Debt Traps Work: How Uganda Gave China Control of Its Largest Airport

By Neil Campbell | November 29, 2021
Neil lives in Canada and writes about society and politics.
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Uganda traded much of its sovereignty over its aviation authority to the Chinese Communist Party in exchange for a $200 million loan in 2015, set to come due in March of 2022.
Ugandan President Yoweri Museveni (C) and China's third Vice Prime Minister, Wang Yang (3rdL) visit the Mpala toll station during the inauguration ceremony of the Chinese-funded 51-kilometer Expressway debt trap, linking the capital city and the Entebbe International Airport on June 15, 2018. Uganda gave away considerable sovereignty over its air traffic operations to the Chinese Communist Party in exchange for $200 million in loans. (Image: SUMY SADURNI/AFP via Getty Images)

The Chinese Communist Party (CCP) is poised to take control of Uganda’s only international airport next year after the Government of Uganda signed into a 2015 debt trap agreement borrowing millions from the Export-Import Bank of China (Exim Bank) in exchange for Beijing’s managerial and financial oversight over the country’s air traffic operations.

Nov. 25 reporting by the Uganda edition of Monitor titled Uganda Surrenders Airport for China Cash explained concerning clauses contained in a March of 2015 $200 million USD loan between Exim Bank and the Uganda Civil Aviation Authority (UCAA) purported to be used to upgrade Entebbe International Airport.

The loan’s financial terms were noted as a two percent interest rate “upon disbursement, with a maturity period of 20 years, including a seven-year grace period,” meaning the grace period elapses in just a few months.

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Exim Bank is a notable piece of the CCP’s financial infrastructure, providing loans enabling Party cornerstone companies such as the notorious Huawei, to expand throughout the developing world. Exim was also set to finance 85 percent of a $14 billion USD railway project in Malaysia in 2018.

The outlet says the UCAA has “flagged up to 13 clauses in the agreement” that the Authority regards as “unfair and erode[s] the sovereignty of Uganda.”

One of the most prominent conditions of the contract, according to Monitor’s “investigations over several months,” is a requirement that the UCAA “set up an escrow account to hold all of the Authority’s revenues.”

“The agreement provides that UCAA cannot use any of the accrued money for whatever expenditure without approval from Beijing,” adds the article.

According to Monitor, another serious clause in the deal is that the UCAA also must surrender its annual and monthly budgets, in addition to “master and strategic plans” to Exim Bank for Beijing’s approval. 

In the contract, the UCAA also granted Exim Bank the right to review it and the Government’s “Book of Accounts.”

Additionally, Monitor says that although the contract is to be governed under Ugandan law, the agreement requires all disputes be handled at the China International Economic and Trade Arbitration Commission in Beijing.

Another section in the agreements saw Uganda “irrevocably waive[s] any immunity on grounds of sovereign or other immunity.”

Since the contract was signed, the Government of Uganda has found itself in hot water. The article says that in 2019, the administration deployed an “11-member delegation to Beijing to plead with Exim Bank to renegotiate the clauses.”

Unfortunately for Uganda, the Party, realizing it held a significant position of power in the negotiations, refused to budge. Instead, “The lenders advised [the delegation] to accept ‘friendly consultations’ from time to time, to ensure smooth implementation of the airport expansion project. They also agreed to keep the details of the meeting confidential,” read the article.

The outlet notes that the delegation was sent after Exim “suspended funding, citing violation of the loan agreement after UCAA failed to implement some of the clauses, which were not favourable to Uganda.”

“By the time the Chinese accepted to resume funding, the project had lost 361 days and the country was under lockdown,” it added.

Monitor said that Finance Minister Matia Kasaija assured journalists before an Oct. 28 meeting at a Parliamentary committee that “the central government will step in” if the UCAA is unable to pay its debts to the CCP. 

Kasaija also told MPs during the meeting that signing a vow with the Communist Party was the “best possible alternative” at the time, so they “jumped on it.”

In April of 2015 after the agreements were signed, CCP propaganda outlet China Daily published a piece titled New Agreements Give a Lift to Uganda where President Yoweri Museveni was paraphrased as calling the Party a “reliable friend of Africa” while asking for additional financial transfusions for “standard-gauge railways and hydroelectric development” and “bilateral cooperation in oil, mineral resources, tourism and industrial parks.”

Monitor said its investigation uncovered that Uganda’s National Economy Committee “scrutinised this particular loan request, but it didn’t detect the problems in the loan agreement.”

It also noted that the Minister of Finance originally presented a motion to borrow $325 million from Exim Bank, but it was discovered that $125 million “lacked documents,” resulting in the finalized $200 million loan.

It wasn’t the only debt trap deal the country tied itself into. At the end of March of 2015, Monitor published a piece on another deal Museveni signed between the China Habour Engineering Company and the Government to construct a railway line. 

Museveni was in China at the time, shaking hands with Communist Party leaders, and had “travelled on a speed train from Tianjin to Beijing, 122kms apart,” according to the article.

“Mr Museveni blamed the slow pace of development in Uganda to the indiscipline of government bureaucrats, before extending an invitation to the Chinese saying ‘we want you to come to awaken these people by examples.’”

According to Nov. 27 reporting by Uganda’s Nile Post, the UCAA denied it was in danger of defaulting on the loan, ceding its airport to China. 

However, in a statement, the UCAA claimed that it “enjoys the freedom and liberty of spending what is collected,” disclaiming the phrasing with the statement “(as per the budget),” which it declined to note has to be approved by Exim Bank’s Beijing overseers.

“The lender’s monitoring of the account is only similar to what happens when one gets a salary loan or any other loan and the bank requests that the salary is channeled through their bank. It does not mean that lending bank takes over your salary,” the UCAA stated.