Made in Uganda By China

Chinese officials from the China Communication Construction Company Limited at the launch of the construction of Kampala-Entebbe Express High Way in November, 2012. INDEPENDENT JIMMY SIYAExperts optimistic that Chinese investments good for job creation, cheaper infrastructure and technology transfer

Last month, two groups of Chinese investors made a business trip to Uganda in what analysts see as an attempt to make a big mark on the country’s economic landscape. Led by its CEO Yuegong Wang, officials of the Sichuan Wande Group met Prime Minister Amama Mbabazi whom they asked to assist them acquire a 10-square-kilometer (3.86-square-mile) chunk of land to establish an industrial zone to which they would attract Chinese manufacturers to add value to Ugandan raw materials, ranging from agricultural products to minerals.

The group, which is involved in a range of high profile businesses including foreign trade, ICTs, real estate, energy and agriculture, said they were interested in setting up a $400 million economic zone for Chinese firms in Uganda. Already, available information indicates that the group is involved in the development of a city near the Ghana capital Accra and in March signed a deal with the Kenyan government to construct 55,000 housing units in Nairobi.

Shortly after the visit of the Sichuan Wande Group, a team of 14 Chinese investors from the Provincial Department of Agriculture in the People’s Republic of China led by the Deputy Director General Tu Jian Hua, toured several parts of Uganda and met with government officials with the aim of securing land to set up commercial farming investments.

Reports indicate that the government gave them 750 acres of land to undertake cotton growing in Masaka District. Okaiesa Opolot, the director of crop resources in the Ministry of Agriculture, said the investors still needed another 15,500 acres for the agribusiness investments. Opolot said the Chinese are kick-starting their investment with $60 million (Shs 156 billion) annually. The investors said the produce would be processed locally to create more jobs for Ugandans.

Observers say the two groups of Chinese investors are a manifestation of the increasing desire by Chinese investors to inject their money in Uganda and perhaps contribute to job creation and GDP growth among other benefits.

These investors are following the footsteps of major Chinese investors who have already set up camp in the country. For example, the China National Offshore Oil Corporation (CNOOC) is a major player in the nascent oil industry – describing Uganda as “a beautiful and peaceful country with great business potential, which has made it a good destination for investment.”

CNOOC Uganda is working closely with its stakeholders to accelerate the development of the oil and gas industry. “CNOOC Uganda believes that our investment will create a win-win situation for our stakeholders, contribute to Uganda’s economic growth and social welfare for local people,” a company official said. CNOOC is one of the three oil companies – as well as Total E amp P plus Tullow Oil – that are involved in oil exploration in Uganda. It is developing Uganda’s $2 billion Kingfisher oil field.

Other Chinese companies are involved in huge projects in construction, energy, agriculture and a few others in import and export trade.

As at end of 2012, there were a reported over 260 Chinese firms operating businesses in Uganda, employing over 30, 000 Ugandans. Chinese investment in the country then was estimated at $596 million.

Recently, the government signed a MoU that finally gave away the controversial deal to upgrade and expand Uganda’s railway network to standard gauge, to a Chinese firm China Harbor Engineering Company (CHEC). The deal is estimated to be worth $8 billion (about Shs 20 trillion). The 600MW Karuma Dam construction, which is worth $1.7 billion, is being spearheaded by Sinohydro Corporation Ltd, a Chinese firm. The $476 million (Shs 1.19 trillion), Kampala-Entebbe Express High Way is being constructed by China Communication Construction Company Ltd, among other projects. Uganda is not the only African country the Chinese are targeting.

This Chinese push into Africa is seen by some observers as an uncomfortable development for western super powers such as the US. Indeed, some say that the recently-concluded US-African Business Summit 2014 in Washington DC, USA, was a direct counter to the increasing economic influence of China in Africa.

“The US and its allies are genuinely frightened of the rate at which China is making concrete investment and control over Africa’s crude oil and mineral resources,” argued Morris Komakech, an analyst. However, some private sector players don’t mind about the nationality of new investors – all the government needs to do is to make Uganda an attractive investment destination so as to create jobs for Ugandans.

