually from about 24% in 1970 to about 40% in 2005. Services are diverse ranging from services performed by artisan to high-tech services, hence there may be need to distinguish between the various services. Perhaps a common denomination is their dependence on efficient and reliable infrastructure and China has created an enviable enabling environment.

Other parameters have also confirmed the phenomenal

growth and structural transformation. The Gross Fixed Capital Formation (GFCF) as a share of GDP both for China and Nigeria compared favourably in 1970s ranging between one-fifth and one-quarter of the respective GDP. However, since 1985 the share of GFCF in Nigeria’s GDP started to decline and as at 2005, it was yet to pick up to its 1975 level! China has been able to maintain a ratio of about 29% of GDP through the 1970s and 19802. However by the late 1990s the share GFCF in china’s GDP was more than double that of Nigeria.

China’s growth and development is not accidental; it is a product of careful and well thought-out planning and dogged implementation and commitments to the development of the country. Most analysts pointed to the 1978 reform as a watershed in the history of Chinese economy (Dollar, 2007; Ravallion, 2008; Juma, 2007). The success of the reform was aided by:

• the supportive Chinese culture especially strong emphasis on education which predated the

modern day China. This clearly suggests that while education is an important factor, it is only necessary but not sufficient condition for development.

• More importantly, China’s economic growth was inclusive as it came with significant reduction in poverty. China has been able to reduce poverty at the rate of about 1.9% per year over 1981 to 2004, compared with 0.1% in the Sub-Sahara Africa (Ravallion, 2008). How about poverty reduction in Nigeria?

The elements of the reform clearly show that there are lessons for Nigeria and other developing countries in their quest for development. Dollar (2007) identified the following four elements:

• change the system i.e. altering the incentive and ownership structure by embracing private

enterprise. This is a radical departure from near total state ownership;

• creation of good climate conducive for foreign investment. “China welcomed direct investment that brought technology, management skills, and global production networks, and managed regime for direct investment in order to get the most capacity building for Chinese workers and firms”;

• cost recovery as a basis of infrastructure development and expansion. China’s borrowing to

finance rapid development and expansion of its infrastructural network was at the commercial interest rates and servicing the debt through appropriate prices for power, roads and telecommunications; and

• support to the agricultural sector and rural development. Indeed it was claimed that private

enterprise was first introduced into the sector before being embraced in other sectors. The reform and support to the sector include liberalisation of the agricultural markets, and strong agricultural research and extension services.

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The reform was comprehensive as it covered almost all the facets of the economy. The

process reflected a deep understanding of the workings of the Chinese economy as demonstrated in the sequencing of the various elements, programmes and activities. More importantly, it was based on a principle of “comparative-advantage-following” strategy. While it is recommended that development strategy in Nigeria should take a cue from the Chinese reform it is important to avoid some of the challenges facing the Chinese economy including environmental pollution and degradation, and widening inequality.

China experienced sustained high growth over a long period through policy reforms that

promote engagement with the global economy, macroeconomic stability, high rates of saving and investment, the market allocation of resources, and credible and capable governments.

China’s abundance of labour contributed to a decline in manufacturing prices. The prospect of

China’s sustaining the growth pattern is high about 600 million people (55% of labour force) in agriculture that are yet to be released into more productive employment in the urban areas.

• High saving rates (saved more than a third of its national income on an annual basis for the

past 25 years. • High and purposeful public investment in infrastructure using cost recovery measures. Indeed

China’s total infrastructure investment exceeded 7 percent of GDP on annual average. • The reform was pragmatic as Chinese reformers did not copy macroeconomic policies from

advanced economies. Comparative advantage following (CAF) strategy seems to guide the reform period.

• Macroeconomic stability also contributed to the sustainable growth. • Human capital development especially foreign education and knowledge transfer with bias on

the acquisition of knowledge about the workings of a market economy.

Transmission mechanism The channels through which the developments in China impact on other countries including

Nigeria may be diverse and they may vary according to the level of developments of different countries. The literature however tends to emphasis two main channels: (i) trade and (ii) investment. For a developing country like Nigeria there is the need to go beyond trade and investment as Nigeria’s engagement with China goes beyond these two channels to encompass others. Indeed the relationship according to China has been described as partnership and it appears to be all encompassing. There are many channels and the major ones have been identified as through:

• Trade in goods and services • Investment flows • Aid/technical assistance/debt

Analysis of these channels suggests that trade and investment are the main channels. These

channels complement each other in terms of China’s goal in the relationship with Nigeria. With its relative strong population and endowment of natural resources especially crude oil, Nigeria becomes a natural market for China’s exports and for imports in its quest for raw materials to sustain its remarkable growth.

The growing trade and investment relationship between China and Nigeria has been accompanied by a wave of economic migration to Africa by state-influenced construction teams and mining and oil workers, as well as private traders (Broadman, 2007). Immigration and emigration of Nigerians and Chinese have been limited by socio-cultural factors especially language barriers.

A framework for the analysis of the transmission channels through which the rise of China

impact on other countries as proposed by Kalipinsky (2008) involves two major types of impacts: complementary and competitive with each of them characterised by direct and indirect effects. This framework examines different elements of the main channels for their complementarity and/or

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competitiveness of Nigeria’s interest and development strategy with that of the China. Put differently, in what ways is the relations between Nigeria and China in consonance with Nigeria’s development goals and development aspiration? In situation where the answer indicates that the relations, in most cases, promote and/or support Nigeria’s growth and development strategies, then the relationship is considered to be complementary. It is also possible to find some elements of the relationship that are rather competing with Nigeria’s development goals and aspirations. It is expected that while some elements are complementary, others are competing and hence policy makers should be aiming at net positive complementary relationship. This, of course, requires coordination, analysis, and harmonisation of issues in the relationship. Table 3 presents a schematic representation of the framework. Table 3: A Framework for Assessing the Impact of China on Nigeria

Complementary Competitive Direct Indirect Direct Indirect

Trade Investment Aid/Technical Assistance

The direct component of complementary and competitive impacts can be adduced from bilateral relations. The indirect effects of both complementary and competitive impacts are not easily discernible as they may manifest through Nigeria or China’s relationship with other countries.

