Banks fight over Chinese businesses

China’s dominance

In recent years, Chinese companies have dominated the sector of infrastructure, including construction of major roads and highways, the Entebbe International Airport, national Information Communication projects, hydro-power projects, oil infrastructure, and manufacturing among others.

Availability of untapped rich natural resources, peace and security and potentially high quality labour force in Uganda are among factors supporting the Chinese business success story in Uganda.

According to the Uganda Investment Authority (UIA), China has for the last three years topped the list of foreign direct investment sources to Uganda.

In 2014/2015 China’s planned Investment in Uganda was US$528.9 million which accounted for 56% of all the FDI planned investment in the financial year. According to UIA, by end of last year, the government of Uganda was promoting 14 projects worth over US$6 billion involving Chinese potential investors.

According to UIA, Chinese trade investment in the country as of end of 2015 was cumulatively valued worth more than US$800 million (Shs2.8 trillion, equivalent to about 30% of the national budget). According to some figures, they have created employment opportunities for more than 35,000 Ugandans. They have also enabled the flow of Chinese capital and technology to Uganda.

There are more than 50 Chinese companies in Uganda, engaging in trade and small and large scale manufacturing; especially infrastructure construction. There are also an unknown number of small-time Chinese entrepreneurs in the informal sector and petty trade.

Thinking long term

Trade laws in Uganda require foreign investors to have a minimum of US$100,000 capital in planned investment for them to acquire an investment license to do business in Uganda.

Whereas some investors have complied with this legal provision, there have been cases where sections of foreigners, among them many Chinese, have been involved in petty trade. This category has often had bitter confrontation with the local business community players.

In one recent case, a group of Chinese was accused of illegally mining sand in a remote village of Wakiso district, central Uganda and was involved in fist-fights with the locals.

Martin Okumu, the director of communication at the Uganda National Chamber of Commerce and Industry told The Independent in an interview on March 18 that as the government finds a way of getting rid of petty Chinese traders, “we need to look at bigger long term opportunities in terms of jobs, taxes and other multiplier effects that huge projects currently under the management of Chinese investors would create for Uganda.”

“Let’s not fight over petty things,” he said, “These guys are working on huge power dams, roads, they are into manufacturing and this means a lot to the growth of our country.”

Commenting on ongoing jostling among commercial banks to lure Chinese businesses, Okumu said the Chinese are a big contributor to foreign direct investment to Uganda and that it makes business sense for banks to lure them into doing business.

“It is a give and take relationship,” he said, “the Chinese are here to invest and make some money and it is the same with banks; what is critical is for government to ensure they do everything legally.”

Okumu said business opportunities are skewed in favour of the Chinese, especially at the level of capital mobilisation for business expansion or start-ups.

“Chinese get loans back home at 5% or less per annum while Ugandans get loans at over 25% in Ugandan banks,” he said.

He said, as a result, some Ugandan traders have been forced to sell off their business enterprises, including in busy trading hubs like Kikuubo, to Chinese who can easily mobilise funds to profitably run them.