Tag: Debt Trap

Beyond the Debt Trap Narrative: Examining China's Infrastructure Investments in Uganda

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By Shemei Ndawula

It is said that when you owe the bank one million shillings, you have got a problem, and when you owe the bank 1 billion shillings, the bank has a problem. The narrative of China’s Belt and Road Initiative (BRI) as a “debt trap” for developing nations has gained significant traction. However looking specifically at Uganda’s case with Chinese investment reveals a more nuanced picture, where China’s infrastructure investments are fostering sustainable development, not financial suffocation.

Contrary to popular belief, China can not pack up an airport or Hydro dam and ship it to Guangzhou. Aside from the physical extremities that such an ambitious project would demand there’s no provision in international and diplomatic law that would sanction such a venture.  With such a precarious state of affairs China is one of the few of our development partners who are genuinely rooting for our success because that is the only way they can ever recover their loans and get out of the “debt trap” we have put them in.

This is probably why Chinese investment in Uganda is always geared towards parts of the economy that compound development. Uganda, like many developing countries, faces a significant infrastructure deficit. Limited access to reliable power, transportation networks, and communication technology hinders economic growth and social progress. China’s BRI steps in by offering loans for projects that directly address these needs and Chinese state affiliated companies also occasionally tender cost effective bids for the projects.

Additionally Chinese projects in Uganda usually focus on revenue generation. Many of China-funded projects in Uganda, like the Entebbe Expressway or the Karuma hydropower dam, are designed to generate revenue and pay for their own setup cost.  Tolls collected from the expressway directly contribute to repaying the loan, while the hydro dam increases electricity production, leading to increased export potential and government income.

Our country’s debt-to-GDP ratio, while on the rise, largely  remains below internationally recognized thresholds for “debt distress”. The Ugandan government prioritises responsible borrowing and actively works with international institutions to monitor debt sustainability. The Chinese government also does a forensic feasibility study on each and every project before it’s implementation because as I may have pointed out earlier, it is in the Chinese best interest to avoid bad debts.

This is why China implements a zero tariff policy on 99% of Uganda’s export goods. Since China is a manufacturing economy, it is in their best interest to make sure that the farmer in Bududa has got a good road connection to the agro processing factory in Mbale industrial park to add value to his products before being exported to China and the rest of the world because then he’ll have the disposable income necessary to buy Chinese manufactured goods. It is hard to get similar concessions from countries who’s biggest exports are “democracy and liberalism“.

Without the pomp and fun-fare with which many other development partners launch their collaborations with domestic players; China goes a long way in collaborating with Ugandan companies and individual players and provides training programs, fostering technology transfer and creating skilled local workforces. This is geared towards empowering Uganda to maintain and manage infrastructure projects in the long run, reducing dependence on external expertise. An outstanding example is that many of the Ugandans working in  the Tilenga oil enterprise have benefited from Chinese trainings many even going to China on full state scholarships.

In many ways Uganda’s collaboration with China devolves a lot from it’s usual bilateral relationships with its traditional development partners because this is a story of Collaboration, Not Control. The Ugandan narrative goes beyond simply acting as a conduit for surplus Chinese capital. It’s a story of collaboration, with Uganda actively negotiating loan terms and prioritising projects that align with its own development goals. Uganda retains ownership and control over its infrastructure assets as well as its national economic/ political identity and outlook.

As Uganda and China’s partnership grows, focusing on transparency, environmental sustainability, and capacity building will be crucial. The evidence from past and ongoing projects suggests that China’s investments, when carefully managed, can be a powerful tool for accelerating Uganda’s development journey. We need to; beyond infrastructure and economic ties look towards a cultural synergy that can merge the Ugandan(African) spirit of community (Ubuntu) with the Chinese Confucian culture.

This reductive approach to China’s role in Africa fosters a more constructive dialogue, moving beyond the simplistic “debt trap” narrative and highlighting the potential for mutually beneficial partnerships that pave the way for a more prosperous future. For every false alarm ringing in Kampala, there should probably be a tenfold alarm in Beijing because if the bank has a problem when you owe it a billion, imagine how much more worried the Chinese should be who’s “debt-trap” is in the trillions.

