KEY POINTS

• Nigeria signs a $1-billion MOU for an iron ore-to-steel plant with China’s Sinomach-He and local partner Chart & Capstone Integrated Limited.
• Economic benefits include job creation, skills transfer, and improving Nigeria’s trade balance.
• Concerns arise from potential debt and dependence on China, as observed in other countries’ experiences.

Nigeria has started a $1-billion iron ore-to-steel project with China, a deal that is expected to boost the country’s mining and industrial base, according to a news report by BusinessDay.

The MOU was inked between Nigeria’s Chart & Capstone Integrated Limited and China’s Sinomach-He, a state-owned behemoth specialising in mining and steel production.

This is in line with the Nigerian government’s policy of moving from the exportation of raw minerals to the exportation of value-added products which is very essential for the growth of the economy.

On the positive side, the deal holds the prospect of many benefits. Still, on the negative side, it raises questions about the impact of Chinese investments on Nigeria’s economy given the experience of other countries. 

Economic opportunities

On the positive side, such partnerships as this one are beneficial for Nigeria in terms of the following. When Nigeria partners with China, the world’s largest producer of steel, the country gets to acquire new technology, engineering skills, and industrial facilities.

The project has the potential to contribute to local value addition through employment creation in mining, steel production and other related industries and not mere export of raw materials.

As stated by the Solid Minerals Development Minister Dele Alake this would in the long run enhance Nigeria’s trade relations with China which are at the moment dominated by the Chinese end.

Exporting finished or semi-finished mineral products could enable Nigeria to obtain better terms of trade, increase export earnings and possibly reduce the debt burden of the country. 

Also, the partnership entails the development of a strategy for the transfer of skills from the Chinese engineers to the Nigerian employees.

Currently, Sinomach-He has more than 15,000 employees, including over 2,000 engineers, which will enable it to play a large role in Nigeria’s development of the mining and steel industries.

If well implemented, the project could be used as a springboard for other industrialization initiatives in Nigeria as it will supply steel for construction, manufacturing industries and many others. 

Potential risks

However, while these benefits are enormous, there are real worries about Nigeria’s increasing reliance on China.

Some African countries like Zambia and Kenya have had some issues with China in their cooperation. For instance, Zambia has been experiencing debt distress after taking loans from Chinese lenders to finance infrastructure.

In Kenya, the construction of the Standard Gauge Railway by a Chinese company raised issues with debt sustainability and environmental impacts. Nigeria has to be cautious not to fall into the same traps as this.

China’s investment strategy is very aggressive and it usually offers funding for huge projects which may appear to be very advantageous in the short run. However, these deals result in increased debt levels particularly when the host countries are unable to honour the repayment schedules.

The critics have pointed out that Chinese firms act in their self-interest by employing cheap Chinese workers and equipment, which may not create employment opportunities for citizens of the host country and may not contribute much to the host country’s economy. 

Also, the over-reliance on China for technology and human resources may slow the growth of the local industries in Nigeria.

The steel industry which is crucial for industrialization might continue to depend on foreign capital and technology, thus the country’s capacity to develop new technologies and industries in the future will be constrained. 

A blessing or economic pitfall?

The $1-billion iron ore-to-steel deal between Nigeria and China is a prospect as well as a threat.

As much as the creation of employment opportunities, skills development, and enhancement of Nigeria’s trade balance, the country should not be overly dependent on Chinese investments.

The experiences of other African nations can therefore be used as a guide on how to approach such partnerships in a way that will yield the most benefits while incurring the least risks.

If this partnership is to be a blessing rather than a burden to Nigeria’s economy, then a balance that will enhance local capacity and at the same time adopt fiscal responsibility is required.