For airport expansion In the case of the Entebbe project, China imposed a leonine contract on Uganda, according to the US research centre AidData. This clause obliges Uganda to put all the profits from the airport into an escrow account.
In 2015, the Republic of Uganda took out a $200 million (€178 million) loan from the Chinese Export Import Bank. This money was allocated to the expansion and modernisation of the airport. According to the US research centre AidData, the loan agreement obliges Uganda to place all of its airport revenues in an account held jointly with the creditor. After that, he or she will have to pay back the loan first before any other expenses can be considered.
Clauses that are not without turmoil?
This contract has not been without controversy. Bradley Parks, executive director of AidData, told AFP that these are the most leonine clauses they have ever seen. Because this contract limits the state’s budgetary autonomy. It is common for Chinese creditors to impose repayment clauses on states. For the most part, they are based on expected revenues from infrastructure. But in the case of the Entebbe contract, the repayment clauses cover all of the airport’s revenues, not just those expected from the Beijing-funded expansion, says Parks. This may be an exaggeration.
It should be noted that China is one of the leading donors of infrastructure in Africa. Sometimes it is criticised for its loan contracts, which often contain unfair clauses. This obviously increases the public and private debt of countries with dominated economies. Built in 1951, Uganda’s international airport generated annual revenues of around €60 million before the expansion, according to AidData. And the state used part of the funds to finance public services. In comparison, analysts point out that in Benin, a Chinese loan to set up a water supply network came with a clause requiring that part, not all, of the network’s revenues be paid into a joint account.
In a report entitled “How China lends” published by the US research centre in 2021, the Peterson Institute for International Economics and the Kiel Institute estimate that 75% of the loans made by the China Development Bank include clauses linking repayment either to physical assets or to the blocking of funds in special accounts, as is the case with Uganda. In addition, 81% of the loans granted by the Chinese bank, Exim Bank, exclude any possibility of restructuring.
Beijing open to negotiations
During the Forum on China-Africa Cooperation (Focac) held in Dakar at the end of November, the Chinese authorities were asked about the issue of loans in Africa. They say they are aware of the problem and China has agreed to join the Paris Club, whose mission is to restructure sovereign debt in good conditions. It is therefore important to review China’s financial partnership policies so that by helping, we do not send the dominated economies into the abyss of underdevelopment.
