Where shall we get the money to sustainably service Chinese loans?

This week, President Museveni travelled to Beijing where he held meetings with the president Xi Jinping of China. The purpose of the two-day working visit to China was for bilateral talks and also to address coordinators on implementation progress of the first Summit of China-Africa Economic and Trade Expo resolutions agreed in 2018 where 53 African countries were represented.

The issue of more loans from the Chinese government also seems to have been a key part of the visit. President Museveni expressed displeasure at the World Bank for declining to give Uganda additional loans. According to President Museveni, “One of our engineers recently told me that Uganda Railways tried in vain to get support from the World Bank until one official told them that countries that build railways do so with ‘their own money.”

The World Bank seems to have decided a position of ‘tough love’, given the increasing long-term debts that Uganda is incurring without a clear repayment plan. Uganda now seems to be desperately looking for more than $3.2 billion to construct the Standard Gauge Railway (SGR) section from Busia border to Kampala.

In response to the World Bank, Uganda may easily manage to borrow the money needed for the SGR from China. The attraction to Chinese loans is the less stringent conditions, no auditor involvements, no monitoring and less accountability requirements. In 2018, the International Monetary Fund (IMF) warned that Africa is heading towards a new debt crisis. China is currently the largest single creditor nation, with a combined state, commercial loans facility estimated at $132b as of 2017.

The Chinese government seems to be firmly benefiting from the loan facilities used by African countries since contracts awarded as well as employment opportunities favour Chinese workers.
Since the Chinese government usually insists that equipment from China are used and Chinese people employed, workers from rural areas of China who would otherwise be unemployed back home, find employment in African countries.

In 2018, then United States secretary of state Rex Tillerson made comments that China’s lending policy to Africa is only encouraging dependency through opaque contracts, predatory loan practices, corrupt deals designed to deny long term self-sustaining growth.

In other words, it is possible that highly appealing, easily accessible Chinese loans could lead to increased debt for poor African Countries, fewer employment opportunities and increased poverty levels.
Understandably, some countries like Pakistan and Nepal have taken decisions to reject infrastructure loans from China since raising debt burden does not result in poverty eradication and economic growth.

In Uganda, the trend for borrowing and accumulating high interest loans is irresistible. It is demonstrated by ministry of Finance actions almost every week with requests to Parliament. The presidential visits and bilateral meeting in Beijing seems to be another platform for yet more loans requests. While loans are being sought on behalf of Ugandans, nobody is giving citizens information on where an already struggling economy is going to generate excess money to pay back the infrastructure loans.

It is difficult to see how Chinese loans for the SGR, building dams and setting up industrial parks will stimulate high return on investment in the short term to sustainably service the loans.
Meanwhile, unemployment persists and poverty level escalates. Since our debts are increasing with loans, it would only make sense that foreign investors may also decide to avoid Uganda since the rising debt could easily equate to Uganda being seen as a high risk investment destination.
It seems for the foreseeable future Uganda’s debt burden is steadily growing with no end.

Ms Victoria Nyeko is a media commentator.
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Twitter:@VictoriaNyeko