Shemei Ndawula is a senior research fellow at the Development Watch Centre.

Chinese infrastructure loans: not debt trap but catalyst for Economic Development and Growth

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By Allawi Ssemanda.

Africa’s biggest challenge, especially Sub-Saharan region, is poor and aging infrastructure.  According to a recent study by McKinsey and Company, unless addressed, infrastructure deficits in key sectors such as roads and energy will continue to hinder African countries’ economic growth and development especially in Sub-Saharan Africa. The study further reveals that the region’s attempts to reduce this gap have not yielded largely due to lack of funding which leaves many planned infrastructure projects stuck at planning stages: “80% of infrastructure projects fail at the feasibility and business-planning stages,” a phenomenon the study branded “Africa’s infrastructure paradox,” stressing that despite high demand for infrastructure funding, there are few partners or investors willing to provided huge amounts needed for such projects.

Limited funding for important projects at a time when the continent has severely been impacted by the Covid-19 pandemic, the continent has less options to make an economic rebound. In 2020, the region’s DGP according to African Development Bank, fell by 3.4% which is about 7% if compared with pre-pandemic estimates.

To recover from this pandemic induced recess, African countries must include more funds in infrastructure development for any stimulus plan the continent is thinking of.  Sectors such as roads, energy, and information communications technology must be given priority for they can stimulate economic performance through supporting creation of jobs, boosting supply chain and trade. It is only through funding and investing in infrastructure that our much-hyped Africa Continental Free Trade Area will realise its anticipated goals.

It is important to note that while African countries need to close infrastructure funding gaps, Official Development Assistance (ODA) and the so-called traditional funders continue to decline. While this decline may be attributed to budget constraints in Western capitals, we cannot ignore factors like liberal market ideology that in the end makes livelihood projects a more likely beneficiary of ODA. This leaves Africa’s much needed infrastructure projects with little attention. Aware that infrastructure projects require big amounts of money and there are high risks involved, ODA providers are steadily pulling out their funding while commercial institutions consider these projects a no-go area given the risks.

On the other hand, over the last two decades, China has been providing bilateral loans to almost all African countries to cover their infrastructure funding deficits through commercial and policy loans. Arguably, such funding is vital in supporting growing of African countries economies, industrialization and employment opportunities.

Though often criticised by some western capitals branding China’s funding as “debt trap,” it is very clear that China’s funding goes beyond West’s binary aid model of “government versus markets” for it has helped reduce funding gaps and revolutionised the concept of funding developing countries’ projects on basis of mutual benefits and “equal partnerships.” This is a complete paradigm shift from where funders would dictate on how a receiving country should use availed loan.

While China seems ready to offer a hand to African countries to improve their infrastructure sector, some African countries seem swamped in what one may call western media narrative and opinion. This narrative is mainly pushed for geopolitical reasons or the need, by the west to maintain their influence over African countries. This eventually drifts the continent into unfounded old frameworks and colonial motifs. It is the fear of their wanning influence that   drive western pundits to claim, warn and make all sorts of allegations that China has hidden interests in Africa. The other example is West’s misinterpretation of Beijing’s support to African as a new ‘Scramble for Africa,’ claiming that Africa is falling victim once more to an outside global power. Maybe we should ask ourselves, why does the West brand Chinese development assistance and loans to Africa as “debt trap” and “debt diplomacy” and their own loans and assistance to Africa is considered ‘good loan(s)?’

Another example that seems illogical is Sino-Africa sceptics’ uncritical branding of China’s funding and developmental loans to Africa as “debt trap” and “debt diplomacy” which is arguably meant to undermine Sino-Africa relations and present it in a negative form. Another intriguing example is U.S.A’s former Assistant Secretary of State for Africa, Tibor Peter Nagy who on 5th October 2021 cautioned African countries to be worry about China, branding Beijing a bully by tweeting:  “China’s aggressive flying aircraft over Taiwan should be an alarm for Africa. Country Bullies are more dangerous than people bullies. Beware of their hegemonistic arrogance. Africa is 21st century’s treasure house – and should benefit Africans.” When critically analysed, one can confidently conclude that Nagy’s tweet was simply political. While heading African affairs at the State department, President Trump called African countries “s*t holes” and Nagy did not apologise to Africans neither did he resign for such disrespect, but is the same person trying to lecture Africans who they should trust!

