Sino-Nigerian Relations: FTZs, Textiles and Oil

Nigeria is rapidly becoming China’s second largest trading partner in Africa, with trade between the two countries reaching over $3 billion in 2006. To gauge the exponential rise in Sino-Nigerian trade relations, one may consider the fact that in 1998 its trade volume was $384 million (AllAfrica.com, April 14, 2006). By 2001, this had reached $1 billion and by 2004, $2 billion. Nigerian exports to China—excluding oil—have quadrupled. Signifying Nigeria’s importance to China, in January 2006, Beijing signed a Memorandum of Understanding with Abuja on the Establishment of a Strategic Partnership. In doing so, Nigeria became the first African country to sign such an agreement with China.

Other anecdotal points emphasize the importance of this bilateral relationship. China’s first scheduled direct flight to Africa was inaugurated on December 31, 2006, when China Southern Airlines Company launched its maiden flight from Beijing to Lagos via Dubai. With some 50,000 Chinese now living in Nigeria and a growing Nigerian diaspora in China, the airline’s service makes commercial sense. In August 2005, Nigeria also began hosting a Chinese newspaper, West African United Business Weekly, the first in West Africa. Such an engagement means that China’s links with Nigeria are qualitatively different from the West’s, and as a result, may potentially produce benefits for the ordinary people of Nigeria.

Nigeria’s Markets

In 2006, China announced that it would invest $267 million to establish the first phase of the Lekki Free Trade Zone (FTZ) in Lagos (People’s Daily, May 9, 2006). Approved by the Chinese government, the Lekki FTZ is the first of its kind that Beijing has constructed overseas. Eventually, the project aims to cover 150 square kilometers with a total investment of $5 billion. Of course, as with other announced Chinese projects in Africa, whether or not Nigeria will ever see a 15 square kilometer FTZ in Lagos where 300,000 Nigerians are employed is a matter of speculation, if not skepticism.

Yet, any development of the FTZ will have to confront the growing concern regarding Chinese work practices. According to a Nigerian report, “Chinese companies are notorious for their tendency to bring in their own workers as opposed to hiring locally. Local content has no meaning to the Chinese-run companies. This policy does not in any way address issues of unemployment in the host nations. Safety standards within their industries are another area of concern. The fire incident at a Chinese-owned industry in Ikorodu Town, Lagos State revealed that it was standard practice to lock the workers in while on duty. In this particular case, this policy hindered the workers escape route from the fire and resulted in many of them losing their lives” (This Day [Lagos], February 15). Considering the infamous corrupt tendencies of Nigerian government officials, however, it is probable that safety inspectors were bribed to look the other way. There are, nevertheless, genuine issues surrounding Chinese labor practices, in Nigeria as elsewhere in Africa.

The flooding of Nigerian markets with cheap Chinese products, undermining the country’s commercial operations, has also become a politically sensitive issue. For example, the enormous influx of inexpensive Chinese textiles has resulted in the shrinking of Nigeria’s domestic textile industries as Nigerian fabrics have been unable to compete with their Chinese counterparts. As General Secretary of the Textile, Tailoring and Garment Union Issa Aremu notes, the mass importation of textiles—both second-hand from Europe and new garments, mostly from China—has led to the closing of 65 Nigerian textile mills and the laying off of a total of 150,000 textile workers over the past ten years (Koinonia International, February 15, 2005). Aremu also claims that more than one million others whose jobs are linked to the textile industry, such as traders and cotton farmers, have also lost their means of livelihood because of the closures.

Investing in Nigeria’s Oil

As Africa’s leading oil producer and the eleventh largest oil producer worldwide, Nigeria has a light, low sulfur grade of oil known as “sweet crude,” which is valued for its high gasoline content and relatively cheap processing outlay. Until recently, China had been completely excluded from Nigeria’s oil industry by an established presence of Western oil companies in Nigeria. This is rapidly changing, however, through a mix of canny Chinese diplomacy and sweetener development deals.

With regard to specific Chinese oil contracts in Nigeria, in October 2004, it was stated that Nigeria needed an annual investment of $10 billion in order to reach a proven reserve of 40 billion barrels by 2010 (People’s Daily, April 20, 2005). Consequently, PetroChina signed an agreement with the Nigerian government to locate upstream oil and gas assets that might be incorporated into downstream projects. In July 2005, PetroChina signed an $800 million contract that guaranteed 30,000 barrels per day to China over a five-year period, to be renewed every year (Xinhua, July 9, 2005). Building on such developments, in April 2006, the Nigerian government offered China four oil exploration licenses in exchange for $4 billion worth of investment in Nigeria’s infrastructure.

