Uganda is facing a Catch-22 as it courts financiers to bankroll its multibillion-dollar infrastructure projects, including a railroad and an oil pipeline.
The landlocked East African nation wants to build a US$5 billion pipeline that would transport crude oil from its Lake Albert oilfields in the northwest of the country to Tanga on Tanzania’s Indian Ocean coast.
It also wants to upgrade its internet infrastructure and construct a major railway line running from the capital Kampala to the Kenyan border town of Malaba.
But Kampala has a dilemma after dozens of banks and insurers from the West backed out of the pipeline over growing opposition from environmental groups. The World Bank complicated the situation further when it froze any new loan requests in August after Ugandan President Yoweri Museveni signed an anti-LGBTQ law, which criminalises homosexual acts, with severe penalties, including execution.
Last week, Uganda’s finance ministry sought parliamentary approval to borrow US$150 million from the Export-Import Bank of China to expand its internet infrastructure.
It is another example of Uganda’s reliance on borrowing from China. While Chinese lenders have not officially announced if they will finance the 1,443km (900-mile) oil pipeline, in September, Uganda’s energy and mineral development ministry told the Post that Sinosure was working with Eximbank to provide over half of the US$3 billion debt that Uganda needed to build it.
Tim Zajontz, a research fellow in the Centre for International and Comparative Politics at Stellenbosch University, said after the freezing of loans by the World Bank, the Ugandan government was under immense pressure to find money for certain projects.
And with Western lenders backing out of the oil pipeline project, he said Chinese funding seemed to be Kampala’s “plan B”.
“We can expect that the China Eximbank will seriously consider both requests,” Zajontz said, referring to the oil pipeline and the funding for internet infrastructure.
ALSO READ: Uganda’s struggle to keep its only airport from Chinese takeover
But equally important for China Eximbank will be geopolitical considerations.
“Beijing has a keen interest for Chinese firms to put in place Chinese technology, infrastructure, and norms in the information and technology sector. There is a direct and intensifying competition with Western competitors,” said Zajontz, who is a lecturer in global political economy at the University of Freiburg where he works in the research project De/Coloniality Now.
And while, according to Zajontz, both the European Union’s Global Gateway and the G7’s Partnership for Global Infrastructure and Investment had significant envelopes earmarked for IT infrastructure across Africa – in part to help contain Chinese control in this sector – before any cash could be handed over, tough questions would first be asked about Kampala’s human rights record.
“So, I assume that Museveni’s government prefers Chinese money and technology,” Zajontz said.
But even as Uganda endears itself to China, Chinese money is not guaranteed.
Beijing had already said no to funding the building of Uganda’s section of the Standard Gauge Railway (SGR), leading to the cancellation of the contract Uganda had signed with China Harbour Engineering Company.
The same fate befell Kenya when China Eximbank would not fund its section from Naivasha in the Central Rift Valley to Malaba at the Ugandan border over commercial viability concerns.
Uganda has since contracted Turkish firm Yapi Merkezi to build the section, with funding reportedly expected from Britain’s Standard Chartered Bank and export credit agency UK Export Finance.
Mark Bohlund, a senior credit research analyst at REDD Intelligence, said the Turkish financing of the Ugandan leg of the SGR increased the likelihood that China would provide financing for other projects in Uganda, as well as the Naivasha to Malaba leg of the railway.
“Freighting goods into Uganda should significantly increase revenues for the Kenyan part of the SGR and thus reduce Kenya’s debt-servicing pressures,” Bohlund said.
“I see the priority for the Chinese being the financing of the East African Crude Oil Pipeline rather than the Ugandan leg of the SGR.”
Lauren Johnston, an associate professor at the University of Sydney’s China Studies Centre, said Uganda’s oil pipeline appeared to face a few headwinds – starting with the political problems caused with Western leaders over the country’s recent homophobic legislation.
The other issue, she said, was the environmental risks associated with both the construction of the pipeline and the consumption of the oil it would deliver.
French energy giant TotalEnergies is behind the Ugandan oil project, and Johnston said it was facing pressure from the European Parliament to drop it.
On the other hand, at the belt and road forum held in Beijing in October, Chinese President Xi Jinping promised a cleaner, greener Belt and Road Initiative alongside elevated trade and infrastructure investments.
But China has also promised to support African economic integration, and this pipeline may help integrate African energy markets. Tanzania, for example, in November signed an agreement to export gas to Kampala, Johnston said.
“How China will balance its promise to support regional integration, increased trade, and green development – concurrently – is not clear,” Johnston said.
Aly-Khan Satchu, a sub-Saharan Africa geoeconomic analyst, said Uganda’s SGR proposal was by all accounts a little flaky.
China-funded infrastructure across Africa force difficult decisions for its leaders
“Uganda needs to reboot its SGR proposal and align it regionally with [South Sudan and the DRC] and also integrate the Tanga pipeline into the financing request. I am sure China will advance the loan at the right price,” Satchu said.
With declining borrowing options for Uganda, he said, “I think China or some constellation of Brics countries is where Museveni has to look”.
But Fabrice Houdart, a former World Bank senior country officer and researcher at Georgetown University, said that, in practice, the World Bank was not cutting lending to Uganda, and the African nation should persist with the global lender instead of chasing China.
“The bank is in a bind like everything else in which it must balance its sincere desire to fund Uganda and not appear as disregarding what is an egregious human rights violation and a provocation,” Houdart said. “As a consequence, Uganda’s economic stage is now set for a less-than-stellar performance, which is not that different from usual.”
He said Uganda’s decision to pivot to China for financing was like switching dance partners mid-song.
“Sure, China’s dance card isn’t as full these days, with their lending orchestra playing a slower tune, but it’s a partnership that comes with its own set of intricate steps,” Houdart said.
