Was the Ugandan Airport Loan a Debt Trap?

Osebhahiemen B. Okooboh is a graduate student at Kennesaw State University, where she majors in International Conflict Management. She is currently an intern at the Carter Center’s China program.

On November 17th, 2015, the Ugandan government, led by President Yoweri Museveni, signed an agreement with the Export-Import Bank of China (Exim Bank), for a loan of “$207 Million at two percent upon disbursement”. The loan agreement was reached in 2015 and stipulated a maturity term of twenty years with a seven-year grace period which ends in 2022. Critical Ugandan assets, including Uganda’s only international airport, were attached to the loan, and used as collateral in the event of non-repayment. The Ugandan government also waived international immunity over-attached collaterals leaving it exposed and without recourse in a failure to repay these loans. The terms of the agreement were at the time considered fair, and the projects for which the loans were obtained began in earnest and have reached 75.2% completion. However, in 2021, Museveni unsuccessfully sought a renegotiation of the loan terms, claiming toxic clauses in the agreement exposed the Ugandan government. These toxic clauses included giving China’s Export-Import bank oversight over the operating budget of the airport, and the right of the bank to inspect the Ugandan Aviation Authority and government’s book of accounts. The Ugandan Civil Aviation Authority (UCAA) was also required to seek permission from China’s Exim bank for its budget and strategic plans. These terms are seen by certain members of the Ugandan parliament as eroding Ugandan national sovereignty.

The Ugandan Civil Aviation Authority (UCAA) has refuted the claims of that the airport is being taken over. Concerning the alleged takeover, the spokesperson for the UCAA said that “This has not happened and will not happen”. The Ugandan Attorney General, Kiryowa Kiwanuka, also stated that Uganda can meet the loan agreement terms. The Chinese embassy in Uganda has pushed back on speculation about China’s airport takeover. A spokesperson of the Chinese embassy dismissed the reports as malicious and intending to hurt China’s relations with developing countries. They insist that the contract with Uganda was open and fair and in line with the international financing agreement. The current loan terms stipulate that the Ugandan government is well within the seven-year grace period which will expire in December 2022. Exim bank is not currently in control of the airport but does maintain oversight on budgetary concerns. Certain members of the Ugandan parliament have flagged onerous terms in the contract that they insist were designed to undercut Uganda.

To China’s credit, it is puzzling that after so many years, and near completion of the project, that these “onerous” terms are only now being flagged. Add to this the fact that the Ugandan Finance minister has publicly apologized for mismanaging the loans; it raises the question of who should be responsible for non-repayment of the loan: China or Uganda? Is the default a result of ‘toxic’ loan conditions offered by China or ineffective loan management by the Ugandan government? It should be noted that the former explanation fits in very nicely with the theory of `debt trap’ diplomacy, an idea first promulgated by an Indian think tank and vociferously promulgated by Western governments and media to dissuade developing countries from engaging with China. The narrative posits that the Chinese lure African countries into taking on substantial non-repayable loans that have little benefit to the recipient countries in order to seize critical infrastructure. Upon the inevitable failure of recipient countries to pay back loans, the Chinese government takes control of these assets, thus bolstering their own economies.

Touted as ‘modern-day colonialism,’ Western media has tried to draw attention to ‘stringent Chinese loan terms’ in their narratives, but, while playing the part of do-gooders looking out for the minorities’ best interest, they leave out their historical imperialist history with African countries. Ajit Singh in his article “The myth of ‘debt-trap diplomacy’ and realities of Chinese development finance”, however, discredits this narrative. Singh finds that contrary to the views touted by the Western media, Chinese loans are not a major driver of debt-distress in Africa, China does not engage in predatory behavior towards borrowing countries and that China’s non-interventionist approach has opened spaces for developing countries facing hostility from western countries. Singh argues that the current narrative surrounding debt-trap diplomacy does not accurately describe Chinese finance. All it does, just as in the Ugandan airport scenario, is to cast China as the conniving benefactor, while ignoring the agency of African countries in negotiating key economic decisions.

China has long pursued a path of economic engagement with Africa, cornering the continent’s telecom and the infrastructure market. This has made the Western countries renew promises of investment in technology and infrastructure. China, however, remains Africa’s largest trading partner and has pledged billions in infrastructure through its Belt and Road Initiative. China’s exports to Africa over the last fifteen years have increased by 233%, allowing it to pursue low-risk, high reward policies geared towards long-term political and economic engagement with African states. This is not to say China’s arrangements have been purely philanthropic. They most certainly are not, but they recognize the benefits of developing partner economies as more than just a means of expanding their own national economy. Despite unrelenting arguments that China is exploiting Africa for myriad reasons, including for its natural resources and for geopolitical clout, the reality remains that China has had greater success on the continent than most, if not all, Western countries.

