The Outlook
China’s diplomatic relationship with Nigeria was not established until 1971, barely a year after the West African country’s civil war ended. But a lot has happened since then– both in terms of the number of years since that relationship started and the strength of the economic connection that has followed. Several developments in the late 1990s and early 2000s – like China’s recognition of Nigeria as its first strategic partner in Africa and the April 2006 Memorandum of Understanding between both countries – have fuelled the continuous rise of this bilateral tie, particularly in the area of infrastructure finance and development.
At the core of China’s relations with Nigeria’s energy sector is a domestic imperative. Over the past three decades, China has experienced an average industrial growth of 12 per cent annually. This growth fuelled the country’s shift from being a net oil exporter to a net importer in 1993 due to the inability of local production to meet rising demands. Today, the country depends on foreign oil for 72 per cent of its domestic needs, and this figure is expected to hit 80 per cent by 2030. This reality propelled its decision to adopt a ‘going out’ strategy as a key pillar of its 10th Five-Year Plan which encouraged and provided state support to Chinese companies — including national oil companies — to strengthen their international competitiveness.
Nigeria’s large oil and gas deposit, one of the largest in the world, naturally made it one of the key countries Beijing set its eyes on and this started with oil exploration activities following an agreement with the Nigerian National Petroleum Corporation in 1997. Eight years later, China National Offshore Oil Corporation purchased a 45 per cent stake in a Nigerian oil-for-gas field for US$2.27 billion, the country’s biggest foreign investment globally at the time. The critical place of oil in the relationship between both countries can’t be overstated. In fact, between 2000 and 2022, oil and gas products accounted for about 75% of Nigeria’s total exports to China, representing a significant portion of China’s oil imports from Africa, its largest source of oil after the Middle East and Russia.
Figure 1: Nigeria’s exports to China (1997 to 2022).
Beijing’s energy interests in Nigeria also extend to the power sector. Across Africa, access to electricity remains a critical challenge. The International Energy Agency estimates that by 2030, 560 million of the 660 million people without access to electricity will be in Sub-Saharan Africa. Even though Nigerian households have a 96 per cent connection rate, only 18 per cent of these connections function more than above average. However, China has been heavily involved in the process of improving this reality through continuous investments in power projects on the continent.
For example, thirty per cent of the 20 Gigawatts increase in power generation in Sub-saharan Africa between 2010 and 2015 was facilitated by Chinese contractors. In January, the Zungeru power plant, funded by an investment worth $1.3 billion from China, was launched to bolster Nigeria’s power generation. The project will add about 700 Megawatts, bringing the total capacity of power from Chinese investments in Nigeria’s power and gas plants to 1,829 Megawatts and representing over 40 per cent of Nigeria’s total 4,000 megawatts power generation (see Table 1). The figures in Table 1 do not include other projects in the pipeline like the 3.05 gigawatts hydropower project expected to commence operation in 2030 as Nigeria’s biggest power plant with an estimated cost of $5.8bn largely financed by the Chinese Export-Import Bank and a recent $463m investment to upgrade the country’s power distribution lines during the 3rd Belt and Road Initiative event held in Beijing.
Table 1: Power Plants financed by China in Nigeria so far
Overall, Nigeria is one of the top five recipients of China’s Outward Foreign Direct Investments in energy and power projects globally, a testament to the strong relationship between Abuja and Beijing in this sector.
Implications
Environmental Concerns
The strong relationship and continuous rise in Chinese investments in Nigeria’s energy and power sector has been at significant environmental, social and corporate costs. This raises a paradox of concern: green growth has, in the last few years, been one of the main drivers of Chinese economic progress, yet some of Beijing’s projects abroad do not meet acceptable environmental standards.
The chart below from BU China’s Global Power Database shows the cumulative annual emissions from China-financed plants in Nigeria over time. As these are cumulative figures, an upward trend is inevitable. However, the MW capacity to emission ratio of some of the power plants (e.g the Geregu Gas Plant in Kogi) may suggest high combustion systems being in use. Beijing announced in 2021 that it would no longer finance new coal-fired power plants. Newer and greener plants, such as the Zungeru hydropower plant are expected to reduce the carbon emission from China’s energy investments in Nigeria.
