This Is Why China Inserts Sovereign Immunity Clauses In Loan Agreements With Africa

Africa China Sovereign Immunity
Credit: State Council of People’s Republic of China

Nowhere else has China’s overseas commercial partnership attracted more criticism and attention than in Africa. Beijing’s loan agreement with African countries has widely been described by some as debt-trap diplomacy

Among others, the debt trap rhetoric has always been backed by claims that the immunity clauses inserted into loan agreements by Beijing is an attempt to take over the sovereignty of African countries should they default on the payment. Many see sovereign immunity clauses in Chinese loan agreements as a ploy to re-colonize Africa from the back, while others ask whether these loans form debt-trap diplomacy. Uche Igwe, an African political economy analyst, gives a perspective on this narrative using the cases of Nigeria, Kenya, and Zimbabwe in an article.  

Recently, the Nigerian National Assembly kicked against a legal clause, Article 8(1), of a USD500 million contract signed on September 5, 2018, between the Federal Ministry of Finance and the Export-Import Bank of China for the Nigeria National Information and Communication Technology (ICT) Infrastructure Backbone Phase II Project. 

The immunity clause in Nigeria’s case stated that “[t]he Borrower [i.e., the state of Nigeria] hereby irrevocably waives any immunity on the grounds of sovereign or otherwise for itself and 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.”

Researchers have pointed out that clauses like this appear to be standard in Chinese loan contracts. Indeed, some scholars have also revealed that it is a standard clause in international commercial agreements

Explaining the above, Igwe said, “the clause is said to be included in most standard Chinese agreements. The apparent reason is to prevent countries from raising sovereign immunity as a defense in case of any legal dispute. However, many politicians and opinion leaders in Nigeria vehemently disagree. Rather they insist that many of the loans are Trojan horses with hidden intentions that could lead to the surrender of choice sovereign assets.”

Africa Should Be Strategic With China

Igwe in the article posited that the time has come for an African strategy towards China. “There is no validity to the claim Nigeria or any African country may be ceding their sovereignty due to a clause in their loan agreement with China. Yet there is a crucial case for more public scrutiny of the loan agreements that African countries are willing to enter into. Furthermore, African countries, like Nigeria, need to urgently consider formulating a comprehensive strategy for engaging with Beijing. A rigorous template for scrutiny of all contractual agreements must be part of it,” the Economy analyst suggested. 

Igwe also added that “the reliance on the Chinese rhetoric of brotherhood and a win-win engagement approach with the continent is lazy, simplistic and potentially misleading. Ultimately, diplomacy is self-serving, and it is the responsibility of African countries – the borrowers – to articulate their own strategy for engagement. Nigeria is best positioned to lead that conversation.”

While it might indeed be premature to fret over Chinese debt distress in Africa, how can African countries avoid such a scenario and ensure that loans taken from China are used for the intended purposes?

What do you think? Let us know in the comments.

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