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Banks dangle sweet deals to attract Chinese traders

Chinese goods flooding the local market have reached a record high of $710 million in 2016, making China the largest exporter to Uganda.

The emergence of China as a superpower in Uganda's economy has jolted banks to create products to tap into this trade. On Thursday, at a China-Uganda forum organised by Stanbic bank at Sheraton hotel, David Odera, a bank official, said China had become so important that it could not be ignored.

“We can now help you change your money from Renminbi to Uganda shilling without first changing to the dollar,” Odera told Chinese businessmen.

He also pitched to the Chinese congregation of the hedging products that could help them guard against the risk of currency volatility as they transact their business in Uganda.

In June last year, Standard bank, the parent company of Stanbic bank, together with Standard Chartered bank, announced that it had hedged the interest rate risk on the Karuma power dam, which is being constructed by Chinese firm, Sinohydro, by converting the interest rate repayments from a variable rate linked to United States Libor to a fixed rate for the remaining 14 years of the loan.

The meeting at Sheraton hotel was mainly held in Chinese language, with mostly Chinese commentators. Uganda exported just $57m to China in 2015 and just $27m last year.

Chinese experts at a maize farm in Masindi district

Two banks in Uganda Stanbic and Standard chartered – have put in place fully-fledged departments to deal with Chinese trans- actions.
Chinese firms are constructing most of Uganda’s infrastructure products with government borrowing most of the money from China’s Exim bank.

The flooding of Chinese products has caused grumbling from some Ugandan traders and policymakers, though, mainly because many of them are of poor quality.

Recently, parliamentarians recommended that Chinese traders be barred from engaging in petty trade. Jeremy Stevens, Standard bank’s Beijing economist, said Africa in general was the fastest-growing market for Chinese exports, with Africa taking up to 30 per cent of China’s exports. Stevens said the trade will continue to grow.

China doesn’t mince words about its interest on the continent, which forms not just market for its goods but also provides contracts for its firms. In a 2015 Africa-China summit in South Africa, President Xi Jinping met African presidents and pledged a $60bn funding kit to the continent. He said the funding would mainly be channeled towards building infrastructure.

China has also gone to great lengths by contributing peacekeeping troops to the United Nations in Africa, especially in South Sudan. Meanwhile, some experts think the Uganda shilling will continue to weaken this year as the dollar strengthens in the wake of the election of Donald Trump, but also on account of weak exports from the country.

Jibran Qureishi, Standard bank’s regional economist, said the dollar would reach Shs 3,800 and 3,900 by the end of this year. Today, the dollar is trading at Shs 3,580.

He said Uganda was likely to grow at 5.4 per cent in 2017, with investment in public infrastructure likely to push up growth. He said Uganda has a strong fallback position in its oil reserves.

“The positive is that Uganda has not mortgaged its oil; the fiscal management is quite good,” he said.

But there have been warnings that Uganda’s heavy borrowing to fund infrastructure was becoming reckless. In a December 2016 report, Bank of Uganda warned there was a feeling in the market that the country may not service its rising debt levels.

Dr Adam Mugume, BOU executive director for research, said mid-last year that the country could actually default if oil proceeds did not come on board by 2020.

Qureishi, however, said “much of Uganda’s debt was mainly concessional,” which means cheaper and long-term than commercial loans and therefore not hard to pay back.

amwesigwa@observer.ug

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