While it is important that African countries must not take debts and loans beyond their capacity, there is nothing wrong with taking loans to support infrastructure development. As Bent Flyvbjerg, a Danish professor at Harvard University once noted; “Infrastructure is the great space shrinker, and power, wealth and status increasingly belong to those who know how to shrink space, or know how to benefit from space being shrunk.”

Therefore, criticizing African countries like Uganda for taking Chinese loans to improve our infrastructure is unwise and broadly selfish. As J.P Morgan taught us, “a man always has two reasons for doing anything: A good reason and the real reason.” In Uganda’s case and other African countries’, seeking infrastructure loans the two reasons are simple – it is to shrink all our linkages and supporting other factors of production that comes with good infrastructure.

Actually, taking loans has never been bad provided debtor countries are “responsible” borrowers and meet their obligations of paying back. It is ironical that Countries which have taken over 60 years to pay their loan which helped them to take off are the ones accusing African countries of taking developmental loans. For example, it took United Kingdom 61 years to pay its loan $4.34 billion the country borrowed from the U.S and Canada in 1945. Some analysts argue it is this loan that saved U.K from financial crisis shortly after the second world war.

In conclusion, African countries should use the opportunity of China’s willingness to offer financial support to improve their infrastructure for it is one of the sure ways they will unlock their potential. The good thing is that Beijing has always been kind enough on many occasions agreeing to do debt restructuring. Also, African countries, Uganda inclusive, can invest more in infrastructure. The other sure way African countries can ensure payment of loans is through asset recycling. This enables authorities to reuse capital invested in strategic and profitable infrastructure assets like fibre optic networks, road tolls, airports and power plants. Under this arrangement, such assets can be offered to private sector investors under concession model but ensure private sector does not over exploit citizens using them.

Allawi Ssemanda is a research Fellow with Development Watch Centre, a Foreign Policy Think Tank.

 

 

China-Africa cooperation is a win-win partnership: Debt Trap talk is Western propaganda

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By Allawi Ssemanda and Ndawula Shemei.

“If you tell a lie big enough and keep on repeating it, people will eventually come to believe it,” Nazi propaganda minister Joseph Goebbels once noted. If you have been following current international affairs, you would have noticed that most of Western international commentators are arguably obsessed with China-Africa relations, especially when commenting on the thousands of China-funded or supported development projects in Africa. Despite clear and countless opportunities, born out from China-Africa relations, and backed by international scholars, experts and organizations, politicians and some commentators from the West continue to frame Sino-Africa relations, with many branding China’s development assistance as a “debt trap” and others calling it “debt diplomacy.”

Interestingly, despite many developed countries, such as the U.S, UK and almost all members of the Organization for Economic Co-operation and Development (OECD), having arrangements where they support development projects in African countries through loans, only development assistance from China to African countries is branded as a “debt trap.” Perhaps it is high time someone questioned those promoting the debt trap and debt diplomacy idea and called it what it is – Western propaganda tact whenever reporting about China-funded projects in Uganda and Africa in general.

It is not surprising that many international relations scholars and analysts branded as “bad journalism”, reflecting “poor understanding” of international contractual law, a report which suggested Uganda was set lose its international airport to China. While this was a spot-on characterization of such reporting, one can still argue that it fell short of addressing the purpose of such reporting fact such reporting, which, in my view, is to undermine great achievements African countries, Uganda inclusive, have realized as a result of mutually beneficial relations with China.

 

As Indira Gandhi taught us, questioning is the basis of all knowing; and those who don’t question are condemned to bondage. Possibly, African countries should ask: what are the motives of “debt trap” propaganda? Is it because its proponents love African countries so much that they are concerned that African countries will fall into these so-called traps? Why is it that infrastructure funding from Western countries, coming with conditions, is called development assistance while China’s condition-free assistance is branded a “debt trap”?