Figure 2: Cumulative Annual Emission from Chinese-financed power plants in Nigeria
Broader ESG Concerns
A 2023 report by the Boston University Global Development Policy Center indicates that energy and industrial projects funded by China in Nigeria and two other African countries don’t live up to the standards of China’s ESG guidelines, the Green Development Guidance for Belt and Road Initiative (BRI) projects. In Nigeria, this report focused on the Lekki Free Trade Zone, a major industrial project in the country’s economic capital, Lagos. It identified issues ranging from inadequate compensation of displaced residents affected by the resettlement necessitated by the project to poor local consultation in developing the project’s framework.
While the report highlighted these issues in the context of the Lekki Free Trade zone in Lagos, Nigeria, a similar pattern of concerns on poorly planned resettlement plans and poor consultation in project design has been associated with other Chinese-funded projects in states like Niger, mentioned earlier and other parts of the country. Similarly, Chinese companies across various sectors in Nigeria have also exploited the low engagement between the bilateral relations in terms of strategy to carry out activities outside the government’s view. For example, a McKinsey report estimates that 65 per cent of Chinese companies in Nigeria are undocumented. This poor regulatory environment has allowed issues like the neglect of workers’ welfare and child labour – all key social issues that contravene both the International labour guidelines and Nigeria’s labour laws – to fester in Chinese companies’ operations in the country.
In the same vein, cases of human rights abuses, pay below the national minimum wage, and unfavourable working conditions have also continued to trail these companies, making it impossible to effectively gain the full support of locals. This ESG framework is very crucial for projects funded by international financiers. All these issues are compounded by the fact that Nigeria does not have a specific governmental agency dedicated to monitoring ESG compliance and relies on multiple government agencies where corruption is rife. Officials have a track record of sacrificing due process and institutional integrity on the altar of corruption and pecuniary gains. The absence of a strong legal framework to check the negative cost of Chinese investors, especially on environmental issues, due to the absence of administrative fines for non-compliance has also been identified as a motivating factor for this trend.
Communal conflict and displacement
Relatedly, illegal mining activities by Chinese nationals in the country for legitimate investment in sectors like energy and oil also constitute serious concerns. For example, these activities in states like Taraba and Jos have undermined the potential of the mining industry and festered inter-communal conflicts among locals. Across various Northern states, illegal extractive activities have also inflicted significant environmental damage.
A classic case of the adverse effects of Chinese investment is in Shiroro, Rafi and Wushishi local government areas of Niger State, where the Zungeru power plant project led to the displacement of thousands of residents from their homes, submerging farmlands, their primary source of livelihood, into artificial islands. Even though attempts were made to compensate victims, the template used, according to residents, was flawed and outdated by the time the project started, forcing them to relocate to makeshift apartments where they fell prey to attacks from bandits and had to deal with unfavourable socio-economic conditions.
Another major cost of these investments in the energy and power sector is that Chinese investors’ approach to community engagement in the oil-rich Niger Delta region has left more questions than answers because they adopt an anything-goes approach that does little to effectively accommodate the interests of local residents which has fuelled security concerns from militant groups in the region. Chinese investments in Nigeria’s oil sector, especially in exploration activities, have also been criticised because they occur without commensurate respect to the country’s local oil development policy, leading to over-reliance on expatriates.
No doubt, the Nigeria-China power and energy relations have been beneficial to both parties – with China being a significant importer of Nigeria’s crude and Nigeria’s power sector benefitting significantly from Chinese finance. However, this has come at the expense of various environmental, social and governance costs for the Nigerian people. Not only is setting and monitoring environmental standards in Chinese-sponsored projects important for a more mutually beneficial relationship, the Nigerian government must identify and close out those channels that facilitate regulatory arbitrage and local conflicts.