Courting crisis: Chinese loans to Uganda and the implications

China money. President Museveni (centre) with Chinese engineers and Ministry of Energy officials after touring one of the tunnels (in background) at Karuma Hydro Power Project on August 23. The project is sponsored by a loan from China. FILE PHOTO.

What you need to know:

  • Beware: There is an urgent need to contextualise Chinese loans to Uganda and the potential for them turning into death traps for poor people, writes Nathan Nandala-Mafabi.
  • Growing. Uganda’s loan exposure to China has been growing over the last few years and is likely to surpass, International Development Association and the World Bank, according to Mr Stephen Kaboyo, the Alpha Capital managing partner.

Growing infrastructural development in much of Sub-Saharan Africa has become closely connected to China in recent years.
Construction of major infrastructure work is largely controlled by Chinese companies, who even negotiate loans on behalf of governments from China Banks at commercial interest rates. The conditionality for these loans is that the works shall be done by Chinese companies.

Uganda is a typical example of growing Chinese influence on the continent, running to China for most of its development needs.
The China-Africa relationship leaves a lot to be desired. Many questions arise from this relationship - whether in the area of trade, investment, development aid, loans and educational scholarships.

These represent the multiplicity, diversity and complexity of the Chinese strategy on the continent, with potential pitfalls.
It is puzzling, how deeply entrenched the roots of China and its footprints are being rapidly implanted at various levels on the continent.

It is not clear if African governments are prepared and in position to comprehend the depth of their ties with China and the implications for Africa’s future development.
Watching from Uganda, it is difficult to imagine that there is any understanding of the nature of ties being weaved by China and government officials.

Yet, it has to be asked, is Uganda capable of regulating Chinese engagement in the country? What is the attraction to China’s otherwise very expensive loans to Uganda and other countries on the African continent?

Why Africa
What is the attraction for China to these otherwise very poor nations? What are the implications for freedom of choice for development priorities?
I will start with the first issue of regulation. It is evident that Uganda does not have the capacity to regulate China’ engagement within their jurisdiction. They have become beholden to China for the financing of expensive capital projects such as roads, power dams, optic fibres, among others.

Part of this is because of lack of accountability and transparency, which have led to accumulation of debt that is untenable from previous partners, much of it lost in corruption rather than what it is borrowed for. The Ugandan government and others on the continent do not, therefore, want to deal with the questions that arise out of effectiveness of loans taken before and fiscal austerity. As such, China becomes a partner that appears indifferent to these concerns and do not care about the track record of paying back and efficient utilisation of the borrowed resources and governance issues that is the obsession of Western donors and lenders.

No regulation
Through this mechanism, officials in government loose the moral authority to question the Chinese and to pay due diligence, rendering them incapable of providing adequate regulation. This is the real attraction for the Ugandan government to China’s expensive loans and technical support.

The second issue of what is the attraction to China’s otherwise expensive loans to Uganda and indeed most of Africa is that much of China’s engagement happens in an opaque manner, making it impossible for citizens to question choice of projects or demand value for money for these projects. Much of what happens is outside of the knowledge of citizens. In order to appreciate this, one must examine the manner in which China varies strategies, from trade to investment in various projects and to providing aid and loans simultaneously.

Within the infrastructural projects, there is evident transfer of technology and even human resources that happens in a clandestine manner. This secrecy complicates attempts to regulate China’s engagement but also limits Uganda’s choices. But one must also think about the role of the government or at least some of its actors, in possible connivance with the Chinese government.

President’s intention
President Museveni’s response to purported delays in clearing Chinese companies to operate in Uganda over scrutiny of tax exemptions are an indication of some of the things that remain unclear in this cooperation between China and Uganda.
While asking what the attraction to China’s expensive credit might be is important, it is also crucial to question what the attraction for China is to these otherwise poor countries, within the context of helping them. While it cannot be disputed that China is a huge economic power, it cannot be trusted, particularly its motives and methods.

It is not possible to imagine that China is simply trying to help a poor nation. What is clear is that China has moved from being a trade partner, which dominates trade anyway, to a key stakeholder in infrastructure development and lender to Uganda. What is the attraction? Of course, like colonialism’s simple allure, natural resources and minerals are the key attraction, let us make no mistake.