For each of the channels complementary and competitive impacts are examined at two levels:

direct and indirect. An evaluation of the relative magnitude of the impact as well as whether the impact is dominated by complementary or competitive impacts is an important factor in designing a strategy for optimising the opportunities offer by the relationship. Trade Channel

Nigeria’s export to China in 2000 was valued at US$307.3 million with export of mineral fuel and lubricants accounting for about 90% of total exports. China’s share of Nigeria’s exports was limited in 2000. Mineral Fuel and lubricants which constituted the main exports of Nigeria to China in 2000 was a paltry [1.4%] of Nigeria’s total world exports. In effect, out of US$20.3 billion total exports of Nigeria, only [1.5%] was exported to China.

While Nigeria’s exports to China increased in absolute terms from $307.3 million in 2000 to

US$526.9 million in 2005; China’s share in Nigeria total exports fell from 1.5% to 1.2% during the same period. Nigeria’s total imports increased from about US$5.3 billion in 2000 to US$17.7 billion in 2005. The phenomenal increase of Nigeria’s total imports between 2000 and 2005 was also reflected in the country’s imports from China which increased largely from as low as US$252 million in 2000 to US$2.3billion in 2005. Nigeria’s import from China is more diversified than its exports as almost all the broad categories of products were imported from China. In terms of product significance, imports of machinery and transport equipment ranked first in 2005, followed by manufactured goods, miscellaneous manufactures, chemicals and food and live animals. The composition of imports from China also has changed quite a bit. The share of China in Nigeria’s imports rose gradually from 3.5% in 1996 to 13% in 2005.

Nigeria is a small player compared to other countries exporting to China. Nigeria’s export of mineral fuel, oils distillation products (HS 27) which averaged US$347.2 million in 2003-2007 or 92.5% of total Nigeria’s exports to China is only a paltry 0.5% share in total China’s imports of HS 27 which averaged $67 billion during the period.

In contrast the top 30 import commodities from China are all manufactured goods. Also 50%

of top 10 imports are made up of textile materials of HS 50-63. About 37 % of the top 30 imports from China belong to HS Chapter 50-63. This ranking explains partly the present misfortune of Nigeria’s textile sector. This suggest that import surges of textile products occurred but were not monitored and combated with safeguard mechanism. The prohibition that was imposed belatedly could not be fully

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monitored for full implementation due to governance related problem that include porous borders, corruption and inadequate enforcement capacities.

Most of Nigeria’s imports from China are labour intensive, light manufactures which Nigeria was producing under the import substitution industrialisation strategy. There are evidence of import competing products, as seven products are both imported and exported simultaneously by the two countries, with Nigeria’s imports of the products largely overwhelming its exports. Major products in this category are cotton (HS 52), rubber and articles thereof (HS 40), electrical and electronic equipment (HS 85), tools, implements,

Given the trade pattern, China had a trade surplus with Nigeria during the 2003-07 period. After an initial reduction by only 8% in 2004, the trade surplus of China rose by almost 91% in 2005 for agricultural products and 24% in 2007. For the non-agricultural goods also, China’s trade surplus rose by 27% in 2007 falling from about 40% increase in 2005 and 2006. The total trade surplus of China was $3.3 billion in 2007. Product by product analysis shows that China recorded trade deficits in a few products.

Table 4: Trade Balance between China and Nigeria (2003-2007) 2003 2004 2005 2006 2007 Sub-total:HS 01-24 (US$’000) 16, 642 15, 290 29,137 47,777 59,070Sub-total: HS 25-99 (US$’000) 1,697,674 1,240,053 1,747,148 2,526,633 3,199,685Total Surplus/deficit HS 01-99 1,714,314 1,255,343 1,776,283 2,574,405 3,258,759Growth: 1-24 (%) - -8.12 90.6 63.9 23.6Growth: 25-99 (%) - -26.9 40.9 44.6 26.6

Source: International Trade Centre COMTRADE Database, 2008.

Bilateral trade generally can be explained by productivity differences or comparative advantage, or resource endowment, or by differences in economies of scale in production which can also lead to price discrimination between exported and domestically sold goods. In the context of explaining China-Nigeria trade:

• The commodity composition of trade clearly suggests that resource endowment explain

much of the trade in primary commodities; Nigeria is endowed with huge primary resources and thus exports more primary goods to China.

• Competitive advantage explains most of the trade in manufactured goods. China has

productivity advantage in manufactured goods, consequently its ability to export more of these goods to Nigeria;

• For a few products, both countries export and imports these products from each other. This is

explained by intra-industry trade. This trade is probably due to the need for variety and the type of market structure subsisting in the industries.

• In the absence of an empirical test of the gravity framework3, it can be posited that market

sizes of Nigeria and China also explain trade between them. China has a huge population that requires Nigeria’s export products while Nigeria also has a large population demanding manufactured products.

• China’s per capita income is large but Nigeria’s is moderate and accommodates the cheaper

exports of China to Nigeria since the latter is a low-cost producing economy.

• Physical distance, adjacency and common language or colonial link cannot explain China-Nigeria trade and these factors are probably responsible for the initial little trade between both countries in the earlier years, coupled with China’s inward orientation in those earlier years

                                                                 3 Explain Gravity Model. Can we use other empirical studies on gravity model to substantiate this. 

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• There are reasons to believe that policy reforms including bilateral agreements between

China and Nigeria partly explain much of the developments in Nigeria’s trade with China.

o The first bilateral agreement signed between China and Nigeria was on 12 May 1997 followed by another one in 2001. The agreements which are bilateral investment treaties for the protection and promotion of investments, is not directly a bilateral trade agreement. However, investment agreements have been found to, some certain extent, induce more foreign direct investment and trade.

o China’s accession to WTO and its go-global policy are also promoting trade and investment. Increase in value of trade with China by Nigeria is a recent phenomenon, amplified after the Structural Adjustment Programme of 1986. In the early part of the SAP period, exchange rate depreciation made imports from traditional sources quite expensive. This combined with import liberalisation led to sourcing imports from cheaper sources which was China.