Indeed, Gideon Badagawa, the Private Sector Foundation Uganda (PSFU) executive director, said the government needs to attract more investors as a way of creating jobs, but most importantly increase the tax base to fund the national budget. To achieve this, Badagawa said there is a need to put in place a favorable business environment by reducing the red tape involved in acquiring investment licenses among other measures.

“The government is trying but we need to do more,” Badagawa said, “such incentives would attract many investors, which is good for our economy,” he added.

Ibra Kasirye, an economist and member of Uganda Economics Association, agreed with Badagawa, saying one of the biggest problems that investors face in Uganda is lack of land. “Even when an investor has money, access to land is difficult,” he said, proposing that those with idle land should be taxed to encourage them to develop it.

He said the Chinese are probably finding it easy to invest in Uganda largely because the economy is fully liberalized, there is quick access to local and regional markets, there is a g natural resource base and a commitment by the government to the private sector as the engine of development.

“I believe for now many of them (Chinese) are targeting local demand,” he said, “but going forward, they will be looking at other markets outside,” he added.

Benefits for Uganda:

Kasirye however sees some positives in the competition between EuropeUS and China for African markets, saying it would bring down the cost of projects. Uganda, he added, would benefit by spending less of the scarce resources on infrastructure. This is already happening. Dan Alinange, the publicist at Uganda National Roads Authority (UNRA), recently said because of the competition, the unit cost per kilometer of roads construction has reduced from about $1.5 million range to between $700,000 – $800,000 largely because of the stiff competition from Chinese companies.

On employment, Kasirye was not as optimistic however, saying most Chinese companies prefer employing their fellow Chinese at the expense of the nationals. He also warned of another risk – as the number of Chinese projects increase, there is a possibility that many of them will demand or transact among themselves. “If you have one Chinese company producing construction materials and another dealing in construction, it will be automatic thatit will buy from the Chinese supplier because they speak the same language,” he said. CNOOC officials however said as part of their local content strategy, approx. 300 Ugandan contractors and suppliers are already dealing with them – but almost everyone knows it is a legal requirement for the oil and gas industry.

However, Maggie Kogozi, the former executive director at Uganda Investment Authority, currently a director at a beverage company Crown Beverages Ltd, was more positive. She said the increasing number of Chinese investments is something that Uganda needs to be happy about.

“We should be thankful that they have chosen Uganda,” Kigozi said, adding that there are many countries that are desperate to have those investments if it is to reduce its trade deficit. Bank of Uganda data indicates that Uganda’s trade balance continues to deteriorate on account of stagnant exports and high import requirements.

The trade deficit fell by 11.4% from $2,123 million in 20122013. In 20132014, the deficit rose to $2,365.5 million. Export earnings as a share of GDP declined to 11.4% from 13.6% in FY201213 and from 15.4% in FY 201011. For these figures to take on a positive trend curve, more FDI is crucial, analysts say.

Kigozi said another positive is that the Chinese are bringing in skills in management and technology among others for Ugandans which would definitely be transferred to Ugandans.

“Ugandans are smart,” she said. “They will learn from the Chinese and go away and start their own enterprises or work in other Ugandan companies,” she added.

Official data from the Uganda Investment Authority (UIA) indicates that although the China question is common, India is bigger when it comes to investment in Uganda. For the fourth quarter running in 2014, India emerged at the top in terms of licensed project numbers in Uganda. Indians accounted for 20% of the total projects number of projects with 23 investments.

China ranked second accounting for 12% of the total (13 projects). The US and Eritrea emerged third and fourth respectively attracting seven – 5% of all projects.

Analysts say local businesses should not conflict with Chinese investors, but instead adopt the same strategies the Chinese have used to succeed – increase capital investments, improve customer relationships and look for cheaper products and financial sources among others.

Source : The Independent

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