In my view, those promoting the so-called Chinese debt trap are hypocrites who have been grossly unfair not just to Africa but to the entire global south, for decades now. Despite knowing the importance of improved infrastructure in social and economic development, the West, unlike China, has for long been giving developing countries very limited support for the improvement of infrastructure, transport, and electricity, which are key for sustainable development. Moreover, even infrastructure support from the Paris Club and individual Western countries has been declining steadily for some time now. While on the surface the decline in funding to African countries is just a manifestation of budget constraints facing Western countries, a deeper analysis reveals that this decline is also due to the so-called liberal market ideology practiced by the West.

In addition, a critical analysis of the modus operandi of colonialists and imperialists reveals that they have never wished to see Africa liberated. That is why, for the West, it is a disaster when China offers mutually beneficial assistance to African countries, because such assistance will eventually make African countries more self-reliant, which is directly against the hegemonic aspirations of some western countries. This largely explains why Western commentators have coined frightening phrases, such as “debt trap” and “debt diplomacy” to scare African countries into abandoning their relations with Beijing.

Actually, western countries are worried that, as a result of win-win Sino-African cooperation, China is wining the hearts of African countries, essentially because Beijing respects African countries, and is happy when they all prosper. On the other hand, Washington’s relationships with African countries are premised on Washington’s desire to dictate how her African partners should run their affairs. In other words, in its foreign policy, the U.S seeks to outrightly exert its hegemony over African countries.

In his Opinion entitled Why America Must Lead Again, President Biden is very categorical. The guiding principle of his foreign policy is to place the USA at the head of the table, and selfishly govern the world.  Indeed, as argued by Walter A. McDougall, a professor of History and International Relations at the University of Pennsylvania, in his article, “Can the United States Do Grand Strategy?”, USA foreign policy has always been guided by imperialistic and selfish interests; “The real motive for USA foreign policy during all eras of history was not security or liberty, but the capitalist appetite for new markets, resources, and customers, at home and increasingly abroad. So, the American Dream was real, but therein lay tragedy because in order to meet the growing expectations of a growing population, the United States was ineluctably drawn to imperialism that belied its liberationist rhetoric.”

It is, therefore, clear that the USA has never sought to establish a partnership with another country if that partnership undermines the total hold of the USA on that country.  To the west, seeing China building the capacity of African countries to end their dependency is a night mare. It is what John Mearsheimer calls the tragedy of great power politics. Therefore, as the USA and her allies brand China-Africa partnership a debt trap or debt diplomacy, African countries should know that, in context of sustainable development, the USA is not, and will never be, the best partner.

Actually, unlike Sino-Africa relations, the partnership between the Global North and the Global South has always represented the true meaning of a debt trap! The West’s development assistance and aid to the Global South, especially in Africa, has always been characterized by confidentialities, which are often incompatible with African countries. Whereas some scholars argue that partnership should involve a degree of equality among players, the West’s cooperation and is premised on Western hegemony; and the sstructural adjustment programs (SAPs) were a perfect illustration of this.

For decades, the Global North extended development assistance through the World Bank and IMF and their conditional assistance sometimes included telling African countries which sector to prioritize, the number of workers to retrench, and basically how governments should run, at times pouring funds into historical black holes, like political administration, which are riddled with corruption and bureaucracy. Broadly, one can argue that such forced priorities are tantamount to a debt trap as many of African countries stopped investing in domestic priorities in favour of what the World Bank and IMF agents dictated regardless of what African countries needed to take off economically.

With such facts known but ignored, and the continuous framing of China-Arica relations, one cannot help but conclude that branding China’s development assistance to African countries debt trap or debt diplomacy is propaganda based on selfish political interests of the west.

Allawi Ssemanda is Executive Director Development Watch Centre Think Tank, and Ndawula Shemei is a research fellow at the Centre.

 

Critics of China’s Exim Bank – Entebbe Airport Agreement and “debt trap” talk lack facts.

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By Allawi Ssemanda

This week, Ugandans on social media have been discussing China’s infrastructure loan terms particularly default clauses and escrow accounts with some making wrong conclusions of how Uganda “surrendered” airport to China. Of course, the claims that Uganda negotiated a bad deal lack international lending facts and so are wrong.

I will start with debt clauses. Critics argue that some provisions in financing agreement between Exim Bank of China and Uganda put our airport and other government assets at risk of being sized by China should Uganda fail to pay. Some reason that this is because, the agreement gives Chinese side advantage over the borrower and therefore should be renegotiated.