• China-Nigeria trade can also be explained through the analysis of changes in:

o “at-the-border” trade policies: This is the market access-related issues such as tariffs and non-tariff barriers including technical standards, as well as the different types of preferential trade agreements.

o “behind the border” domestic market constraints: The second issue that relates to the state of infrastructure which affects Nigeria’s supply capacity, business climate, market distortions such as whether the market is competitive or has monopolies will also affect other bilateral trade. So also is trade facilitation, availability of overseas market information.

o “between-the-border” factors such as trade facilitation and supply response capacity issues and

o complementary relationship between investment and trade Producers and exporters of those broad categories of products whose exports increased

between 2000 and 2005 are better off as they earned additional incomes, including producers and exporters of food and live animals, mineral fuel/lubricants, chemicals, manufactured goods, and miscellaneous manufactures. Nigerian producers and exporters of crude materials excluding food and fuel lost export market share in China and thus were worse off in 2005. Thus, in terms of stakeholders’ analysis, countries which hitherto exported these products to Nigeria have lost their market share in Nigeria to China as Nigeria increasingly look towards China for the importation of these products.

Chinese products are of different grades of quality and are targeted at different types of consumers. Most of the Chinese products in the Nigerian markets are of low quality and the prices are relatively low. Thus they basically meet the demand of low income groups. To a reasonable extent these groups of consumers benefit from inflow of Chinese products. Although Chinese producers have access to cheap labour and excellent infrastructure, access to large market such as provided by Nigeria promoted economies of scale and has salutary effects on the prices on Chinese manufactured goods.

Analysis of trade flow data reveals the increasing share of China in Nigeria’s trade particularly

as a major source of Nigeria’s imports. China has increased its market share in Nigeria at the expense of the traditional trading partners. In so far as some of the products exported by China to Nigeria are produced locally, and given the low level of competition of Nigerian producers due mainly to binding infrastructural constraints; displacement of local producers cannot be ruled out.

  

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Investment Channel

China is investing massively in raw material deposits overseas, and is multiplying its trading partnerships in order to secure regular supplies (Lafargue, 2005). In 2005, it was estimated that the cumulative value of Chinese investment in Africa was US$4.5 billion, which was over 12.0 per cent of total FDI stock of US$37 billion in Africa (China Monitor, May 2006). Similarly, Chinese investment in Nigeria rose from $1.08 million in 2000 to $5.5 million in 2006. There used to be flows between China and Nigeria prior to 1990s, however, given the magnitude FDI inflows to Nigeria, it has almost become a unilateral flow from China to Nigeria.

Table 5 presents a global picture of FDI inflow to Nigeria from different regions/countries

including Asia-Pacific and China, from 1999 to 2006. All the regions recorded significant increase in FDI inflow from the 1999 level. Thus, the upward increase in the aggregate FDI flows to Nigeria from about $190.61 million in 1999 to about $4169.14 million in 2006 is a joint increase in the levels of FDI by all the regions. Available information points to a general upward trend in the inflow of FDI from China to Nigeria. Although FDI inflows from other sources have been increasing, Chinese FDI to Nigeria has been increasing at a very rapid rate beginning from 2000.

Table 5: Foreign Direct Investment in Nigeria, 1999-2006, $ Million

Region/Country 1999 2000 2001 2002 2003 2004 2005 2006 North America 7.35 9.84 12.10 36.16 40.34 4354.14 5166.32 1601.28South America 1.15 2.96 0.39 0.05 7.14 60.04 24.56 11.76Asia/Pacific 2.94 5.93 4.45 5.17 1.54 32.12 47.29 39.63China 0.02 1.08 2.39 0.0 0.05 0.51 1.88 5.50Middle/F. East 7.41 2.75 10.92 5.30 6.74 23.27 21.22 13.39Europe 164.95 136.46 98.86 200.24 293.66 2624.30 3084.68 2441.52Africa 6.79 9.45 8.24 24.30 91.41 173.62 169.04 56.06Total 190.61 168.47 137.35 271.22 440.88 7268.00 8514.99 4169.14

Source: Based on data from Nigerian Investment Promotion Commission (NIPC) The figure for total FDI inflow to the country as presented in the table appears to be on the

low side given the figures from various sources. For example the figures from the UNCTAD’s World Investment Reports for various years are much higher than the ones reported in table 5 (see table 6). The figures from the Central Bank of Nigeria are neither comparable to those from the UNCTAD and NIPC. Notwithstanding, these observations, all the data sources point to increasing FDI inflows into Nigeria and the OECD countries’ as the main sources.

The estimates of Chinese FDI inflows to Nigeria vary according to sources. According to NIPC, It attained a $5.5 million mark in 2006 from about $1.8 million in the previous year. However,

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UN (2007) estimates were higher $1.6 million in 1999, $2.6 million in 2000, $6.4 million in 2001, $11.4 million in 2002 and $11.8 million in 2003 According to UNCTAD (2008) CNOOC Ltd made a payment of $2.27 billion for a 45% stake in an offshore oil field.

Table 6: FDI Stocks and Inflows to China and Nigeria, 1980-2007 Stock Inflow

Nigeria China Nigeria China 1980 2457.3 1074.0 -738.9 57.01981 2999.6 1339.0 542.3 265.01982 3430.2 1769.0 430.6 430.01983 3794.7 2685.0 364.4 916.01984 3983.8 4104.0 189.2 1419.01985 4469.4 6060.0 485.6 1956.01986 4662.6 8303.7 193.2 2243.71987 5273.2 10617.3 610.6 2313.51988 5651.9 13810.9 378.7 3193.71989 7536.1 17203.5 1884.3 3392.61990 8538.6 20690.6 1002.5 3487.11991 9662.5 25057.0 1123.9 4366.31992 10819.2 36064.5 1156.7 11007.51993 12697.3 63579.4 1878.1 27515.01994 14984.7 74151.0 2287.4 33766.51995 16255.8 101098.0 1271.1 37520.51996 18446.4 128069.0 2190.7 41725.51997 20088.9 153995.0 1642.5 45257.01998 21299.0 175156.0 1210.1 45462.81999 22476.7 186189.0 1177.7 40318.72000 23786.4 193348.0 1309.7 40714.82001 25063.8 203142.0 1277.4 46877.62002 27104.0 216503.0 2040.2 52742.92003 29275.4 228371.0 2171.4 53504.72004 31402.5 245467.0 2127.1 60630.02005 36380.7 272094.0 4978.3 72406.02006 50337.2 292559.0 13956.5 72715.02007 62791.0 327087.0 12453.7 83521.0

Source: UNCTAD (2008) Data on Chinese FDI inflow to Nigeria is fragmented. China has set up over 30 solely owned

companies or joint venture in Nigeria actively involved in the construction, oil and gas, technology, services and education sectors of the Nigerian economy (Ogunkola, Bankole and Adewuyi, 2006). Big Chinese financial institutions have been involved in the acquisition of holdings in some financial institutions such as the Standard Chartered Bank and the IBTC-Chatered Bank in Nigeria.