There is also the growing awareness that the Chinese development model serves as an inspiration to African states. Unlike Western states that were imperial powers and long in positions of power and wealth during the colonial period, China is unique. China was once a developing country that has been able to pull itself out of poverty and is well on its way to economic preeminence. A growing number of African youth are beginning to appreciate the Chinese model of development and to examine the viability of its replicability in Africa. According to a survey done by Afrobarometer, 60 percent of African youths believe that China’s influence is positive or somewhat positive. This is because the story of China’s rapid development is relatable to Africans and exemplifies the potential success of African partner. China has also emphasized cultivating the partnership- cooperative relationship instead of the donor-recipient relationship common among Western countries.

In the Western narrative of the debt-trap diplomacy, the agency of the African countries to engage with countries on the diplomatic stage, be it the US or China, is mostly left unaddressed. The ‘Chinese colonization’ narrative posits that African countries are hapless states without autonomy or authority over their political and economic decisions. First, African countries choose to accept Chinese terms and loans. They are aware of the alternatives in the international market, including other countries, multinational companies, and international organizations such as the World Bank, World Trade Organization, and the International Monetary Fund. As part of their mission, these organizations provide loan support and offer developmental programs. In the Ugandan context, it should draw skepticism that when the loan is nearing maturity the “toxic” terms of the loan become an issue. When the political climate and the upcoming Ugandan elections are factored in, it makes the timing of the protests questionable. The alleged airport takeover was used by the opposition party to erode credibility in Museveni’s government during the last elections, thus putting pressure on his government to find solutions to the now considered ‘onerous contract.’ Since the contract terms were already settled, the Chinese bank is under no obligation to make any concessions, and it is up to the Ugandan government to convince them that renegotiation is needed.

Furthermore, the desperation of recipient countries when seeking aid does not make the Chinese government the villain if the recipient country allows such desperation to cloud negotiation tactics; frankly, it simply calls their negotiation skills into question. Despite their desperate need for aid, governments can still obtain fair concessions in certain situations, especially in an international political climate that is constantly in flux. For instance, in this current climate, China wants to expand its domestic economy, but it also wants to expand its soft power influence and diplomatic reach. The US is facing a global power decline and wants nothing more than to hinder China’s soft power base and recoup some of its losses, particularly in Africa. European countries like France are looking to establish relationships other than those jointly held with the US. This atmosphere is rife with opportunities for African countries to play the field and obtain favorable terms for developmental projects or otherwise. Where recipient countries still fail to get good terms, the blame cannot easily be put on the lending party.

In Giles Mohan and Ben Lampert’s article in African Affairs, “Negotiating China: Reasserting African Agency in China-African Relations,” they examine how different levels of African actors have shaped and driven Chinese engagement in pivotal ways. By examining how certain elements of the Angolan state have created hybrid institutions to broker Chinese investments, and how African actors benefit from Chinese migrant activities in Nigeria and Ghana, they find that though uneven, African agency is still well exercised. They refute the Western narrative that Africa is a passive space subject to intervention by the Chinese and argue that Sino-African relations are more “locally driven and mediated than is generally realized.” Although agency is mostly found at the elite level, they still do exist in civil society spaces and “tight corners.” However, despite contrary Western views of passivity, African actors have been able to use China-African engagements to their own personal advantages and to net society-wide benefits.

The corrupt or inefficient leadership of recipient countries also should have no bearing on the contract between parties. In the Ugandan case, the mismanagement of the Chinese loan was an internal issue and had no bearing on the agreement between China and Uganda. China has a strict policy of non-interference policy in domestic matters, widely known and should be factored into pre-negotiation arrangements by parties to the contract. A recent example of China’s stringent non-interference policy is in the recent Sudan Coup. Sudan is one of China’s foremost economic partners in Africa and shaped the operational practices of Chinese state-owned oil companies. Despite calls for a more substantive Chinese response to the coup, China has instead put out a vague call for the maintenance of peace and stability and said they will continue to monitor the situation. This is very much the standard reply for the Chinese when it comes to internal domestic issues. On the other hand, African countries are aware of their governance and leadership state before entering a contract. Whether or not the said leadership is corrupt or inefficient sounds more like a domestic reform issue and a ‘Chinese taking advantage’ issue. The Chinese government is still looking to turn a profit. They are negotiating with recipient countries with the same open and fair spirit as any other negotiation, albeit with specialized terms. The point is that asking China to worry about recipient countries’ ineffective leadership or desperation in conducting negotiations takes away from their agency and sovereignty to make decisions for their well-being and even to be at the negotiating table at all. 

 

African countries may be rife with issues, but they should be credited with the agency of making their own decisions and charting their own diplomatic course. Looking at the facts of the loan agreement between the Ugandan government and Exim bank, it appears it was executed with the consent of both parties with full awareness of loan terms and according to the international financing agreement. There does not appear to be any foul play involved. Narratives about debt-trap diplomacy regarding the agreement seem geared toward an overall campaign to discredit China’s economic engagement with Africa rather than based on the substantive nature of loan agreements between China and African countries. This piece does not mean to let China off the hook for its economic practices, which sometimes can be predatory. In the case of the Ugandan airport, however, China appears to be in the clear.