This issue of default clause is not new and should not be the basis of criticising Uganda-Exim bank deal. It is important to note that infrastructure financing is an expansive venture which involves huge amounts of funds and hence, increased risks. Therefore, default clauses in official credit market are not new and in this particular case are not meant to leverage Chinese creditors but rather to simply safeguard creditor’s funds.

A March 2021 study by Peterson Institute for International Economics, Kiel Institute for the World Economy of Germany, Georgetown Law and AidData observed that default clauses are not only used by Chinese creditors but have also been adopted by some members of Organizations for Economic Co-operation and Development (OECD), one of major groups that extend development assistance in form of loans to developing countries.

In this debate, it is important to recall that infrastructure financing is a very expansive venture which involves huge amounts of funds and hence, increased risks. According to African Development Bank (ADB), African countries especially in Sub-Saharan Africa including Uganda, to reduce the region’s infrastructure funding gap and sustain its growing population, the region must spend $130-$170 billion annually. This is re-emphasized by World Bank’s study: “why we need to close the infrastructure gap in sub-Saharan Africa,” which underscores infrastructure funding gaps as a bottleneck to African countries’ growth.

Despite this dire need for infrastructure funding, international creditors and commercial loans meant to fund infrastructure projects in developing countries for decades has been declining. Also, the so-called traditional funders who may appear generous are not interested in Africa’s pressing needs like infrastructure financing but prefer to finance other sectors like administration and so-called democracy programmes.   Using World Bank as an example, at first 70% of its funding went to infrastructure and has been reducing to now 30%. Experts argues that the decline of western countries support to African countries infrastructure is because infrastructure financing requires significant capital input, involves high risks such as defaults and takes a long period to payback.

Despite urgently needed financing for infrastructure projects in African countries, these projects continue to attract little attention from traditional funders while very few commercial institutions are willing to take them in due to high risks involved.

But China is funding these seemingly risky projects. However, like any serious creditor, to ensure safety of their sovereign loans, Chinese creditors include commonly-accepted clauses like cross default and cross cancellation in their agreements. Key to note is that the text in these agreements is generally the same which is accepted by the market. Also, terms included in contracts offered by of Chinese creditors represent principles of fairness and balances well rights and responsibilities of involved parties. That said, China has on many occasions written off debts of several African countries and renegotiate some where the borrower finds genuinely fails to meet contract terms. Also, in Entebbe airport – Exim Bank contract for example, clause 15.5 of the contract offers solution in such scenario: “The parties hereto undertake to use their best efforts to resolve any dispute arising out of or in connection with this agreement through consultations in good faith and mutual understanding…” Therefore, the talk of Uganda surrendering airport to China are unfounded.

There has also been criticism that Uganda has no full rights for funds on escrow account Uganda Civil Aviation Authority (UCAA) agreed to open. As discussed earlier, financing infrastructure projects is an expansive venture and infrastructure loans take longer period to be paid back. Understandably, in this case, creditors try to ensure they minimise likely risks. However, escrow account is commonly acceptable practice since it helps to ensure safety of creditor’s capital. Also, setting up a revenue account based on the proceeds of the project helps both parties involved in the agreement since the practice is meant to provide additional funding for debt repayment. The borrower benefits since it relieves the pressure on the creditor or government’s budget. This practice is not only for China but other countries including OECD have it. The Peterson Institute for International Economics, Kiel Institute for the World Economy of Germany, Georgetown Law and AidData study revealed that 7% of OECD member countries have similar options which acts as their repayment security devices.

Put differently, such default clauses are not brought to leverage the debtor but rather to constrain them to fulfil their obligations and become a responsible “borrower” in this case paying your loan/debt which is the main essence of signing an agreement when one is taking loan.

China-Africa brotherhood has stood a test of time that no one should doubt the other. Arguably, inspirit of a shared future, shared prosperity and South-South cooperation heart, China has not been hesitant to take risks other lenders feared. Indeed, in the past two decades, Beijing has provided almost all African countries with concessional and bilateral loans as well as commercial funds giving these countries support needed to improve infrastructure sector, grow their economies, and create jobs through industrialisation among others.