Nigerian Investment Promotion Commission (NIPC) data shows that Chinese private FDI is in

the agro-allied industry, manufacturing and communications sectors. On one hand, some of these investments are joint venture mainly between Chinese and Nigerian investors. On the other hand, some are wholly foreign owned either wholly by the Chinese or in partnership with other foreign investors. Some of the Chinese investments have also benefited from investment incentives in the country such as pioneer status and expatriate quotas (see Table 5.4).

According to the World Bank PPIAF Chinese project data base, in 2006, both China National

Offshore Oil Corporation (CNOOC) and Chinese National Petroleum Corporation (CNPC) won substantial interests in Nigerian oil exploration. The information from NNPC also indicates that

14 

 

Chinese firms: The CNOOC purchased 45 percent of Block ML130 in the Niger Delta, with reserve estimates of 600 million barrels covering about 500 square miles of Akpo Oilfield and other discoveries. The total deal offered to CNOCC was worth US$2.7 billion. Subsequently, CNPC completed the acquisition of a 51 percent stake in the Kaduna refinery for a total amount of US$2 billion. The refinery was designed to refine 110,000 barrels of oil per day, however, due to lack of maintenance, its actual refinery capacity was only 70 percent of that capacity. CNPC received the license for four oil blocks—OPL 471, 721, 732 and 298. Following these deals, Chinese state-owned oil companies committed to invest at least US$5 billion in the country’s petroleum industry. According to information from a new World Bank –PPIAF data base, for African, Nigeria has been a major recipient of Chinese infrastructure finance. It received relatively small volumes of Chinese infrastructure finance during 2002 and 2005. However, in 2006 a major surge occurred, when China made almost US$5 billion of infrastructure finance commitments to Nigeria, which accounts for 70 percent of China’s total commitments to Sub-Saharan Africa that year (figure 3).

Figure 3: Estimated value of Chinese infrastructure finance commitments in

Sub-Saharan Africa and Nigeria, 2001–07

1.341.72

0.620.27

7.05

4.50

0.47

4.90

0.2 0.30

1

2

3

4

5

6

7

8

2001 2002 2003 2004 2005 2006 2007

Com

mitm

ents

(US$

billion

s) Chinesesources total

ChinesesourcesNigeria

Source: World Bank–PPIAF Chinese Projects Database, 2007.

A comprehensive list of Chinese finance infrastructure projects in Nigeria is presented in

Tables 5.5a and 5.5b. Some 40 confirmed projects involved Chinese commitments of less than US$50 million. However, Chinese investors have shown themselves to be capable in about half a dozen cases of raising very large financing of over US$1 billion for a single project. Three of such committed mega-projects in Nigeria are equally captured in the table. The rest of Nigeria’s projects fall into the mid-sized category with commitments in the order of US$200-300 millions.

The sectoral spread of Chinese infrastructure finance in Nigeria is a little different from the

entire Africa, with transport projects amounting to 65.0 percent of all commitments followed by power with 24.0 percent (figure 4).

Figure 4: Confirmed Chinese infrastructure finance commitments in Nigeria by sector, 2001–07

Source: World Bank–PPIAF Chinese Projects Database, 2007

3.7%

24.0%

64.8%

7.4%

Transport

Electricity

Telecom

General

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China has registered a major financial commitment in the Nigerian rail sector: the major rail

projects include the Lagos-Kano rehabilitation project and the Abuja Rail Mass Transit System. In the power sector, by the end of 2006, China was providing US$3.5 billion toward the construction of six major hydropower projects amounting to some 6,000 megawatts (MW) of installed capacity across Africa. The largest hydro-power project on this list is the 2,600-MW Mambilla scheme in Nigeria, whose implementation is now uncertain. There have also been some activities in thermal generation and transmission, most of them in Sudan and Nigeria. In Nigeria, the Federal Government is constructing three gas-fired power stations with the help of a credit line from China Exim Bank. In the information and communication technology (ICT) sector, an important focus has been the development of national backbone infrastructure. Nigeria’s National Rural Telephony project and first communication satellite NigComSat-1 received financing from China Ex-Im Bank.

The characteristics of Chinese investment in African countries including Nigeria are

enunciated below. These features indicate the need to resist by the Nigerian government attempts at compromise the benefits that are normally associated with FDI.

• concentration of Chinese investments in a few sectors that are of strategic interest to China, especially in the extractive industries. Chinese firms have invested billions of dollars and used Chinese engineering and construction resources on infrastructure for developing oil, gas, minerals and other natural resources;

• China’s investments are carried out largely by state-owned enterprises or joint ventures. They typically exhibit partnership with state-owned enterprises or enterprises with significant government equity holding in the host countries;

• Chinese FDI in Africa is also typically accompanied by Chinese workers and most of the supplies are sourced directly from China. This is not universally the case. For instance, in response to complaints by Nigeria and South Africa, the Chinese Ministry of Commerce has encouraged its companies to increase investment spending in developing countries, aiding technology development and personnel training. Similarly and specifically, in response to complaints by Nigeria’s Minister of Science and Technology, Huwawei Technologies Nigeria Limited, a Chinese FDI has established a training centre in Nigeria to train 2000 telecoms engineers per annum.

• Chinese investment financing in African countries including Nigeria is offered with a relatively large grant element. Besides, the investment loans are been offered without conditionalities attached to them as compared with loans from the multilateral finance organisations such as the World Bank and the International Monetary Fund (IMF). This allows for domestic policy flexibility, although this has been criticised because of weak governance in African countries including Nigeria, which may hinder productivity and sustainability of investment.

• Finally, China is found of extracting extremely generous terms for its investment outside the resource seeking activities. For example, Nigeria offered incentives including no expatriate quota, full repatriation of capital and profits in addition to other generous incentives. If care is not taken this may minimise some benefits of Chinese FDI in Nigeria including employment and foreign exchange conservation effects.

Potential benefits of inflow of Chinese FDI

• All economic agents (producers, consumers and government) in the country stand to benefit

from the China’s transformational investment finance in Nigeria particularly in the area of infrastructure and social amenities. Provision of adequate infrastructure in Nigeria through China’s financial resources will improve investment climate and welfare in the country. This is expected to promote output, export, employment and government revenue;

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• Massive influx of Chinese FDI into the country to produce goods and services at cheaper prices coupled with import of cheap commodities from China will enhance the welfare of Nigerians; and

• The establishment of China’s export processing zone should promote export and increased foreign exchange earnings. All these have to be considered by the Nigerian Government in a country characterized by high level of unemployment.

