When the political dust settles after the inauguration of Nigeria’s next president on May 29, the capacity of Nigeria’s development partners, notably China, will be pivotal to forging the new government’s development goals.
China, a major investor in Nigeria, has been an alternative to other sources of development finance like the International Monetary Fund (IMF), World Bank, and other bilateral lenders; it has become Nigeria’s largest bilateral lender.
Beyond trade and investment, China is financing large projects and its companies are contracted to deliver their construction – including railways, road projects, and the rehabilitation of Nigeria’s four airports in Abuja, Lagos, Kano, and Port Harcourt. All this makes China fundamental to Nigeria’s development goals. In addition to these projects, China has sold millions of USD worth of tanks and artillery to the Nigerian military.
Among others, President-elect, Bola Tinubu had, during the campaign, harped on the provision of infrastructure to build Nigeria’s economy if elected president. But there can be no naysaying the fact that the like of China must be in the mix to build Nigeria’s infrastructure. However, China being in the mix will depend on her capacity to do so.
According to data from the Debt Management Office, Nigeria’s debt owed to China accounts for 83.57 percent of its total bilateral debt as of June 30, 2022, totaling $3.9 billion, a 12.7 percent increase from $3.5 billion in the same period of the previous year.
But Bloomberg reported in October 2022 that China, Africa’s largest bilateral creditor, has been scaling back lending in the region amid its worsening growth woes.
Charles Robertson, the global chief economist at Renaissance Capital Ltd, was quoted by Bloomberg as saying that China’s scaling back would slow growth in the region and “can’t be welcomed by most debt investors.
China had over the last three decades developed the capacity to extend development finance to other developing countries like Nigeria because of its impressive growth — double digits for years. But China may be on the verge of a natural slowdown that will take the wind out of many economies that depend on it.
The Chinese government set its 2023 growth target for its economy at around 5%, lower than last year’s target of 5.5%, according to the China Bureau of Statistics, as the world’s second-biggest economy began to emerge from three years of severe COVID-19 restrictions. The Chinese economy grew 3% last year, significantly missing the 2022 target and marking one of the slowest rates of growth in almost half a century. A 2023 government budget deficit target of 3.0% of GDP has been set, according to the report, widening from a deficit goal of around 2.8% last year.
Although Covid-19 had struck the Chinese economy hard, the country’s growth slowdown had already started being manifested as a normal stage common with emerging economies.
Academic literature says that in the early stages of development, emerging nations can narrow their income gap with rich nations with relative ease, by borrowing or copying the technology and management tools of cutting-edger nations. At a certain point, however, emerging nations have borrowed all they can and need to start innovating and inventing on their own, and many fail at this challenge. Their economies suddenly stop growing faster and slow down in catching up. It is referred to as the “middle-income trap” by economists.
China has hit the middle-income trap. Typically the middle-income trap is said to spring at an income level equal to between 10 and 30 percent of the income level in the world’s leading nation, the United States. It is the stage at which a developing nation either stops catching up or reduces its catch-up pace.
The bigger a country, the tougher it is to grow faster. For instance, it is easier for a $10 billion economy to expand by 10% by achieving a $1 billion growth, than for a $100 billion economy to achieve 10% growth by adding 10% to its GDP. It happens with every economy. China cannot maintain unfettered growth ad infinitum.
Moreover, in the past decade, the size of China’s workforce has been declining. Consequently, China has been experiencing wage-driven inflation – structural inflation. With China’s impressive growth over the past half-century, there has been a huge demand for laborers, skilled and unskilled. With time, laborers have demanded higher wages.
A sudden rise in factory wages was the most important warning sign that at the peak of their boom decades, economic growth in Korea, Japan, and Taiwan was about to slow sharply. China has hit that point.
Sharply increasing wages call into serious question the future of a Chinese economy that is built on cheap labor and exports. Rising wages are compelling manufacturers to move plants to cheaper labor markets in countries like Indonesia and Bangladesh, so the export-manufacturing boom may have actually hit its limit and may start moving in the reverse.
Moreover, China’s one-child policy has landed the country into a demographic cul-de-sac. China’s working-age population is waning, which puts more pressure on the workforce. The smaller the country’s workforce, the more demand there will be for higher wages, a phenomenon that is reducing China’s edge as an economy of cheap labor and cheap export
In addition, typically, it is difficult for any nation to expand the manufacturing share of its labor force much beyond 20%. According to the Multidisciplinary Digital Publishing Institute (MDPI), in 2020, the number of industrial enterprises above the scale of China’s labor-intensive manufacturing sector accounted for 27.39% of the total number of manufacturing enterprises, and employment accounted for 52.06% of the total employment in the manufacturing sector.
These challenges are with China to stay, and they will determine growth, at least in the near future. By implication, they will determine how viable a development partner China will be to Nigeria.
The implication is that Nigeria’s next president will need to look inward to grow the economy. That may mean making smarter choices of reducing the cost of governance, patching the leakages in public finance, and building the country’s infrastructure through public-private partnerships.