While some claim that this is Beijing’s long-term to strategy to grow her influence over Africa, this is not the first time China is offering infrastructure and developmental assistance to African countries.

For a fact, China unequivocally supports sovereignty of developing countries that one insinuating that Beijing is interested in seizing national assets of a sovereign country is not just a joke but it is an insult to China. While under colonial bondage, many African countries received support from China thereby contributing to their struggles to snap the shackles of colonial minority humiliation. In 1960s while China’s per capita GDP was less than that of Sub-Saharan Africa, China supported and southern Africa’s infrastructure with $400 million which helped in construction of the famous Tanzania-Zambia Railway (TAZARA).

Lastly, those claiming Uganda surrendered the airport, their argument is simply pessimistic. Why would one think a country with functioning government like Uganda will default meeting her loan obligations?

 Also, critics of China’s development assistance to African countries claim that Chinese loans to African countries are not transparent due to confidentiality clauses. It is important to note that, globally, there is no standard public disclosure when it comes to bilateral official lending. This is a common practice with sovereign debtors and creditors. Indeed, 2021 March study by Peterson Institute for International Economics, Kiel Institute for the World Economy of Germany, Georgetown Law and AidData observed that “almost all OECD official creditors and non-OECD creditors have not publicly released their loan contracts.” Other official lenders that have confidential clauses include; African Development Bank, the OPEC Fund for International Development, The Arab Bank for Economic Development in Africa also known as (BADEA), the Kuwait Fund for Arab Economic Development among others.

From above, one can argue that Sino-Uganda and Sino-Africa relations in general has been tested and no side can work to injure the other’s interests! Therefore, critics of these engagements are arguably driven by West’s narrative who seem to be worried that empowered African countries will not stand their hegemonic interests and hence, framing of Sino Africa relations with claims of “debt trap.” With the current trend of giving attention to so-called China’s “debt trap” and so-called Chinese hidden interests in Africa, I am tempted to think as Africans, we are again falling in West’s old playbook – divide and rule.

Why China’s lending terms are the best African countries can get.

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China’s lending terms are the best African countries can get.

 By Allawi Ssemanda

On October 28, 2021, members of the Parliamentary Committee on Commissions, Statutory Authorities, and State Enterprises (COSASE) literary roasted finance minister, Matia Kasaija who they accused of signing a $200m agreement with Exim Bank of China to upgrade Entebbe international Airport.

They reasoned that loan terms in the agreement are unfair to Uganda and puts our airport at risk should Uganda fail to pay.

Shortly after the meeting, COSASE chairperson Joel Ssenyonyi tweeted: “Today COSASE met Finance Minister who signed a $200m loan agreement with EXIM Bank-China to upgrade our airport. He admitted loan terms were unfair. China has taken over property of some countries due to unfair loan agreements. Govt officials ought to read & scrutinize before signing!”

While it is right our legislators to get concerned when they notice things not going in national interests, it is important our honourable MPs to get facts not just about Chinese loaning but all international loaning agreements. Many argued that some of the terms of the loan meant that the country was giving up its sovereign immunity to the creditor. Of course, this is not true but dancing to some Western capital’s narrative driven by fear of growing Sino-Africa relations characterised by principles of mutual respect and benefit.

When extending development loans, many countries take seriously the issue of controlling and reducing investment risks and ensure the security of capital. This is a common commercial practice. If you study most of Chinese loans contracts, combining practices of commercial banks and official institutions, you will observe that Chinese contracts try to ensure maximum repayment of loans through their contracts.

This is done by among others setting up a revenue account(s) based on the proceeds of the project to provide additional funding for debt repayment. This approach is not meant to give Chinese institutions upper hand or to take over properties of the borrower but rather, an option to relieve pressure on the borrower’s national budget.

Actually, this is a legitimate and commonly accepted commercial practice employed to ensure the capital safety of lenders. Indeed, it was adopted by some Organisation for Economic Co-operation and Development (OECD) creditors we look up to. A March 2021 joint report by AidData, Peterson Institute for International Economics, Georgetown Law, Kiel Institute for the World Economy of Germany, and Center for Global Development concluded that seven percent of OECD official creditors sampled use contract tools and repayment security devices to ensure loan repayments.