These must be balanced with the potential costs: • Given that Nigerian firms are not competitive, massive influx of Chinese FDI into the country to

produce goods and services may lead to closure of domestic competing firms, with adverse employment effect particularly where Chinese firms are found of bringing in workers from their country. Therefore it can be said that domestic firms operating in sectors of interest to China (such as oil and gas, power, construction, manufacturing and services) may loose as a result of lack of competitiveness;

• Also, the fact that Chinese firms in Nigeria bring in inputs from their own country and set up their own market outlets implies that there may not be any (or major) backward and forward linkages between Nigerian and Chinese firms;

• Widespread contract awards to Chinese firms will cripple activities of domestic contractors, leading to repatriation of profits;

• The issue of debt accumulation and servicing is important because Chinese financing or loans may not be that generous, implying a concessionary element that is below the acceptable threshold in accordance with the National external debt guidelines;

• The positive revenue effect of Chinese FDI may not be realized by the Nigerian Government because of too many tax and other fiscal incentives as well as tax evasion/avoidance by Chinese firms.

• The issues of negative externalities associated with Chinese investment in Nigeria is worthy of mention. Oil exploration and production as well as manufacturing activities have been known to be associated with series of environmental problems. This is a major cost of Chinese investment to be borne by the host communities and producers in which such activities are located. There is therefore the need to ensure compliance of Chinese firms with social responsibility laws in Nigeria. China’s investment in Nigeria would continue due to the growth pattern in China and how

Nigeria compliments the sustenance of that growth profile. China investment under this category is resource-seeking and Nigeria has the opportunities to ensure that the contract is designed in such a way as to maximize its potential benefits. In this regard, the following measures would be needed:

• Contract negotiation must be taken more seriously, especially those involving the public sector.

Experts with specialized knowledge must be involved in the contract negotiation processes. In this connection, active government interrogation and negotiation with the Chinese government and investors is very important;

• implementation of laws and regulations in Nigeria to ensure compliance by the Chinese investors.

Such laws include labour law, social responsibility law and local content requirement; and • The relevant ministries and department should be equipped to gather information on China-

Nigeria relations. This is because of the inadequacy of data to carry out detailed and comprehensive study of this nature.

• With Chinese appetite for Nigerian risks, under this category, the nature of investment that will be more beneficial to Nigeria is efficiency-seeking FDI. To able to attract such FDI, the following measures are very important:

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o improved governance and continued macroeconomic stability. This is critical to promoting improved productivity and sustainability of investment.

o Further improvement in business climate;

o Provision of critical infrastructure, especially power so as to reduce cost of doing

business; and

o Developing human resources necessary to support investment in new industries

Domestic investors have to complement FDI with a view to ensuring sufficient levels of investment that would make double-digit growth possible, create job and make significant inroads into poverty reduction. Aside from the aforementioned measures, the following measures are very essential:

• increased access to term financing is very important; and

• considerations have to be given to local contractors and they have to be encouraged to

partner with Chinese firms

Successful implementation of these initiatives under good governance will create necessary conditions for Chinese FDI to have significant backward and forward linkages in the Nigerian economy. Careful monitoring and evaluation processes, including requisite research must be carried out regularly to ensure that Chinese and, indeed, FDI from other sources and in any sector are beneficial to the host countries Aid Relations

Although trade and investment are two central means by which China-Africa relations are analyzed, development finance and official development assistance capturing the broad spectrum of activities referred to as ‘foreign aid’ have become an integral part of China-Africa relations. In November 2006, China-Africa relations moved a step further at the FOCAC Summit in Beijing, where and when China announced the creation of a US$ 5 billion China-Africa development funds. In addition to the China-Africa development funds, the Chinese President also promised to offer $3 billion in preferential loans and $2 billion in preferential export buyers credits; establish three to five special trade and economic zones4; permit more than 400 kinds of goods into China duty-free; and set up a $5 billion fund to support investment by Chinese firms in African economies.

Practically, the type of Chinese aid to Africa has so far taken the form of grants, interest-free loan and concessionary loans. By May 2006, China had contributed $5.7 billion for more than 800 aid projects (IMF, 2007). By mid-2007, China’s EXIM Bank5 (Export-Import Bank of China), an important delivery vehicle of FOCAC had financed 300 projects in Africa. According to some authors, the majority of the projects undertaken by China are in non-Heavily Indebted Poor Countries (HIPC) resource-rich countries, such as Angola, Nigeria, and Sudan.

China’s aid program also extends to technical assistance, with an emphasis on agricultural

technology and training in Chinese institutions. China’s ODA has focused largely on social and humanitarian projects, such as hospitals, schools, low-cost housing, sport venues, and library and government buildings, and often delivered in kind. ODA has also been used for infrastructure construction and agricultural development.

Just like other donors, China gives aid for a variety of reasons: as a political tool of foreign policy and in support of its own economic interests; as a response to domestic stakeholders, and as a reflection of higher values and principles. Chinese official aid to sub-Saharan Africa began with a zero-interest loan extended to Guinea in 1960.

                                                                 4 These zones are proposed to be established in Zambia, Mauritius, Egypt, Nigeria and Tanzania.

5 The EXIM bank was founded in 1994 and is current y the world third largest credit agency. 

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China’s earliest aid recipients were governed by leaders who declared themselves socialists. By the early 1990s, planners were well aware that resource scarcities, particularly in domestic energy, would soon become an issue for domestic production, and they moved to position the country to overcome that challenge. To address the anticipated challenges, in 1994 the Chinese government separated the state-owned banks into those that would operate on commercial principles, and those that would carry out the government’s policies. The three “policy banks” (China Development Bank, China Export Import Bank, and China Agriculture Bank) remain tools of the government, enabling the state to intervene in areas where the market is less interested, and to allow targeted development of agriculture, industry, and infrastructure in China and overseas. The banks were set up to conform to WTO rules on trade institutions. As the Chinese government moved to boost its ability to support Chinese companies’ efforts to win contracts and establish ventures abroad, and to recognize the growing debt crisis in the least developed countries, three new instruments were added to the existing basket of assistance tools, in 1995:

• Concessionary loans with interest subsidized by the Chinese government;

• Government-supported joint ventures and equity stakes in productive projects; and

• Grants, primarily for countries with economic difficulties or crises

The emerging aid policy stance of China to date (at least as expressed) is one that has moved from aid donation to economic cooperation for mutual benefit. The framework for China’s aid in 2008 still closely reflects these policy shifts.

