The alleged seizure of the Ugandan airport by China has set in motion yet another “debt-trap” debate.
Just days before the eighth edition of the high-profile Forum on China Africa Cooperation (FOCAC) Ministerial Conference took place in Dakar, Senegal, China got caught in the eye of the storm. Details published in a report in the Daily Monitor newspaper stated that Uganda allegedly had to “surrender” one of its national asset—the Entebbe International Airport—to China’s EXIM Bank for defaulting on its loan repayments. Chinese officials had evidently rejected Uganda’s request to re-negotiate certain “toxic clauses” in the US $200 million loan issued in 2015, for the purpose of upgrading and refurbishing the Entebbe airport. This development spread quickly over social media and was reported by several media outlets.
The foremost takeaway from the report, which has since been put under paywall, indicates the following:
“Uganda Civil Aviation Authority says if not amended, some provisions in Financing Agreement for the loan the country obtained to expand Entebbe International Airport, expose the airport and other government assets to potential attachments and take-over by China upon arbitration awards in Beijing.”
In the hope of expanding its transport sector and improving its domestic infrastructure, Uganda, in 2015, launched an ambitious civil-aviation master plan, which included the upgradation of its only international airport. This would include a new terminal, expanded runways, and new cargo, and fuel centres at Entebbe. To this end, the Ugandan government on 31st March 2015 signed a loan agreement with Export-Import (EXIM) Bank of China.
Chinese officials had evidently rejected Uganda’s request to re-negotiate certain “toxic clauses” in the US $200 million loan issued in 2015, for the purpose of upgrading and refurbishing the Entebbe airport.
However, after the construction began, few Ugandan technocrats and managers at the Uganda Civil Aviation Authority (UCAA) raised certain red flags. It was reported that some 13 clauses under the loan agreement were deemed as unfriendly and tantamount to handing over the Entebbe airport to China. The most troubling clause which the Ugandan officials were seeking to amend in the loan agreement pertained to the need for the UCAA to seek approval from the Chinese lender for its budget and strategic plans. Another controversial rule was the mandate given to the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing to resolve any potential differences that may arise between the Ugandan government and China EXIM Bank.
Immediately after these details emerged and the Daily Monitor report was published, the Ugandan and Chinese government promptly denied the allegation. Mr Vianney Luggya, spokesperson of UCAA, insisted that the “government cannot give away a national asset like an airport. This has not happened and will not happen.” He further explained that the project financed by China EXIM Bank is guaranteed by Uganda’s sovereign credit as a public debt charged on the consolidated account in accordance with Article 160 of Uganda’s Constitution. Furthermore, Uganda is still well within the seven-year grace period, which ends in December 2022. The loan repayment is to be made in a period of 20 years, at an interest rate of 2 percent. These terms are viewed by Ugandan authorities as favourable rather than being any cause for concern.
The Chinese side too rejected the allegations as having “no factual basis” and being “ill-intended.” Wu Peng, the Director General of Department of African Affairs at the Chinese Foreign Ministry, categorically stated that “Not a single project in Africa has ever been ‘confiscated’ by China because of failing to pay Chinese loans. The hype for ‘debt trap’ isn’t fact-based.”
The most troubling clause which the Ugandan officials were seeking to amend in the loan agreement pertained to the need for the UCAA to seek approval from the Chinese lender for its budget and strategic plans.
In the aftermath of this development, Ugandan authorities have been consistently insisting on three issues: The grace period is yet to expire and that the Ugandan government is confident of not defaulting on any obligations on repayment; that the terms of the loans are semi-concessional in nature and in line with Uganda’s infrastructure financing programme; and in the interest of transparency, the government has made the loan agreement available to the members of the Parliament.
While most of these claims are truthful, the broader issue relates to the pattern of dependencies that China is creating and subsequently leveraging to further maintain and nurture its strategic asymmetrical relationship with African countries. In no way are the Chinese development projects and its generous infrastructure financing altruistic in nature. Two major issues come to light—the highly asymmetrical and imbalanced trade relationship in China’s favour, and the virtual absence of environmental impact assessments and due consultations with African civil society organisations and locals. Both these points were highlighted by Folashadé Soulé in a column written for the Collective for the Renewal of Africa (CORA), in which the author provides recommendations for achieving a more profitable and equitable Africa-China partnership.
In many ways, the eighth edition of the FOCAC was a success. China’s provision of 1 million doses of COVID-19 vaccines to African countries, US $10 billion worth of credit lines; channelling US $10 billion from its share of International Monetary Funds’ newly issued Special Drawing Rights (SDRs) to Africa; a trade promotion programme to boost African agricultural exports to China; to a green development programme that supports the African Union’s flagship project—the Great Green Wall—have all been welcome initiatives. In addition, a slew of documents were released and adopted during the conference like a white paper detailing a new era of partnership with African countries; Dakar Action Plan (2022-2024); a declaration on combatting climate change; and a joint communique on FOCAC-8.
Yet, the imbalanced nature of China-Africa relationship continues to be a major point of contention. Leaders from across the continent like Senegalese President Macky Sall, Congolese President Félix Tshisekedi, South African President Cyril Ramaphosa, AU Commission Chairperson Moussa Faki Mahamat, have made their desire known for a more equitable and “win-win” partnership that is grounded in practical outcomes rather than rhetoric. Senegalese Minister of Economy Amadou Hott, opined during the FOCAC conference that, “We have a lot of investments in debt, we need more investments in equity.”
Reduction in the huge trade deficit with China is an immediate priority for many African countries. It is indeed true that the nature of China-Africa trade is traditional—i.e. Africa exports raw materials and is highly dependent on import of manufactured goods from China. However, African products that are destined to Chinese markets are subjected to high tariff barriers. This is in direct contrast to India, with whom Africa enjoys a positive trade balance and also benefits from duty-free and preferential treatment to about 98 percent of India’s tariff lines, under India’s Duty Free Tariff Preference (DFTP) scheme. Already, more than 38 African countries have benefitted from India’s DFTP scheme.
African products that are destined to Chinese markets are subjected to high tariff barriers.
While these specificities can be debated, one thing is certain: The narrative of the China’s engagement with Africa should move away from the hyperbole and rhetoric of a “shared future” to a more mutually beneficial partnership on an equal footing. The timing of the incident when the alleged “seizure” of Uganda’s Entebbe airport by China took the social media by storm, right before the FOCAC conference, only served to reassure the negative media coverage that China-Africa ties are usually subjected to. Without proper fact-checking and in its hurry to propagate the idea of China as a “neo coloniser” in Africa, such sensational media reports ends up doing disservice. It is always prudent to wait for evidence before jumping into hasty conclusions. Even though that might be the case, the non-transparent nature of China’s dealings, its non-disclosure and confidentiality clauses, lack of consultations with local civil society organisations, and its tendency to create strategic, commercial, and digital dependencies, is a reality that cannot be ignored while engaging with China.
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Abhishek Mishra is an Associate Fellow with the Manohar Parrikar Institute for Defence Studies and Analysis (MP-IDSA). His research focuses on India and China’s engagement ...Read More +