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Cablegate: Chinese Engagement in Uganda

VZCZCXRO5525
RR RUEHGI RUEHRN RUEHROV
DE RUEHKM #0077/01 0481100
ZNR UUUUU ZZH
R 171100Z FEB 10
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 0248
INFO IGAD COLLECTIVE
RWANDA COLLECTIVE
RHMFISS/HQ USAFRICOM STUTTGART GE
RUEAIIA/CIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 KAMPALA 000077

SENSITIVE
SIPDIS
AF/E FOR JTREADWELL, AF/RSA FOR LMAZEL, LGRIESMER, RBOWLES
TREASURY FOR REBECCA KLEIN
COMMERCE FOR ROBERT TELCHIN

E.O. 12958: N/A
TAGS: PREL EAID EINT UG CH
SUBJECT: CHINESE ENGAGEMENT IN UGANDA

REF: 10 STATE 10152; 08 KAMPALA 1483

1. (SBU) Summary: China's economic ties to Uganda continue to
accelerate on all fronts making it one of the country's top foreign
investors. Already heavily involved in infrastructure projects,
China is now attempting to become an even larger player in Uganda's
newly discovered oil deposits. The widening Chinese economic
footprint, however, carries with it negative perceptions among many
Ugandans of China-centric business practices, corruption, and
shoddy products. China does not currently collaborate or
coordinate with the United States or other donors in Uganda on
areas of seeming common interest like health. This is in response
to reftel regarding Chinese engagement in Africa (ref. A). End
Summary

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Trade and Investment: Up, Up, Up

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2. (SBU) The rapid expansion of Chinese involvement in Uganda that
began five years ago has resulted in China providing the country's
second largest source of incoming foreign investments for 2009 .
Uganda's Investment Authority (UIA) announced in January 2010 that
new Chinese investments worth $213 million were second only to
Britain's $267 million. According to the UIA, these Chinese
projects created 6,117 jobs versus 3,958 jobs created by British
investments. The significance of China's ranking is highlighted by
the fact that Chinese investments as late as 2005 included only a
restaurant and hotel and ranked near the bottom of foreign
investment in Uganda (ref. B) The Uganda Bureau of Statistics also
report an increase in Chinese engagement, as Chinese imports to
Uganda rose from$138.2 million in 2006 to $365.7 million in 2008.
During the same period, Ugandan exports to China - namely fish,
tannery products, and peanuts - nearly doubled from $6.8 million to
$12.7 million, and the number of Chinese visitors to Uganda
increased from 2,951 to 6,088. This growth encouraged Chinese
investors to launch a China Enterprises Chamber of Commerce in
Uganda in March 2009, which promotes China-Uganda trade and
represents over 30 firms.

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Infrastructure, Infrastructure... and Oil

--------------------------------------------- --

3. (SBU) Chinese Foreign Minister Yang Jiechi visited Uganda in
January 2009 and signed four bi-lateral agreements worth $75.8
million for projects in infrastructure, health, and information and
communications. The Chinese government is currently building a
hospital in Kampala, an agricultural demonstration center, and a
government office block building. It has donated anti-malarial
medicine and committed to setting up a malaria clinic in Mulago
hospital. It has also provided fishery experts to help the Ugandan
government address the problem of declining fish stocks. Over the
last three years, 390 Ugandan technical personnel have traveled to
China for training on a variety of subjects. The China Road and
Bridge Corporation is upgrading the road between Soroti and Lira in
northern Uganda with funding from the World Bank and is expected to
complete the project later this year. China's Export/Import Bank
has given a loan of $106 million to build a National Data
Transmission Backbone and e-Government Infrastructure that is
presently under construction by Huawei Technologies of China. The
project aims to create a national fiber optic network that will
lower the cost of bandwidth and connect government ministries,
local governments, schools, and rural communities to submarine
fiber optic cable systems. While preferring Western partners for
military training and doctrine, Uganda relies on China and other
old eastern bloc countries like North Korea and Russia for arms and
hardware. Chinese engagement will become even more significant if
the China National Offshore Oil Corporation (CNOOC) is successful

KAMPALA 00000077 002 OF 002


in its bid to partner with UK firm Tullow Oil to develop Uganda's
newly-discovered petroleum deposits. CNOOC and the French company
Total are expected to each acquire a significant share of Tullow's
Uganda holdings in the coming weeks. Another small but telling
indication of China's commitment to its bilateral relationship was
the recent completion of a multi-year construction project to
rebuild its chancery complex in Kampala.

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The Downside Risks

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4. (SBU) Greater Chinese investment and assistance in Uganda has
generated some resentment due to local perceptions that Chinese
investments favor

their own businesses, and that Chinese companies often provide
substandard products. For instance, in January 2010, the Chinese
Ambassador to Uganda delivered 244,000 doses of two Chinese
anti-malaria drugs to Uganda at a public event that was featured in
large paid advertisements in local papers. The donation
nevertheless only amounted to about one week of Uganda's
requirements for malaria treatment. Moreover, it was later revealed
that one of the drugs, Arco, had not been pre-qualified by the
World Health Organization, and that part of the funding for the
malaria clinic in Mulago hospital was earmarked for testing of
these drugs.

5. (SBU) China's growing engagement in Uganda has also raised
concern that Chinese business practices are more susceptible to
corruption. The National Data Transmission project for example, is
being scrutinized by Parliament and the press due to allegations of
wide-spread fraud with sub-standard or inadequate equipment
installed at inflated market prices. China's close relationship
with the Sudanese government in Khartoum has also not helped build
trust given Uganda's support for the Government of Southern Sudan.

--------------------------------------------- -----------

Cooperation with China: Unrealized Potential

--------------------------------------------- -----------

6. (SBU) There is great potential in Uganda for greater
cooperation and collaboration between China and the U.S. and other
major Western donors. At the moment, however, tangible examples of
such collaboration are virtually nil, even in areas where China
professes to have interests in common with the U.S. and other
donors, such as health. It is unlikely that collaboration with
other donors will increase unless the Chinese change the way they
do business and are more open to working through established donor
coordination mechanisms. China is not a member of the
Kampala-based Local Development Partners Group (LDPG), the primary
donor policy coordination body in Uganda, and it does not
participate in any of the LDPG's many sectoral working groups. The
World Bank is currently in the process of inviting the Chinese
Embassy into the LDPG.
LANIER

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