Official Development Assistance (net disbursements) to Nigeria in its totality has remained

low over the years compared to the size of the Nigerian economy. Indeed, total donor aid budget for Nigeria is at best 1 percent of Nigeria’s GDP even while the average country in Sub-Saharan Africa receives about 10-15 percent of GDP in ODA (African Institute for Applied Economics, 2003). Total ODA (net disbursements) received in 2003 stood at US$317.6 million and the per capita was US$2.3. Unfortunately, while the volume of ODA received in 1990 translated to 0.9% of Nigeria’s GDP, the proportion regardless of the volume of ODA fell to 0.5% in 2003.

There has been an increasing trend of the volume of ODA to Nigeria, as the value jumped

from US$151.8 million in 1999 to US$578.1 million in 2004, and standing at US$11.4 billion in 2006 (See Table 6.1). The same upward trend is observed in terms of the proportions of Nigeria’s ODA in total ODA to Africa and ODA from all donors from 2004 to 2006. Nigeria enjoyed 2% of the total ODA to Africa in 2004. It rose to 18.2% in 2005 and 26.3% in 2006. The proportions from all donors are 0.9, 6.9, and 12.8 percent for 2004, 2005 and 2006, respectively

Available records show that Chinese aid commitments to Nigeria began in 2002 sequel to the

loans agreements signed by the two countries. Chinese loans are known to offer an interest rate of 3.6% as well as a grace period of 4 years, and a maturity of 12 years, representing a grant element of around 36%, thus qualifies such loans as concessionary according to DAC official definition (See Table 5). In effect, China joined the league of donors to Nigeria very recently. China’s engagement in Nigeria is said to amount to total financial commitments of US$5.4 billion. China has become a close ally of Nigeria particularly in the pursuit of Nigeria’s Vision 2020. The involvement of China is captured through a number of social and infrastructural projects being supported by Chinese aid and grants. Prominent among these projects are:

• China-Assisted Borehole Drilling and Water Supply Projects • Establishment of a Hospital in Abuja • Chinese Grant of 30 Million RMB to Nigeria, and • Training Programmes Sponsored by the Chinese Government

Main Findings and Policy Implications

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Nigeria-China trade relations have strengthened over time. Exports and imports value have substantially risen and become reasonably diversified. Gainers and losers have as a result emerged. In the case of Nigeria’s imports from China, Chinese manufacturers have gained at the expense of Europe and North America, as the former continue to displace the latter’s’ products in Nigerian markets because of their ability to produce and export cheap products to Nigeria. The quality of these goods is, however in doubt and Nigerian authorities need to strengthen their monitoring mechanism and perhaps ensure that specifications that Chinese firms produce meet national standards. Exchange rate depreciation which made imports from traditional Western sources more expensive certainly played a role in import source diversification towards China which has endured.

Nigeria’s exports to China have been dominated by oil exports with few non-oil exports finding

their ways into China. These are basically resource-based and primary exports. In non-oil exports areas where both countries simultaneously export and import, Nigeria glaringly exports less to China, indicating the higher productivity, competitiveness and large scale production of China. The combination of both export and import features culminated into China recording trade surpluses against Nigeria in most of the commodities. Ways to reduce or eliminate such surpluses span not only trade strategies but also urgently ensuring domestic macroeconomic policies that will resuscitate infrastructure to boost supply capacity particularly for non-oil production.

In explaining Nigeria-China trade, the economic size of both countries matter for

encouragement of trade between them. However, trade barriers act as a wedge particularly non-tariff type in China. This demands bilateral or regional agreement that will give preferential treatment to Nigeria’s exports to China while intermediate and capital inputs to Nigeria should be considered under the agreement. This should strengthen the trade relations while Nigeria’s deficits should be reduced considerably.

Given the preceding analysis some steps are necessary to ensure maximum benefit from China-Nigeria trade relationship:

• A more in-depth assessment of trade policy and industrialization strategy would be necessary as a follow-up to this study;

• A framework should be put in place to ensure continuous assessment of Nigeria’s bilateral

relationship, including China.

• There is the need for strengthening policy content and analysis capacity at MDAs. In particular there is the need to enhance the negotiations skills of MDAs officials and in cases where this is not feasible, the expertise of consultants should be used. In this regard, MDAs should develop a pool of consultants that they can hire to carry out specific assignments. This approach is being used by other countries and international organizations.

• Related to this is the need to strengthen Nigeria’s foreign missions are staffed with

professionals, especially in the areas of economics most especially trade and commerce with a view to make them more effective and responsive to the critical needs of the country. Nigeria’s foreign missions should combine diplomatic activities with economic interest of Nigeria, becoming a centre for providing information to exporters and importers. Our Diplomatic missions should work more with MDAs on economic issues and with NIPC. The main message is that Nigeria’s economic interest and diplomacy should be central to other issues. Analysis of MOUs and agreements made in the attempt to foster Nigeria-China relations

reveal that some aspects of due diligence may not have been considered as important factors during negotiations. Import concessions granted and preferential treatments given to Chinese investors at the expense of Nigerian and other investors could have created revenue losses and disaffections among stakeholders. Policy recommendations offered in these cases include that soft concessionary loans should

20 

 

• be subject to an assessment of the short, medium and long term socio, political and economic consequences

• be subject to an analysis of the costs and benefits using scientific techniques such as net present value, benefit cost ratio, internal and external rate of return and risk assessments

• undergo public scrutiny through moderate public debates before the loan agreements are signed

• ensure avenues of technology transfer, learning by doing and appropriate technology spillovers that such engagement should create for Nigeria through joint ventures and partnership with Nigerian firms

• labour and local content requirements should be explicitly stated upfront.

• Not compromise interests of domestic entrepreneurs and as such ensure that treatment of foreign firms do not jeopardise those of domestic firms

• be evaluated to ensure that grant amounts are not inflated particularly since they will be tied to some commercial benefits to the donor country

• Endeavour to determine the real cost of loans and grants for negotiation purposes particularly if Nigeria will also give concessions on imports related to the projects associated with the loans and grants.

