Chinese Loan Agreement and Nigeria’s Sovereignty: Addressing Corruption and Political Chicanery

Chinese Loan Agreement and Nigeria’s Sovereignty: Addressing Corruption and Political Chicanery

By Bola A. Akinterinwa

The People’s Republic of China (China) and the Republic of Nigeria (Nigeria) are two sovereign States with shared values in international relations. In terms of geo-political consideration, China is both a regional and a global power in many ways. It is the dominant militaro-economic power in the Asian region and a global superpower in the making. In fact, it is currently at logger head with the United States in the quest for global leadership.

Apart from the politico-military, China is the biggest second economy in the world after the United States. It also has the biggest population in the world. Apparently for the purposes of competition for global leadership, China has been making frantic efforts to make Africa the centrepiece of its foreign policy by acquiring land for settlement in Africa, giving friendly loans and promoting a win-win cooperation diplomacy vis-à-vis Africa.

In the same vein, going by UN definition of a region, Nigeria is both a sub-regional (West Africa) and regional (Africa) power in the continent of Africa in various ways. Nigeria has the biggest population, the biggest arable land, and the biggest economy in Africa. Nigeria plays host to the most vibrant press in Africa. It is the biggest democracy. More interestingly, Nigeria made Africa not only the cornerstone of her foreign policy from 1960 to 1975, but also the foreign policy centrepiece with effect from 1976.

The implication of the use of Africa in the foreign policy calculations of both countries is clear: Africa as a source of foreign policy rivalry. The main interest of China is to have access to development resources in Africa. Nigeria’s own interest is precisely a negation of that. Under the military regime of General Yakubu Gowon, the then Commissioner for External Affairs, Dr. Okoi Arikpo, made Nigeria’s foreign policy stand crystal clear: that Nigeria would never accept the use of Africa simply as a source of raw materials for the development of Europe. The concern and focus then was mainly Europe.

The concern today goes beyond Europe and now includes China, another major importer of raw materials from Africa. Nigeria’s major question was, and still is, ‘what would happen when the resources are depleted?’ Where will Africa get the raw materials for its own development when the resources are depleted?

Additionally, Nigeria’s foreign policy since 1960 has been aimed at the protection of black dignity, promotion of African interests, even to the detriment of the interests of the people of Nigeria. For instance, the severing of diplomatic ties with Israel during the Israelo-Arab conflict, and particularly Egypto-Israel war in defence of the Palestinians, was in solidarity with Egypt. Even when Egypt decided thereafter to settle its misunderstanding with Israel by signing the Camp David agreement, Egypt never had the courtoisie to carry Nigeria along. Nigeria was simply cut unawares about it.

Thus, Nigeria’s foreign policy of defending Africa is still much in vogue as at today, meaning that Chinese inroads into Africa cannot but have Nigeria’s counter-influence to contend with. But, can Nigeria continue to capably defend Africa if she loses her sovereignty to China? Can Nigeria truly lose her sovereignty to China on the basis of Nigeria’s loan agreement with China?

Sovereignty and Agreement in International Practice
Grosso modo, the notions of sovereignty and agreement can be ambiguous. Sovereignty in the sense of independent statehood, and therefore of sovereign immunity from subjection of oneself to the supranational authority of another state, should not be confused with sovereignty in the sense of exercise of mere power or authority. While sovereignty in the first case of statehood or nationhood can never be ceded, sovereignty in the second case can lead to cession of authority.

In the same line of argument, there is the need to also differentiate between an agreement and a contract, which are, more often than not, confused. They are interchangeably used to mean the same thing, whereas they ought not to, because they do not have the same implications. Every contract is necessarily an agreement but not every agreement is a contract. The Tenth Edition of the Black’s Law Dictionary has given several examples of how the concepts should not be confused. According to the dictionary, an agreement to have a dinner at a given time may not create an obligation. A conveyance of land or a gift of a chattel, may not be a contract, even though it involves an agreement. It is not a contract because its primary legal operation is simply to transfer property and not to create an obligation.

From the perspective of the law courts, ‘an agreement is nothing more than a manifestation of mutual assent by two or more parties, legally competent persons to one another. Agreement is in some respects a broader term than contract, or even than bargain or promise. It covers executed sales, gifts, and other transfer of property.’

