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Categorized | Banks

Uganda looks to China for investment

Posted on October 21, 2014

Yoweri Kaguta Museveni, President of Uganda, speaks during the United Nations General Assembly September 23, 2009 at UN headquarters in New York. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)©AFP

Uganda is counting on China to provide $10bn to build much of its infrastructure backbone because Beijing offers the cheapest capital available, does not interfere in the African country’s controversy over homosexuality and has “big money” available, President Yoweri Museveni said.

In an interview with the FT, Mr Museveni said that Uganda’s previous intention to issue a debut sovereign bond to finance infrastructure projects was now a “last resort”. He added that private investment in large hydropower plants was not being encouraged because the electricity produced may be too expensive.

    “Now the Chinese are coming and they come with a sense of solidarity and they come with big money, not small money, and they also have experience,” Mr Museveni said.

    Finance from state agencies such as the Export-Import Bank of China and the China Development Bank was preferable to that from the World Bank in at least one respect, he said.

    “I was a bit embarrassed when I was talking to (representatives from) the World Bank. They talked about a lot of things like structural adjustment, but they don’t understand the basics. How can you have structural adjustment without electricity?” Mr Museveni asked. “The Chinese understand the basics.”

    Mr Museveni, who regularly pillories the west for holding neocolonial values, has ruled the east African nation of 37m people for the past 28 years, despite once saying Africa was held back by presidents who stay on too long.

    The former bush rebel regularly styles himself as a champion for east Africa and a future leader of any integrated regional bloc. Critics say his embrace of China is a strategic effort to distance himself from western influence and claim a leading role ahead of polls due in 2016.

    Uganda is expecting Chinese state-backed capital to finance two hydropower plants – the 600MW Karuma and the 188MW Isimba dams – and a railway line connecting Kampala, the Ugandan capital, to Kenya, South Sudan and the oil-rich West Nile region that borders the Democratic Republic of Congo.

    Mr Museveni said that China’s Ex-Im Bank has signed an agreement to finance 85 per cent of the estimated $2bn cost of the Karuma power plant, with Uganda stumping up the remaining 15 per cent. The Ex-Im Bank has also agreed to fund the Isimba dam, he added, but did not give details.

    “We have already signed,” he said. “It is for them to raise the funds. If they don’t find the funds, we shall kick them out.”

    Uganda is also banking on an $8bn loan from China to build the railway, the country’s largest infrastructure project to date. This loan was likely to come from more than one source in China, perhaps from a combination of the China Development Bank and the Ex-Im Bank, Mr Museveni said.

    “It can come from China,” he said. “That is what they are saying.”

    China has become a key investor in sub-Saharan Africa, channelling funds into roads, hydro power dams, stadiums and telecoms networks. Such activity helps drive the Asian giant’s trade with the continent, which has grown from less than $10bn in 2000 to more than $200bn last year, overtaking the US and the former colonial European powers.

    How can you make peasants have middle class values? They are peasants. Many of them are pre-capitalists. How can you make them have values such as liberalism? The Chinese don’t have these. They are more practical.

    – Yoweri Museveni

    Nevertheless, if China was not forthcoming with funding for the railway – which is intended to replace the current dilapidated narrow gauge track – Uganda would build it using revenues from oil it intends to start pumping in 2017, Mr Museveni said, estimating annual oil revenues of $5bn.

    In addition, Kampala is pushing ahead with plans to build a 60,000 bpd refinery and will announce “within a few weeks” which companies have won the bid to construct it. The refinery is scheduled to be built in two stages and be 60 per cent owned by private investors and 40 per cent by five east African governments.

    Uganda’s economy is set to grow at 5.9 per cent this year, according to IMF estimates, but its currency has suffered because of war in neighbouring South Sudan, its main export market, and its agricultural output is weak.

    Uganda’s central bank governor, Emmanuel Mutebile, has previously criticised the president for embracing Marxist policies that stymie growth and development in the country.

    Mr Museveni said his main preoccupation was to build efficient infrastructure capable of providing inexpensive services to boost GDP growth to double digit levels.

    China was a desirable partner in this endeavour, he said, not only because of its funding capabilities but also because it desists from interfering in the internal affairs of other countries. Mr Museveni condemned those in the west who have criticised the country for strict anti-gay legislation, which was thrown out by Kampala’s constitutional court in August.

    “They are not serious,” the president said of such critics. “They are jokers. They are mistake makers. You can’t impose middle class values on a pre-industrial society. How can you make peasants have middle class values? They are peasants. Many of them are pre-capitalists. How can you make them have values such as liberalism? The Chinese don’t have these. They are more practical.”

    Additional reporting by Katrina Manson in Nairobi