The two countries then signed seven development agreements granting Abuja export credit worth $500 million (Reuters, April 27, 2006). China agreed to repair the Kaduna Refining and Petrochemicals Company, while undertaking other investment projects, such as building a hydropower plant in the Mambila, Plateau State. In return for this, China was permitted to exercise the “right of first refusal” on oil blocs. China National Offshore Oil Corporation (CNOOC) has also taken over the commitments of a contractor of a deepwater bloc that had earlier been assigned to South Atlantic Petroleum Limited, a company owned by a former Nigerian Defense Minister, Theophilus Danjuma (People’s Daily, January 10, 2006). Reflecting the ties between politics and oil in Nigeria, Danjuma immediately took steps in Nigeria’s courts to negate the deal. Claiming that his company’s acreage had been revoked for political reasons linked to his non-support for then President Olusegun Obasanjo’s attempt to change the Nigerian constitution and run for a third term, Danjuma’s case was brought before the Federal High Court, which ruled in favor of Obasanjo’s government.

There have been indications that Sino-African ties in the oil sector have not been progressing as smoothly as initially thought. In March 2007, it was announced that the Nigerian Government was reconsidering its plans to hand over the management of the Kaduna refinery to CNOOC given that Chinese promises to invest in the refinery had not materialized. Director General of the Bureau of Public Enterprises Irene Chigbue stated that the plan to get CNOOC to manage the Kaduna refinery, which produces 110,000 barrels per day, “[ran] into hitches as the CNOOC have not been forthcoming with the takeover plans” (This Day, March 6). Indeed, the Chinese had initially agreed to manage the Kaduna refinery as a pre-condition to winning oil blocks for which Chinese companies were bidding. Chigbue added, “The arrangement which was tied to oil block allocation as a result of the peculiar nature of the refinery, which requires heavy investment, was being considered for review as the Chinese firm had not shown appreciable interest….No appreciable progress had been made since the allocation took place” (Vanguard, March 6). Such a situation is particularly important for Nigeria—and threatens to sour Sino-Nigerian relations—as Abuja is desperate to offload its former public enterprises to competent management.

Other problems in Sino-Nigerian relations also revolve around the oil industry and threaten to undermine the bilateral links and the “win-win” situation that Beijing boasts about in its discussions of Sino-African ties. In particular, the security situation surrounding the oil industry in the Niger Delta is becoming increasingly problematic. Nigerian militants from the Movement for the Emancipation of the Niger Delta (MEND) have warned Chinese companies to “stay well clear” of the Niger Delta or risk facing attacks. They have also claimed responsibility for a car bomb attack near the port town of Warri, stating that the blast was “a warning against Chinese expansion in the region” and that “the Chinese government, by investing in stolen crude, places its citizens in our line of fire” (Financial Times, May 1, 2006). Complaining of Washington’s tardiness in offering security assistance in the form of personnel and hardware, Nigeria has turned to China for military assistance to protect its oil fields. Given that Nigerian security forces are responsible for “politically motivated killings; the use of lethal force against suspected criminals and hostage-seizing militants in the Niger Delta; beatings and even torture of suspects, detainees, and convicts; and extortion of civilians,” as well as “child labor and prostitution, and human trafficking,” Washington’s reluctance to provide such elements with further supplies is perhaps understandable [1]. China, however, needs little compulsion to sell weapons to such actors and is able to fill the gap left by the hesitant Western nations.

Conclusion

Even as China is becoming heavily involved in Nigeria’s oil industry, Chinese companies are also penetrating other spheres of Nigeria’s economy. In the process, unlike most other foreign actors in the country, they are investing in fixed assets, such as refineries and factories, with the intention of developing a long-term economic relationship. Consequently, stability and good governance in Nigeria is advantageous for Beijing because it is the only way to guarantee that Chinese interests are protected. In such circumstances, the task for the West and for Nigerian civil society is to engage Beijing by cooperating in areas where mutual interests converge and work to advance the well-being of the Nigerian people as a whole.

Notes

1. Library of Congress – Federal Research Division, Country Profile: Nigeria, Washington DC: Library of Congress, June 2006, p. 22.