What is noteworthy here is that the grant of any loan is largely associated with three basic principles: agreement to voluntarily repay, non-invocation of sovereign immunity to avoid repayment and acceptance of arbitration in the event of misunderstanding or payment default. Defaulting can arise at the level of the borrower and even the lenders who may not be faithful to the spirit and letters of an agreement. In fact, this is why many agreements provide for repudiation clauses and the conditions for its management and resolution.

In essence, the grant of loans is always defined by conditionality, which can impinge on the sovereignty of a country. In this regard, what is sovereignty? What is national sovereignty? What is loss of sovereignty in the context of Sino-Nigerian commercial loan agreements? Is the problem of Chinese loan that of sovereignty or that of fear of galloping economic corruption and political remissness and chicanery that may prevent Nigeria from complying with the rule of pacta sunt servanda, that is, sanctity of agreements?

Nigeria can only lose her sovereignty as a nation state, if there is no more Nigeria as a State defined by territory, government, and population. In the absence of dismemberment of Nigeria as it is, there cannot be any loss of national sovereignty. This is why there is the need to identify the real problem involved in China-Nigeria loan agreements.

We contend here that the issue at stake is the challenge of total corruption as foundation pillar of political governance of Nigeria and political remissness and chicanery built on it, which have come to create fears for foreign investors, particularly in determining how to relate and do business with Nigeria. Why? This is because corruption has the potential to undermine the capacity to repay loans. Capacity to repay a loan is the first golden rule for the grant of loans in international economic relations. It is also the first dynamic for accepting to sign an agreement.

An agreement is ordinarily an expression of mutual desires and obligations. It can be for a given period. A loan agreement is of many types, depending on the purpose. A peace agreement is about the expression of how to avoid crises and conflicts between and among parties to the agreement. A ceasefire agreement is about bringing battles to an end, or how to stop shooting wars.

A loan agreement, with which we are more concerned here, is a contract that defines mutual consents, mutual obligations, and particularly how misunderstanding arising from the implementation of the agreement should be addressed. There is no international agreement that does not provide for entry into force, conditions of membership and withdrawal, as well as modalities for settlement of disputes. Indeed, international agreements are guided by the rule of sanctity of agreements and are not like toys that can be frolicked about by children. Agreements are behaviour regulators and must, therefore be faithfully respected.

Put differently, an agreement freely negotiated and duly signed should also be faithfully adhered to. A faithful adherence to such an agreement is also presumed, ab initio, to be a resultant from a clear understanding of the obligations and their implications for implementation. This should be the normal approach to the understanding of China-Nigeria loan agreements, which are not in any way different from the loans given by the Breton Woods institutions: International Monetary Fund (IMF) and the World Bank.

What is again noteworthy at this juncture is that the conditionality for the grant of a loan also varies from one agreement to the other. For instance, to be qualified for an IMF loan, a State borrower must accept to adjust or readjust as may be required by the IMF, its economic policies, especially in terms of what is identified as problems or dynamics of what had led to the problem. The main objective of the conditionality is essentially to ensure capacity to repay by reforming fiscal and monetary policies.

Consequently there is no way any conditionality does not impinge on national sovereignty in one way or the other, since the conditionality is imposed by the creditor and it is accepted by the borrower. However, this does not mean that a country’s sovereign existence will be lost. Sovereignty, as posited earlier in the sense of existence as a nation-state, cannot be lost. It is only part of sovereignty, as exercise of authority, that can be ceded. This is what can be affected in the event a country defaults. Many cases lend credence to this observation in international practice.

From a multilateral perspective, Mexico and Greece are on record to have the highest loans from the IMF. The two countries have had reasons to default. More recently, Greece in June 2015, defaulted on a $1.7 billion payment to the IMF. Besides, countries like Argentina, Lebanon and Ecuador similarly defaulted in May 2017 on the payment of their debts. Their sovereignty as a nation-state has never been undermined. They still continue to exist as a sovereign state in international relations.

More interestingly at the level of the international creditors, they too have had reasons to write off some debts and have reconsidered the debtors for fresh loans. The international creditors know for sure that situations of default can always arise. In an attempt to make refusal or inability to repay more difficult, clauses on immunity waiver are generally inserted in many agreements. Immunity waiver should not be taken as end to existence as a nation state. The problem, therefore. is not stricto-sensu, the issue of conditionality in a loan agreement per se, that exclusively matters most, but how the conditionality is managed to one’s greater advantage.

