ABUJA (Reuters) – Nigeria has signed a deal to borrow $600 million from China’s Export-Import Bank, most of which will be used to build a railway servicing the capital Abuja and surrounding areas, the finance ministry said on Wednesday.
The loan was agreed at 2.5 percent over a period of 20 years, with a grace period of seven years, the ministry said.
China has made a string of cheap loans in the past few years with countries in Africa, a continent which supplies oil and raw materials like copper and uranium to the world’s most populous country and second-largest economy.
Lending at below market rates to fund infrastructure projects using Chinese firms has been a common Chinese tactic for cementing its relationship with resource-rich Africa, whilst also subsidising its construction industry.
The Abuja railway, which is being built by the state-owned China Civil Engineering Construction Corp, will cost $500 million and is due to be completed by 2015, although like many projects in Nigeria it is running behind schedule.
A further $100 million of debt will be used for Nigeria’s Galaxy Backbone project, which is aimed at improving security and giving young people better access to technology.
One strand of the new railway will link Abuja city centre with the international airport and the other plans to connect surrounding commuter regions with the capital. Roads around the capital are poorly maintained, congested and dangerous.
“The light rail in Abuja will improve transportation for all residents, especially the working class,” Nigerian Finance Minister Ngozi Okonjo-Iweala said at the signing agreement with China Exim bank in Beijing.
Nigeria expects in the next few weeks to sign off on another deal with China to borrow a further $500 million to build four airport terminals in Abuja, Kano, Port Harcourt and Enugu, the finance ministry said.