The value of disbursed and outstanding loans from China to Uganda grew to Shs6 trillion ($1.6b) as of March 2018 up from Shs4.12 trillion ($1.10b) in 2016, accounting for 21.8 per cent of Uganda’s total external debt, according to Ministry of Finance.
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.
Uganda’s public and publicly guaranteed external debt has been rising in the last five years, increasing to Shs25 trillion in December 2017 from Shs19 trillion in December 2016.
Uganda’s loan exposure to China has been growing over the last few years and is likely to surpass, International Development Association (IDA), the World Bank, according to Mr Stephen Kaboyo, the Alpha Capital managing partner.
The trend has been attributed to recent implementation of huge infrastructure projects and China’s willingness to give loans with limited conditions.
China funds some of Uganda’s largest infrastructure projects such as Karuma and Isimba dams, road projects, airports construction and expansion.
However, many of these loans are obtained at relatively high rates and become expensive in the long term.
“Although [the rates might not be] the lowest but they are a little faster in terms of processing. Where you cannot go for the best choice, your fall back to the second. So, why China? It is because their terms are fair and the processes are quicker,” Mr Godfrey Dhatemwa, the Finance Ministry commissioner in charge of debt policy and issuance department, said yesterday in an interview.
Additionally, China has made it easier to implement projects it funds.
Data from Ministry of Finance indicates that Uganda’s outstanding debt to China currently stands at 5.89 per cent of gross domestic product (GDP) as at end of March 2018 compared to total public debt to GDP of 38.1 per cent.
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).
However, 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.
“Most of the loans we have borrowed are on commercial not concessional terms as [it is with the] World Bank. With the deteriorating value of the shilling against other currencies such as the dollar, yet our payback is in those foreign currency, we need to be more cautious so that we don’t compromise our capacity to pay back,” Mr Julius Kapwepwe, Uganda Debt Network director of programmes, said.
According to data from Alpha Capital, almost 50 per cent loans from China are offered on commercial terms while the World Bank and 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.