And perhaps most interestingly at the level of Nigeria, it should be recalled that the Club de Paris (Paris Club), created in 1956 and comprising officials of creditor nations, wrote off Nigeria’s debt in October 2005. At that time, the Club considered that the economic reforms of the Federal Government of Nigeria were enough and far-reaching, and therefore cancelled sixty per cent of Nigeria’s debt, then $30 billion. As noted in this regard, The Punch of July 20, 2017 had it that the Federal Government reached agreements with State Governments to deduct certain amounts from their federal allocations to service foreign debts. When the Federal Government reached an entente with the Paris Club, ‘some States that have been overcharged in the debt servicing arrangement applied for a refund. In December 2016, the Federal Government eventually agreed to refund the States, but in three tranches.’ This is a good illustration of how a situation of insolvency has been managed.

And true, it should simply be borne in mind that the conduct and management of international affairs is hardly based on moral considerations. It is realpolitik. It is power brokerage. It is about the rule of weighted voting or how solvent one is in international financial institutions where the principle of capacity to pay dominates. Consequently, the challenge for any debtor nation is how to manage loans under special agreements. It is the poor management of and unnecessary secrecy being placed on the Chinese loans that is largely responsible for the controversy over possible waving of Nigeria’s sovereign immunity.

The Controversy: Waiving Sovereignty Immunity
One major reason that explains the current controversy surrounding the offer of Chinese loans to Nigeria is the clause on possible loss of sovereignty. Observers speculate that in the event of national insolvency to repay the loans taken, it is most likely that there would be loss of Nigeria’s sovereignty. But which type of sovereignty is to be affected?

Most unfortunately, I have not had access to the controversial loan agreement. But consistent with one legal maxim according to which ‘injustum est, nisi tota lege inspecta, de una aliqua ejus particula proposita judicare vel respondere,’ that is, ‘it is unjust to give judgment or opinion concerning any particular clause of a law without having examined the whole law,’ we will simply limit our commentary to the aspect of possible waiving of sovereign immunity as raised in the National Assembly and as quoted in media reports.

As reported, the House of Representatives Committee on Treaties, Protocols and Agreements raised the need on Tuesday, 4th August, 2020 to probe Chinese loan agreements with Nigeria in an attempt to find out whether there is any conscious cession or possible cession of Nigeria’s sovereignty to China in the event of default in repayments by Nigeria. The House is more concerned with sovereignty while the Minister of Transport, Rotimi Amaechi, is more concerned with infrastructural development. He is reported to be discouraging such a probe for fear that it might militate against fresh loans and put a stop to the ongoing projects, particularly being handled by the Chinese.

In the specific matter of Chinese loans to Nigeria, another important legal maxim is ‘abundans cautela non nocet,’ which means ‘abundant caution does no harm.’ Rotimi Amaechi should not do anything to stop any probing of the Chinese loan agreements for purposes of public education. Any intended probe on this matter will be consistent with the need for transparency and public accountability, particularly at this critical time that anti-corruption efforts in Nigeria have become more of propaganda than of a determination to truly curb corruption. It should be good for Nigerians to know whether the Beijing authorities, which normally would execute any Chinese found guilty of engagement in any act of corruption have engaged in corrupt practices in the negotiation of loan agreements with Nigeria, in such a way that the Nigerian negotiators would have accepted to close their eyes to the inclusion of a clause that can lead to the cession of Nigeria’s sovereignty. This is why there is goodness in having an insight into the loan agreements.

And true enough as well, the arguments of the Transport Minister cannot be faulted. There is also the need to ensure continued funding of the ongoing rail projects being managed by the Chinese. If, in the thinking of the Minister of Transport, probing the loan agreements could stall the progress of the projects, one cannot but ask what is specially critical in the agreement that is frightening and that is more serious than waiver of sovereign immunity? Waiver of sovereign immunity, for me, is not really the main problem for various reasons.

First, there should not be any basis to default, if there is no fraudulent intention to default. There is a difference between asset immunity and sovereign immunity. The Sino-Nigerian loan agreement is commercial in character and deals only with assets for which the loan is taken. In the event of non-refund, it is the control over the assets, which actually serve as collateral for the loan that will so affected.

Good enough, Mr. Amaechi made this point clear when he said that ‘no country will sign away its sovereignty. The clause says ”I expect you to pay according to the terms that we agreed on, but if you don’t pay, when I come to collect the assets you used as guarantee, don’t wave your immunity at me and say you can’t touch our assets because we are a sovereign country’ (vide The Punch, August 1, 2020). In other words, there should not be any fear of waiver of sovereign immunity clause, because the loan agreement is not about that, but more about the fear of inability to repay. It is also about the fear that Nigeria needs more than the Chinese loans for national development but may not have the necessary credit worthiness to qualify for needed loans. The challenge therefore is that of inability in the conflicting two positions.