In the context of Chinese loans, from available evidence, default clauses are meant to provide security and compel the debtor not to default their obligations. After all, this is the essence of signing an agreement. Put differently, it inclines debtor countries to manage their debts and fulfill repayments plans which makes them “responsible borrowers,” thereby earning international credibility and continue enjoying development aid and loans concessions. This improves the borrowing countries’ reputation in our competitive international development financing markets which arguably is important to their social and economic growth.

Other critics argue that by including cross-default, cross-cancellation, and stability clauses, Chinese loans put the creditor on a disadvantage side. This reasoning ignores the principle of mutual benefits and other important facts when it comes to infrastructure financing.

For the record, Chinese funding is the best deal any developing country can get to address growing infrastructure funding gaps. While traditional funder’s offers may look generous, their multinational banks prefer to fund sectors like administration, social services and the so-called democracy promotion instead of funding the much-needed infrastructure programs. For example, at first 70% of World Bank’s funding went to infrastructure but has been reducing to recently 30% despite huge funding gaps in infrastructure sectors in developing countries.

It is important to note that developing countries are faced with a shortage of funding especially in infrastructure projects which are key for development. A World Bank and McKinsey Global Institute study notes that funding for infrastructure projects such as transport and electricity is lacking and that to ensure socially inclusive development by 2030, there is a need to spend more than $3.3 trillion annually of which 60% must go to developing countries in Africa. African Development Bank (ADB) on the other hand estimates that to meet the demands of their growing population, replace aging infrastructure, African countries must spend between $130-$170b annually on infrastructure. Also, a 2017 study by World Bank – “Why We Need to Close the Infrastructure Gap in Sub-Saharan Africa” suggested that if these countries reduce funding gaps for infrastructure, the region’s GDP per capital will grow by 1.7%.

However, infrastructure investment and financing requires substantial capital and increased risk and very few traditional funders are ready to take this risk. Guided by Chinese leadership’s philosophy of a community with shared prosperity, in the last several decades, only the Chinese government and state-owned banks have shown willingness to provided a large amount of infrastructure low interest loans to low-and middle-income countries to boost their infrastructure funding gaps. It should also be noted that financing critical sectors like infrastructure in developing countries often involve a long payback period. However, this does not mean they should not try to devise devices to ensure safety of their sovereign loans. Therefore, these commonly-accepted clauses like cross default and cross cancellation Chinese creditors include in loan contracts should not be taken as tricks of loan sharks but rather devise used to ensure safety of their funds. It should be noted that the text used in Chinese loans agreements are ones generally accepted by the market and these terms are consistent with the principles of balance and of rights and obligations of parties involved.

Therefore, for COSASE chairperson Joel Ssenyonyi to castigate finance minister that he signed a bad deal with Exim Bank, the honourable Ssenyonyi is not only wrong but the MP spoke from an uninformed point. Taking the Entebbe-Exim Bank agreement as an example, it is not fair to make conclusions basing on clauses; 15.1 addressing Governing Law, 15.4 which addresses Waiver, and 15.5 that’s talks about waiver of Immunity and conveniently ignore clause 15.5 which talks about Good Faith Consultation. This clause is very clear: “The parties hereto undertake to use their best efforts to resolve any dispute arising out of or in connection with this agreement through consultations in good faith and mutual understanding…” over time, China has proved to be a brotherly country to all African countries and promotes mutual trust and benefit that by all means, it cannot avoid good faith consultation where necessary.

On many occasions, despite legally binding treaties with borrower countries, through good faith consultations, China has always re-negotiated with African countries and accepted debt restructures, and on several occasions, Beijing has out of goodwill and wish written off debts to many African countries. In 2020 for example, China cancelled the Democratic Republic of Congo’s interest-free loans estimated to be over $28M that had matured. In March 2021, researchers at Johns Hopkins University noted that between 2000 and 2019, China wrote off accumulated arrears of 94 interests’ free loans for African countries that totaled over 3.4 billion USD. All the above shows that despite offering loans with default clauses, China considers African countries close allies and is not interested in seizing their properties but ensuring borrowing countries join China in growing and developing together so as to realize Chinese leadership philosophy of a shared future with shared prosperity.