A technical team should be established to conduct short, medium and long term socio,

political and economic consequences of loans and tied grants as well as subject them to moderate public debates before the loan agreements are signed.

The following policy implications, lessons and agenda for the future China-Nigeria economic

relations are proposed. Attempts to compromise the benefits of FDI should be persistently resisted by the Nigerian Government through active government engagement and negotiation with the Chinese government and investors. Good governance and macroeconomic environment in the country should be ensured so as to promote productivity and sustainability of investment. A country desirous of hosting FDI must of necessity institute policies aimed at maximizing the direct and indirect benefits as well as in minimizing the possible negative impacts. A litmus test for gauging the motive of FDI is to classify such investments into resource-seeking, market-seeking or efficiency-seeking. Efficiency-seeking FDI is preferred to other forms at least from the perspective of the host country. However, for a country to attract efficiency-seeking type of FDI macroeconomic stability must be ensured and distinct, predictable and easy-to-access policy environment including incentives must be instituted.

There is need to ensure implementation of laws and regulations in Nigeria and to ensure

compliance by the Chinese investors. Such laws include labour law, social responsibility law and local content requirement. The Nigeria Labour Congress and its counterpart in the private sector should ensure the observation of the Nigerian labour law by all firms including the Chinese-owned firms. Similarly, the Raw Material Development Council (RMDC) should see to compliance of the local content requirements (in terms of human and physical materials) by all firms especially the foreign ones. The Nigerian Investment Promotion Council (NIPC) and other relevant organisations such as the Nigerian Extractive Industry Transparency Initiative (NEITI) should ensure compliance with the social responsibility law in Nigeria.

Nigeria needs to invest the inflow of resources from the commodity booms in improving

investment climate, developing human resources necessary to support investment in new industries and establish development banks necessary to provide financial support to nascent private investors. Towards this end, there must be good and transparent governance while implementing these initiatives in order to ensure that the desired outcomes are realized. Successful implementation of these initiatives under good governance will create necessary conditions for Chinese FDI to have significant backward and forward linkages in the Nigerian economy. It is important to state that,

21 

 

careful monitoring and evaluation processes, including requisite research must be carried out regularly to ensure that Chinese and, indeed, FDI from other sources and in any sector are beneficial to Nigeria.

The positive revenue effect of Chinese FDI may not be realized by the Nigerian Government

because of too many tax and other fiscal incentives as well as tax evasion/avoidance by Chinese firms coupled with the permission to repatriate profits and incomes. Therefore there is need to generate in a scientific manner, a number of scenarios on the level or number of incentives that can be given to foreign firms that will not jeopardise the interest of the economy. Accurate data on the number, location and tax liabilities of all firms including the Chinese firms should be generated by the Federal Inland Revenue Service in collaboration with the Nigerian Investment Promotion Council and the Corporate Affairs Commission, while tax offenders should be sanctioned.

Widespread investment and contract awards to Chinese firms will cripple activities of

domestic contractors. All these have to be considered by the Nigerian Government in a country characterized by high level of unemployment. Therefore some considerations have to be given to local contractors. They may be encouraged to partner with Chinese firms.

The issues of negative externalities associated with investment including those of Chinese in

Nigeria is worthy of mention. Oil exploration and production as well as manufacturing activities have been known to be associated with series of environmental problems. This is a major cost of Chinese investment to be borne by the host communities and producers in which such activities are located. There is therefore the need to ensure compliance of all firms including Chinese firms with social responsibility laws in Nigeria (if any). Thus, Government can establish a body or an agency that will audit the performance of the organisations in terms of social responsibility. This will enable it to reward those that are performing well and sanction those that are not.

Owing to paucity of data at both the Federal and State levels to carry out detailed and

comprehensive study of this nature. there is the need to enforce the relevant law that will enable the data gathering agencies of government such as the National Bureau of Statistics (NBS), Nigerian investment promotion Council (NIPC), Federal Ministry of Finance and Central Bank of Nigeria (CBN) to have access to important and necessary information for the evaluation of the benefits and costs of investment relation between Nigeria and China. Chinese firms have been noted for hoarding information. The relevant ministries and department should be supported financially to gather information including those on China-Nigeria relations.

The analysis clearly shows that the engagement with China just like any bilateral relationship has some advantages and disadvantages and that optimal outcome of the engagement will depend on the policies and institutions that are put in place to maximize the complementary effects and to minimize the competing effects. The study shows that China is virtually everywhere in the country but information about its engagement and activities are fragmented. This is manifested the more in government, ministries, departments and agencies. There is therefore, the need to establish a coordinating body on China. This body, preferably a technical arm of existing body, should be empowered to scrutinize and evaluate agreements, memoranda and any other articles of association between Nigeria and China. The ultimate objective of the proposed body is to spell out the cost as well as the benefits of the proposed project and/or programme. This is similar to what a legal department would do to an agreement before initialising/signing. The proposed technical committee in its assignment must have taken into consideration domestically available resources including skills and ensure that as much as possible, the local content of the agreement is high enough not only for the purpose of generating employment for Nigerians, but also to develop their technological capability.

There is ample evidence to believe that China has become one of the ODA donors to Nigeria in recent times. It is equally right to argue that ODA from China is not recipient-driven rather it is tied to the economic and China’s ODA upsurge in Africa. This has therefore defined both the character and the destinations of the assistance. The character of ODA from China to Nigeria (and indeed Africa as a whole) is such that it is to strengthen the international and image laundering of China among the group of donors and the destinations are in the social services sector and infrastructure development. The destinations appear to connote market creation and market extension for Chinese

22 

 

expanding technology that will be required to deliver her ODA commitments in the areas of ICT and infrastructural development such as rail, energy and power projects.

Given the dearth of social services and infrastructures in Nigeria, the focus of China’s ODA in such areas of need is supposed to reinforce the growth and development of the Nigerian economy, save that a number of policy interventions are put in place. These policy interventions are presented in form of recommendations as follows:

• There is the need to engender greater participation of the government of Nigeria in the delivery and execution of all ODA commitments from China with a view to optimize such assistance to the economy and the populace.

• If ODA from China is to impact greatly on the economy and the people of Nigeria, then the distribution of assistance must take into consideration the rural-urban divide in Nigeria with a view to integrating the rural economy of Nigeria into the larger macro-economy. Indeed, the extent to which ODA interventions are able to formalize the relatively large informal sector in Nigeria is a good proxy for measuring the socioeconomic impact of Chinese ODA in Nigeria.

