19 January 2012

Uganda: China's Aid Spurs Growth, but Traders Feel Cheated

Photo: Xinhau/Lan Hongguang
President Xi Jinping of China, on his visit to South Africa

To widen the tax base, the Ugandan government urgently needs to partner with donors and take more proactive steps to support revenue-raising activities like agriculture, energy and infrastructure or even the private sector so that in the long term, aid dependency is minimized.

In a series of articles on foreign aid and taxation titled 'Using Aid to Kill Aid', David Tash Lumu explores the influence of China. The new hospital in Naguru, which divides a fast-rising business centre and a dilapidated housing estate, has many of the markings that can be used to describe the country that built the hospital - China. The world's fastest rising economy, and the second biggest overall, is an enigma, to say the least; while its economy heats up with swanky buildings dotting its skyline, especially in the capital Beijing, China continues to struggle to bring out all its more than a billion citizens out of poverty, and still gets aid from the European Union.

So, it is almost fitting that the Naguru China-Uganda friendship hospital, one of the finest by the way, should be located there - the business shops like Shoprite and the Forest Mall are on one side, while the run-down Naguru quarters on the other - for few images can be used to relate to China. There is more to that Naguru hospital, though: it is China's largest aid towards Uganda's health sector, and only the second most significant. The other time that China has looked towards Uganda's health sector was a grant towards the construction of a malaria prevention centre at Mulago about four years ago.

The $6 million grant to the Naguru hospital represents the country's growing relations with Uganda. It also, somewhat, brings out a softer side of China as it shows the country paying attention to Uganda's wobbly health industry, and not just money-making ventures. China continues to be criticized for paying less attention to sectors that improve the livelihoods of the poor. Critics, especially those from the West, believe that China should look more to offering cheaper housing, build schools and hospitals in Africa, if its aid is to have some significant meaning.

The Naguru hospital might temporarily calm the critics, but will not by any means keep them dead quiet, for China has no intentions of keeping its eyes away from sectors that generate revenue. Infrastructure remains top of China's list, building roads especially. A white paper on China's foreign aid issued by China's information office of the State Council on April 21, 2011, indicates that 61% of the money to developing countries goes to economic infrastructure.

Other projects China has funded in Uganda include a loan towards building a new Kampala-Entebbe highway, the Foreign Affairs ministry offices, the President's office, the Wakawaka fish landing site, and Kajansi aquaculture demonstration centre, among others. China offers scholarships to Ugandan students, enabling them to pursue continued education in areas from technology to medicine. A research done by the Makerere University-based Economic Policy Research Centre in 2007 on China-Africa Economic relations shows that since 1959, China has received 313 Ugandan students.

However, unlike aid from other countries, it has become quite difficult to squander grants from China. Money is put on an escrow account in Beijing before a list of infrastructure projects is drawn up. Chinese companies are given contracts to build and funds are transferred to company accounts. While many praise China for limiting the leakages of its aid cash, such a strategy denies Ugandans jobs, and since much of the project equipment comes from China, it serves more the Chinese market than Uganda's, at least in the short term.

Market for cheap products

Usually, China's aid, like pretty much any other aid, is reciprocated with a business venture somewhere else. A country offers something in return for aid, and China has mastered this art. That's not all. Loans and grants to road construction also widen the market for cheap Chinese imports. A good road from, say, Kampala to Kisoro means that a trader can come from Kisoro, buy cheap Chinese imports from downtown Kampala, and head back on the same day which was unimaginable 15 years ago.

The market in Uganda remains of huge significance to China, and proof of that can be found in the chaotic downtown Kampala. Small-time traders sit on dirty verandas--some over stones to debate; others engage customers. A peep into the shops of these busy Kikuubo traders, an easy familiarity prevails--Chinese products.

"This is good," a trader sweet-talks a buyer.

"I know you like it." The product is a pair of plastic gladiator boots--well-designed, and they look like an original wear imported from United Kingdom or US. Basic goods like cellular phones, radios, clothes and shoes, the biggest bunch of which comes from China, are now more affordable in Uganda. Kampala city traders are not impressed. "Africa is making China a beast," a trader in Kampala once said of the Chinese in the famous anti-China document written by Kampala City Traders' Association (KACITA) in May 2005.

Titled 'The issues of aliens in Uganda as affecting the economy; where does Uganda gain? And where does it lose?' the document that was submitted to government states that while it is almost impossible to get a visa to travel to US or Europe to purchase merchandise, in the case of the Chinese they allow Ugandan traders unfettered access to travel to China. To compensate for this 'friendly' connection, the Chinese have taken over Uganda.

"Why does government allow the Chinese aliens to undercut local Ugandans out of business and allows Chinese capital repatriation to be almost 100%?" the traders noted in their document. The traders also accuse China of dumping, stifling local traders. Yet, inside all these cheap Chinese imports lies a much bigger problem than what the city traders grumbled about - imported inflation. Since 2009, government argues that much of the inflation the country experiences is imported from its main trading partners like China. Inflation eats into people's savings and increases the costs of living.

Officials happy

Nevertheless, experts in Uganda continue to blow China's trumpet, and are happy with the way the Asian superpower directs its aid. Gideon Badagawa, the executive director of the Private Sector Foundation Uganda (PSFU), says that by investing more money in infrastructure development, China has laid a foundation for Uganda to not only widen its tax base but also to propel her desire to stop foreign dependency.

"Infrastructure development is one area that propels growth which later gives birth to a huge tax base. If the tax base is narrow, the tax revenues will also remain stagnant. We must use foreign aid to propel value-adding sectors and I am happy that China is doing exactly that, and it seems, our government has received the gesture with two hands," he said.

Badagawa also praises China for not placing conditions on the recipient country. Last year's China white paper notes that the country's aid policy is directed towards "Adhering to equality and mutual benefit, stressing substantial results, and keeping pace with the times without imposing any political conditions on recipient countries..."

It is a statement that many of those who will go to the new hospital in Naguru will agree with.

This article was sourced in partnership with Panos Eastern Africa.

Copyright © 2012 The Observer. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.