Inability to repay should be understood at two different levels: genuine insolvency and refusal to repay. Genuine insolvency results from situations of force majeure while refusal to pay results from deliberate decisions. For instance, contrary to the 2015 declared determination of the PMB administration to contain boko haramism, revamp the economy and throw corruption into the garbage of history, in 2020, the Buhari government has not been able to justify the technical defeat of the Boko Haram.

In fact, Nigeria is currently enveloped by garments of corruption, Boko Haram terror and threats of national disintegration. This situational reality is a resultant of necessity and can arise in the future in such a way that Nigeria may not be able to settle her debts. This situation is quite different from being solvent but refusing to repay on the basis of different interpretations of clauses of the agreement.

Without any shadow of doubt, the Transport Minister has assured that there is no basis for non-repayment. As he put it, ‘we will pay back. A loan given for 20 years at 2.8%. Which other country will give you that? I mentioned that these loans are paid directly to the contractors, once we sign that the job has been done. What is critical is that the projects are in place. Compared to the loans we got from the Western countries, this is at 2.8 per cent, for 20 years with seven years moratorium. Why won’t we pay back?

As good as the Minister’s point may be, why have agreements been signed and their textual exegesis has not been carried out before their ratifications and eventual execution? It is quite shameful that the House of Representatives Committee on Treaties, Protocols and Agreements should be seeking to probe agreements that should have been looked into before their execution.

First, there is the 2003 Debt Management Office Management Act that stipulates in its Section 21(1) that no approval can be given to any external loan unless its terms and conditions are first laid before the National Assembly and approved by it by resolution. Why were the legislators before now? Why was the loan agreement not brought to the National Assembly before now.

Secondly, this type of official attitude is contrary to one Latin legal saying that turpe est viroid in quo quotidie versatur ignorare, that is, ‘it is shameful for a man to be ignorant of the business in which he is engaged every day.’ Again, where was the House Committee when the agreement was finally done?

Even if the Chinese loans fall under executive agreements, and not necessarily under a treaty which may therefore require further domestication before it can become part of Nigeria’s municipal law and self-enforcing, there is always the need to always understand whatever agreement that creates obligations for the Government and People of Nigeria before it is initialled, signed, ratified and domesticated. The independence of the three arms of
Government does not mean non-investigation into matters like international agreements that affect common patrimony and have implications for nationhood. There has to be a clear understanding of whatever agreement the Government of Nigeria may want to enter into.

This is necessary because Nigeria does not belong to the Monist, but the Dualist School of Thought in International Law. Monism and dualism fall strictly under multilateral diplomacy and not under bilateral diplomacy, under which the Chinese loan agreements with Nigeria fall. The moment the instruments of ratifications of an agreement are exchanged, a bilateral agreement necessarily enters into force. In light of this, what really is the meaning of non-waiver of sovereign immunity in the Chinese loan agreements with Nigeria?

If, reportedly, the loan agreement stipulates that ‘the borrower hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding pursuant to Article 8(5), thereof with the enforcement of any arbitral award pursuant thereto, except for the military assets and diplomatic assets,’ there must have been something fundamentally wrong with Nigerian negotiators for being myopic on the implication of the factor of irrevocability of the waiver. With this, Nigeria cannot even revoke the waiver. Second, the scope of the waiver of immunity is not stricto sensu, but lato sensu, because the clause says there is no waiver ‘on the grounds of sovereign or otherwise…’ The emphasis is on ‘otherwise’ because unlimited things can fall under ‘otherwise.’ Regardless of whether or not the conditions of the loan are friendly (2.8 per cent interest rate, 20-year repayment period and 7-year moratorium), the clause not only rejects any immunity for ‘itself’ (Nigeria as a sovereign), but also rejects any claim to eventual immunity for ‘its property’ with the exception of militaro-diplomatic assets. So the issue of sovereign immunity is still raised. Even if this clause is simply considered as a normal waiver of immunity clause, as posited by Olisa Agbakoba, SAN, the argument is still necessarily neutralised by ‘the borrower hereby irrevocably waives ANY immunity.’ In any case, the problem is not about immunity but how to prevent corruption and indiscipline from incapacitating Nigeria from paying her debts.

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