• The MoUs in respect of various projects to be financed through ODA from China should pay particular attention to maintenance of the services and structures to be put in place by such projects. This is an issue that touches on ownership question. Hence, the interest of the Nigerian economy and the people must not be traded off if ODA is not to be anti-growth and development.

• Finally, there is the need to ensure alignment of Chinese ODA to national priorities and systems. In other words, it is important that all ODA from donors (not just China) are meant to compliment national growth and development aspiration of Nigeria and Nigerian. In summary, it should be noted that during the early years of reform, trade and investment in-

flows were directed to the critical needs of the Chinese economy. For example, foreign direct investment inflows to China were subjected to various rules and regulations including extensive plans on technological capacity building of Chinese, stringent local content requirements. Till date, the Chinese economy remains close to portfolio investment. It appears that Nigeria is yet to position itself for optimising the gains from the engagement with China as the country seems to be overwhelmed with the spillover from Chinese growth and development. Nigeria appears to be a passive partner that only reacts, albeit haphazardly, to the developments in relationship.

For the relationship to produce a win-win outcome, Nigeria must define and implement

strategies in its engagement with China. If the trend with current engagements is maintained then, Nigeria’s net benefit from the partnership even if it is positive it will be negligible. Two sets of lessons are important for Nigeria to make the engagements with the Chinese in the future more benefiting. First relates to optimizing the transmission of Chinese growth to the Nigerian economy. Second is on the Chinese reform experience

From the analysis of the different channels through which China impacts on Nigeria, there is

an urgent need to ensure effective policy framework to direct Chinese activities to the critical needs of the economy. Put differently for future engagements with China to be more beneficial to Nigeria government should consider the following:

a. Appropriate government agencies are to ensure effective compliance with existing rules and regulations in the country. This may require strengthening these agencies to cope with the surge in and nature of Chinese engagement with Nigeria. As the establishment of Free Trade Zone (FTZ), mainly as joint ventures between State Governments and Chinese firms are emerging, there is the need to ensure that existing laws are not only adequate but also effectively implemented. The existing laws may need to be reviewed to ensure that the benefits from such engagements are maximised. Existing laws and regulations are weak and sometimes insufficient to address some of the issues in the relation hence there is the need for strengthening of laws and regulations in the area of labour services, local content, technological transfer and capacity building. Cheap, counterfeit and substandard products

23 

 

characterized the manufactured products imported from China (strengthening of agencies responsible for standard and quality assurance, agencies in charge of border control etc).

b. Actions of the stakeholders (Ministries, Departments and Agencies of the Federal and State Government levels as well as at the private sector level) are not sufficiently coordinated. There is therefore the need to ensure coordination of Chinese engagements with China with a view to ensuring that different aspects are closely examined and the benefit-cost analysis of the articles of engagements are evaluated.

c. Need to address factors that constrain export supply response capacity of Nigerians in their quest to take advantage of the market opportunities in China (effective trade facilitation measures)

d. Policy-induced trade barriers to increased trade between China and Nigeria as summarized in the existing China’s trade policy should be addressed through a review of existing bilateral trade agreements between Nigeria and China.

e. There is the need for greater participation of the government in the packaging, delivery and execution of all ODA commitments from China. A cost benefit analysis may be helpful.

f. Concerted efforts should be made at directing ODA from China to critical areas of priority especially in the areas of integrating the rural economy and livelihood with the modern sector given the experience of China in this area. Integrating the interest of the country in all the ODA projects from China with the aim of fostering long-term sustainability of such projects should be considered.

g. Mainstreaming ODA especially those from China to the national development strategies is an important step to ensure maximum benefits from the relation.

h. Implementation of these recommendations is better handled by a Bureau for Chinese affairs with power to conduct cost-benefit analysis of the proposed projects including environmental impact assessment. The body should also serve as a depository for MOUs, agreements and protocols and all matters relating to Nigeria-China relationship at all levels (public (state and federal) and private sector).

While appropriate measures should be put in place to ensure that all the engagements with

the Chinese are coordinated and maximum benefits are derived from such engagements, the greatest lessons for Nigeria are in the focus and process reform of the early 1980s. Elements of the reforms were based on the comparative advantage of the Chinese economies. Similarly, China’s trade control measures guided the external trade into the most beneficial sectors and industries of the Chinese economies. Thus, Chinese trade and investment reform was guided and managed for the optimal benefit of the Chinese economy.

The reform focus on the poor hence it was able to achieve substantial poverty reduction. The reform in the agricultural sector and rural development preceded other elements of the reform. This sequencing buttress the point that agricultural sector cannot be ignored and the task of poverty reduction cannot be wholly left to non-agricultural sectors. Indeed, Chinese reforms progressed from agricultural sector reforms to promoting labour intensive manufacturing sectors did not only took advantage of abundant cheap labour but also benefited from inputs from the agricultural sector.

Once a reasonable degree of food security and a higher income for the peasant class had

been achieved, improvement in the living standard of the relatively better off middle- and upper-income groups followed. The development strategy adopted by China confirmed that development strategy that is firmly rooted in agricultural and rural development can bring a larger and more sustainable impact on poverty (Christianson and Demery (2007); Doward et al (2004), Mwabu and Thorbecke (2004) and World Bank (2007). The agricultural sector reform was characterised by high

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investment in agricultural research and development tailored at addressing constraints to effective performance of the sector. The significant changes in the economic policies of China and the achievement recorded were possible mainly because of the strong state institutions that implemented the reform. Some of the important lessons from China for Nigeria’s development strategy are:

• Clearly defined sectoral priority;

• Wide access to sound basic education and health care;

• Lower dependency rate through lower fertility;

• Greater internal market integration; and

• Greater external openness foreign investment and trade that care consistent with country’s comparative advantage.

Efforts at maximizing the gains from Nigeria-China relationship by Nigeria should not be limited to strengthening, empowering and possibly creating new institutions. A greater efforts and benefits are to be derived from the experience from the Chinese reform. This is more important and relevant at least in two senses: (i) comparable structure of the two economies; and (ii) level of Nigeria’s economic development compared to Chinese economy in the pre-reform years and Nigeria’s current efforts at fashioning out an inclusive development strategy.