What is wrong about the Chinese Loan

Share this

It was just few days ago I read  a press release by the Office of the Directorate of  Debt Management Office (DMO) of Nigeria about the Chinese  loan, tagged  “Facts About Chinese Loans To Nigeria” in The News online magazine of  Thursday 18 June 2020 where 11.28% of the total   external debt  portfolio of Nigeria was said to be from china. Over time this issue has generated lots of controversies.

The question is: “what is bad about a loan and what is bad about the Chinese  loan?”. Loans are simply funds provided by third party for a purpose and with terms and conditions over a period of time. Adam smith on usury law noted that “…overall demand for loan emanated from two distinct sources 1) low-risk borrowers whose demand for loan was rationally motivated and likely to result in profitable socially beneficial investment and 2) “prodigals and projectors” who were likely to invest in risky, speculative ventures or unproductive uses.     Individuals can take loans; firms can do same, while nations are also entitled to take   loans. Terms and conditions are generally principles of loans. Most times, loans can be taken by individuals to shore-up current consumption or prepare for future consumption or for purpose of investment.

Investment, in itself, is the suspension of current consumption to accelerate future consumption and growth. Individuals, firms and nations need this to survive. No nation, individual and firm can survive over a long time without the addition of loan to whatever they can raise locally and personally. A story was told of a United State of America (USA) past President who was only able to liquidate the student loan he obtained , in his first year as a senator. This is a veritable portrayal of the importance of loans in supporting the actualization of different endeavors. According to the United States Treasury’s office, the country debt portfolio stands at a staggering $26.6 trillion as at August 20 2020. This speaks volume about the importance the wealthiest nation in the world attaches to loans. Therefore, what is bad about the Nigeria loan from china and perhaps from any other nation or bodies? Nigeria is at liberty to take loan to grow her economy. When such loans are drawn on investment, it becomes an income-yielding consumption of a long-term nature. All nations take loans for development purposes. USA, China and many other developed nations do. No nation