It is almost as if China is leading a fresh attempt at re-colonisation of Africa, moving beyond the neo-colonial narrative. China is thus using Africa’s governments, with a lot of hunger for personal accumulation of wealth, their desperate desire to cling to power and its own economic power to take advantage of these countries.
With the guise of non-partisan involvement or no political interference, China is getting away with incredibly so much. The problem is, it is the African people that will be dispossessed by the ruling elite and political class, who are accomplices of China today.

The implications
As for the implications, these are numerous. Recent media reports about the takeover of a Zambian Corporation by China over the failure of the Zambian government to pay back some loans and the takeover of a port in Sri Lanka are just some of the beginning signs of what has been going on for years. It will not be surprising if China begins to control strategic ports in Africa. Much of these loans are far too expensive for developing countries to service effectively, which leaves such takeovers inevitable in future.

For example, a multimillion dollar project, which is mismanaged, poor quality work and lack of local content can be very dangerous for a country. Moreover, these loans are put in projects with limited capacity to deliver a high rate of return in the near future, with real impact for the poor of these nations. There is an urgent need to contextualise these loans and the potential for them turning into death traps for poor people.

Unless an honest attempt to operate with China in transparency and accountable way is cultivated, eliminating the current secrecy that surrounds much of what is done, then we can say we are courting crisis. There will be a generation of Ugandans that will have no idea how to redress any wrongs. There might be need to redefine our jurisdictions, if our independence and sovereignty is to be upheld in future.

Most importantly, we must look beyond the official narrative and what is obvious, to seek to understand the deeper meanings of China’s engagement in Uganda and Africa in general. What is sad, is that Africa is allowing China to shape the conversation on their economic development in what is clearly an unequal partnership from which only China stands to massively benefit in the long run, with limited possibility for socio-economic transformation of Uganda and other African countries.

Africans need to develop a sceptical attitude towards all these investments and development support, deeply engaging with it. While for China, this is a matter of hegemony and power, for Africa, it is a matter of life and death for the majority poor of its inhabitants.
Multinationals need to come to the aid of Africa to avoid the worst crisis in the nearby future.

Trap? China’s increasing influence through lending money that some countries cannot pay back, according to some analysts, has opened Africa to new challenges. Some analysts are calling it “debt-trap diplomacy” as such countries are forced into concessions when they default. For instance, according to the Centre for Global Development report, Sri Lanka, which holds about $1b in Chinese debt has been forced to surrender one of its ports to Chinese government-owned companies for a lease of 99-year.

Chinese investment in Uganda and Africa
Uganda is among the 20 countries on the African continent where China has massively invested.
The Asian country, according to data from US-based research think tank – Brookings - is working on more than 89 projects shared between 45 Chinese companies.
However, other East African countries such as Kenya and Tanzania hold much more in Chinese loans compared to Uganda.
For instance, Kenya holds more than Shs19.2 trillion (($5.202b) in 137 projects worth of Chinese loans, while Tanzania currently has more than 149 projects funded by Chinese firms.
Nigeria, South Africa, Zambia, Ethiopia and Egypt round off the list of five countries with the largest amount of Chinese loans.
As of March 2018 Uganda held Shs14.6 trillion ($3.9b) in debt to the World Bank compared to China’s Shs6 trillion ($1.6b).

World Bank Vs China
Loans from the World Bank or African Development Bank and China are differently structured.
For instance, loans from the World Bank are structured as concessional and mostly carry a 10-year of grace period compared to those secured from Chinese which carry immediate interest rates.
According to data from Alpha Capital, almost 50 per cent of loans from China are offered on commercial terms while the World Bank and International Development Association (IDA) provide concessional loans.

IDA loans are mostly earmarked for education, health and other social services while Chinese loans tend towards infrastructure projects such as roads, railways and power plants.
The bulk of the Chinese loans have been directed towards infrastructure financing, especially in projects such as Karuma, Isimba and some national roads.
China Exim Bank is one of the key agencies funding transport projects such as the Malaba-Kampala Standard Gauge railway, Kampala-Entebbe Express Highway and expansion of Entebbe International Airport.

Additional reporting by Eronie Kamukama

Nathan Nandala-Mafabi (MP) Uganda
Vice Chair, Board PNoWB/IMF
Chairman, PAC