Uganda looks to China for development

Taking stock of Chinese investments in Uganda

Kampala, Uganda | RONALD MUSOKE | China has been Uganda’s second largest trading partner for a while, according to Zheng Zhu Qiang, the Chinese ambassador to Uganda. China is now also the second leading investor in terms of projects.

Speaking during the Uganda-China Economic and Trade Cooperation Forum in Kampala on Aug.16, the ambassador said China has since 2011 become Uganda’s largest source of foreign direct investment and the biggest infrastructure development partner.

Zheng had just seen off a signing ceremony of several memoranda of understanding between Uganda and a number of Chinese companies for new investment projects worth US$260 million (Approx. Shs 977 billion). The projects which will be established in industrial parks across the country are expected to generate over 8,500 new jobs.

The Uganda-China Economic and Trade Cooperation Forum, which is now in its second year and will be held annually, is jointly organized by the Uganda Investment Authority and the China Enterprise Chamber of Commerce. It is aimed at taking stock of Chinese investments in Uganda, weighing their contribution to the country’s industrial development strategy and assessing whether they are mutually beneficial for both China and Uganda.

Statistics from the Uganda Investment Authority (UIA) show that since 2011, it has registered over US$1.2 billion in planned investment from China. Data from the Ministry of Trade, Industry and Cooperatives also shows that trade between Uganda and China reached about US$ 932.8 million (Shs 3.3 trillion) in 2015 with Uganda’s exports to China contributing US$ 57.7 million (Shs201 billion).

Another important feature of China’s engagement in Uganda has been infrastructure finance, owing to the fact that a key binding constraint to Uganda’s economic growth and integration with the global economy has been its poor infrastructure.

Zheng said Uganda is now among the top four investment destinations for China in sub-Saharan Africa, adding that the relocation of Chinese companies to African countries such as Uganda is expected to generate more business and employment opportunities for the many jobless people in the next decade.

Uganda’s blossoming partnership with China fits into the East Asian nation’s “peaceful development and mutually beneficial cooperation” strategy which it has deliberately sought to promote around the world since the 1980s.

“China has declared that it takes a path of peaceful development and is committed to upholding world peace and promoting common development and prosperity for all countries,” said Sun Heping, the former Chinese ambassador to Uganda in 2011 in an opinion in the Uganda government-owned newspaper, The New Vision.

“China’s overall goal of pursuing peaceful development is to promote development and harmony domestically and pursue cooperation and peace internationally,” he said, “China cannot develop itself in isolation and global prosperity and stability cannot be maintained without China.”

In the last decade, thousands of private and Chinese government-backed entrepreneurs and companies have poured into Uganda to do business. They are now involved in construction, energy, hospitality, manufacturing, logistics, and mining, as well as oil and gas projects.

They are also into wholesale and retail trade. In many shopping arcades and malls in Kampala’s CBD, the Chinese occupy hundreds of outlets, selling mobile phones, shoes, textiles, ladies’ accessories, electronics and other merchandise often to the chagrin of local petty traders.

At a bigger level, the Chinese state-owned firm, Syno-hydro is putting final touches on the 600MW hydroelectric power dam at Karuma while another firm, the China International Water and Electric Corporation is building the 183MW Isimba hydro power dam which are both on River Nile.

The Export-Import Bank of China has funded the US$1.4 billion Karuma dam and provided up to US$483 million for Isimba hydropower dams as well as the US$350 million for the construction of the Kampala-Entebbe Expressway which is now in use.

In June, President Yoweri Museveni alongside Wang Yang, the chairperson of the Chinese People’s Political Conference opened the 51km toll road built by the China Communication Construction Company.

Later on this year, another Chinese firm, Guangzhou Dongsong Energy Group Limited is expected to open arguably the largest fertiliser factory in East Africa at Sukulu in the eastern town of Tororo. There are also many small and medium scale industries and numerous roads around the country that Chinese companies are constructing.

An August, 2017 Bank of Uganda policy brief developed with support from the International Growth Centre on how Uganda can benefit from China’s economic rise noted that since Uganda faces a deficiency in infrastructure, including roads, ports, energy, water and sanitation, Uganda can mutually benefit from the partnership with China.

