15 January 2013

Uganda: Banks Cash in On China Trade

The large trade volumes between China and Uganda corridor have triggered a turf war between Ugandan banks, lowering trade costs and easing access to the tightly controlled Chinese Renminbi (Yuan).

Joint ventures between Ugandan and Chinese banks have enabled Ugandan firms to access cheap financing from China in addition to providing a direct money transfer service for Ugandan-based companies and individuals.

Standard Chartered Bank has hired Mandarin speaking Chinese to tap into the large local Chinese business class while DFCU has just secured a partnership with the Bank of China.

"Ugandans no longer have to carry huge sums of money with them to China to transact business. All they need is to carry their ATM cards and withdraw the money from bank of China," finance minister, Maria Kiwanuka said recently.

Uganda Investment Authority (UIA) reports indicate that trade volumes between Uganda and China increased from $156m (sh423b) in 2006 to $222m (sh602b) in 2007 an annual growth of rate of 42%.

A consistent growth rate would place trade volumes at over $1b or 6% of Uganda's Gross Domestic Product (GDP) for the year ended 2012. There are more than 150 registered Ugandan based Chinese businesses increasing import demand.

Revenues from the China- Uganda corridor will have a profound effect on the banks after high inflation and spiraling interest rates damped appetite for commercial bank loans.

Chen Wenyi the president of Bank of China, Johannesburg Office pointed out that the benefits of international and cross-border trade depends a lot on good banking adding that the partnership with DFCU reflects a commitment to ease transactions for both Chinese and Ugandan business.

"We believe that this will greatly contribute to the growth of not only business but also the economies of both countries," he said. Sources at the DFCU bank said the partnership will increase remittances to Uganda while boosting access to the tightly controlled Chinese Renminbi that is tightly controlled.

"Individuals will be able to send dollars directly from China to Uganda through their accounts, however, there are tight government controls on the Renminbi and only businesses can access it," individuals within the bank said.

Juma Kisaame, the DFCU boss said the bank will utilise the collaboration to offer shore investment propositions in China, trade finance facilities and co-financing of viable investment projects.

"This means customers can now pay for goods imported from china directly to avoid exchange rate losses for the third currency," he said. Jeremy Stevens, a Beijingbased Standard Bank Group economist notes that China accounts for 20% of Africa's trade and that China's trade with Africa has grown nearly twice as fast as its trade with Latin America an indication of brighter prospects for China-Africa trade.

"Chinese firms, confronting subdued activity in mature markets and tasked with shifting up the value chain, have recognized the importance of selling goods to the large emerging economies, especially the highly populated and increasingly wealthy ones in Africa," he said in a statement.

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