Therefore, Ssenyonyi’s claim that “China has taken over property of some countries due to unfair loan agreement,” lacks ground truth and is hearsay driven by Beijing fear in some Western capitals who are worried about growing Sino-Africa relations. Of course, their concern is not that they so much love their former colonies in Africa, their fear is due to geopolitical reasons and knowing that empowered Africa can’t stand their failing hegemony. Even if there are countries whose property were seized which is not true, Uganda is different with different financing needs and our development structures are sufficiently diverse and heterogeneous. Comparing us with little rumoured little variety reduces the validity of his conclusion.

Whereas Indira Gandhi taught us that questioning is the basis of all-knowing, it is not to question endlessly but to use those questions as a means of advancing towards a big and better answer. The arguments critics advance against default clauses are negative energy and full of pessimism. Arguably, important questions at this time should be how should Uganda maximise the nearly complete mega airport to its advantage but not fronting pessimistic questions. Quoting Keith Yamashita, a renowned consultant of top companies in his book A More Beautiful Question, Warren Berger argues that questions that show pessimism are a danger to progress.

This he adds has unintended negative consequences such as what he described as diminished questions. Berger argues that for countries to progress and innovate, leaders should avoid small questions and think in an expansive manner with bigger questions.

In this context, examples of bigger questions are: How should Uganda maximise expanded Entebbe Airport? Why are we borrowing? What is in it for Uganda and Ugandans if we borrow money from China to support our needed infrastructure? For that matter, I will recommend the honourable members of COSASE to read Warren Berger’s A More Beautiful Question.

The writer is the author of Global Governance and Norm Contestation: How BRICS is Reshaping World Order

Twiter @AllawiSsemanda

Damaging Lies: Sri Lankan Port Deal With China not a ‘Debt Trap’

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By Ssemanda Allawi and Ntende Trevor

Damaging lies: Sri Lankan port deal with China not a ‘debt trap’

In December 2017 Sri Lankan government agreed to lease their major southern port Hambantota which was built by Chinese, a development that caused discussion with several analysts inventing the so-called China’s debt diplomacy while others referred to it as China’s debt trap with some critics claiming that China forced Sri Lankan government into this deal after Sri Lanka failed to pay what critics described as Chinese huge loans.

Since then, China’s critics have always given Sri Lanka as an example arguing that the country was forced to lease its port to pay back Chinese loans, a claim that lacks facts.

Indeed, Sri Lanka’s ministry of Finance’s chair of Public Private Partnership Unit Thilan Wijenighe confirmed that $1.131 billion loan from China was not spent in funding Hambantota port related activities but Sri Lankan government used these funds to boost then failing state reserves as a preparation not to default paying external debts Sri Lanka owed to several western entities.

Put differently, before leasing of Hambantota port, China accounted to just 10% of Sri Lanka’s external debt of which most of these loans are concessional with a long-term payment plans, while the other over 40% of other borrowings was from other ‘traditional’ development partners like World bank and with a short time recovery which distressed Sri Lanka government as opposed to Chinese concessional loans.

In particular, the $1.31 billon China loaned Sri Lanka through Export-Import Bank of China, 90% of this loan was concessional at 2% interest rate and was meant to be recovered in 15 – 20 years. Therefore, it is not logical that to argue that Sri Lanka was forced to lease the port to pay its debt when the loan still had over ten years to be recovered.

Indeed, Sri Lankan government later explained that it was only for commercial reasons that Sri Lanka Ports Authority decided lease 70% shares of its Hambantota port to a Hong Kong based China Merchants Port Holdings since Sri Lanka Ports Authority alone would not manage to make the port realise set economic targets. At the time Sri Lanka Ports Authority decided to lease its majority shares, the port was operating in loses.

Cars parked at Hambantota port, Sri Lanka. Courtesy photo.

Figures from Sri Lanka Ports Authority shows that before its takeover, Hambontata was making losing over $80 million annually and since the deal to was made with China Merchants Port Holdings, the loss reduced by a half in a period of one year and the port has been consolidating its roll on-roll off (RoRo) business doubling the number of vehicles that go through it

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