But, the government’s deepening economic ties with China have not come without controversy, mainly surrounding China’s alleged ‘exploitative’ nature. There have even been protests in Kampala and other Ugandan towns on issues ranging from poor working conditions in Chinese-run enterprises and perceived unfair competition by Chinese entrepreneurs.

Isaac Shinyekwa, a trade and regional integration research fellow at the Economic Policy Research Centre (EPRC) in Makerere University told The Independent that like any other developing country, Uganda needs China.

“Every country needs partners to develop; Japan and South Korea developed mainly because of foreign direct investment,” he said, “Uganda needs China because they have the money and they are willing to lend this money.”

Ramathan Goobi, an economist based at Makerere University Business School agrees with Shinyekwa. He told The Independent on Aug. 20 that there is no doubt that foreign direct investment is welcome in any economy but he quickly added that countries which have succeeded at using foreign capital to grow and industrialise are those that are well-regulated.

He says Uganda has ended up getting what he calls “adverse selection” of investments because the government does not have well-sought out guidelines to follow up on the type of investments for which to take the Chinese loans.

“The investments that we are getting from China are mainly those that have failed to work anywhere else or those that are not welcome in many other places (dirty industries),”Goobi said.

Shinyekwa says although the Chinese might have their issues in regards to how they do their lending, he has since learnt that the Chinese work with anyone depending on what they find on the ground.

“If they find you with strict regulations and systems they will abide by that; and if they find you are weak and your systems are corrupt, they will work with the corrupt system.”

Shinyekwa told The Independent that since the Chinese are here for many more years, it is time for the government to develop systems that will ensure that the relationship between the two countries is mutually beneficial.

“It’s not enough for Ugandans to keep lamenting,” Shinyekwa said in reference to last year’s demonstrations by Ugandan petty traders citing the infiltration of Chinese retail traders as well as the sheer difference in the terms of trade between the two countries.

“The Chinese are not going to give us anything on a silver platter,” he said, “In business, you get what you negotiate for and not what you deserve,” he said, “If your negotiating power is weak, you get less, if you have the ability to negotiate, you get more.”

Whatever the case, Ugandan government officials are happy with the Chinese contribution to Uganda’s economy.

At the recent Kampala forum, President Yoweri Museveni thanked China for “helping Uganda to deal with its development bottlenecks” among which is the infrastructure shortfall.

A month earlier, in July this year, Museveni met his counterpart President Xi Jinping of China on the sidelines of the BRICS summit in Sandton, South Africa.

Museveni again thanked Jinping for supporting Uganda on a number of projects including the Karuma and Isimba hydro power stations and the Standard Gauge Railway project whose negotiations are scheduled to be concluded.

Museveni also pushed for a line of credit to buy industrial machinery from China for a number of Uganda’s industrial parks and support to Uganda through tourism since Uganda is reviving the Uganda Airlines that will also be flying to China.

President Xi said China would try to find well-positioned companies to support the railway project and encourage Chinese companies to operate in Uganda. He also said China will open up its markets to Ugandan agricultural products.

This was the second time the two leaders were meeting in three years with a possible third meeting scheduled for September during the Forum on China-Africa Cooperation (FOCAC) Summit scheduled to take place in Beijing.

Going by the frequent meetings between the two countries’ leaders and senior government officials, it appears the Uganda-China partnership requires a long-term perspective, especially in the oil production project being spearheaded by the China National Offshore Oil Corporation (CNOOC) whose outlay in investment has already hit the US$2 billion mark.

Goobi says the Chinese are here for the long term and Uganda needs to rethink its negotiations with the Chinese; especially on local content.

“We need to do exactly what China did. China has partly developed because of money from Europe and the U.S but their investment regime was structured in such a way that it was strong on local content and technology transfer.”

According to him, any investment which does not incorporate Ugandans at a ratio of 40:60 partnership should not be welcomed.

“Uganda is a at a stage where we want to industrialise and if the Chinese are going to help us, we need to stop behaving as though we are too desperate for investors.”