Uganda Seeks Kenya Go-Ahead for $2.3 Billion China Rail Cash

  • China Eximbank will only provide funds if Kenya builds line
  • Uganda may rather develop southern track through Tanzania

Uganda, which wants to start building part of a multi-billion-dollar rail line to Kenya, must wait for its neighbor to decide on plans for its portion of the track before the project’s main funder makes money available, the country’s finance minister said.

Export-Import Bank of China will arrange financing for Uganda only when it’s sure that Kenya “is willing and able to extend its railway to the border, so that they don’t fund a white elephant,” Finance Minister Matia Kasaija said. Kenya has committed to the line, but wants to start building when it’s in a position to borrow more money, he said.

Eximbank will provide 85 percent of the $2.3 billion Uganda needs for the line, Kasingye Kyamugambi, the rail project’s coordinator in Uganda, said in February.

East African nations are trying to direct funds to infrastructure to help accelerate economic growth. The 273-kilometer (170-mile) standard-gauge line linking landlocked Uganda’s capital, Kampala, to Malaba on the Kenyan border will form part of a network that will eventually span 3,200 kilometers across the two nations, Rwanda, and possibly South Sudan.

China Eximbank in December agreed to lend Kenya $4.9 billion for the second leg of the new railway, linking the southern Kenyan town of Naivasha to Malaba. Trial runs on the first phase between the capital, Nairobi, and the port city of Mombasa start next month. The entire line in Kenya will cost $10.5 billion.

The World Bank estimates that China may fund about 37 percent of Uganda’s investment program in the three years that end June 30, 2020. That’s around the time the country expects oil production to begin. Tullow Oil Plc, China National Offshore Oil Corp. and France’s Total SA are jointly developing crude finds estimated at 6.5 billion barrels of resources. The state estimates that oil companies will spend $8 billion in the country ahead of production that’s scheduled to begin in three years.

Tanzania Option

If the Kenyan route to the Indian Ocean is delayed, Uganda may decide to develop an alternative track through Tanzania to the same coastline, according to Kasaija, who spoke in an interview Tuesday in Nigeria’s capital, Abuja.

That would involve Uganda building a standard-gauge track from Kampala to Lake Victoria and a new port, connecting to similar infrastructure on the Tanzanian side, Kasaija said. German lender KfW will fund the harbor’s construction, he said.

“Uganda has a choice to go with whoever gives us a quick answer to our aspirations,” Kasaija said. “We plan to ultimately develop both.”

The country is increasingly borrowing to fund its infrastructure projects, which may raise public debt to 44 percent of gross domestic product in 2020-21, from 35 percent in 2015-16, the International Monetary Fund said in March.

Private-Credit Growth

Credit to the private sector, meanwhile, expanded 6.3 percent in March from a year earlier after climbing less than 10 percent most of last year and even contracting in two months. The central bank has cut its main rate, which is now at a 2 1/2-year low of 11 percent, for seven straight meetings to help spur credit growth.

Slow credit extension “is partly because government is borrowing too much, and I will soon call a meeting with the banks and central bank to address this,” Kasaija said.

The World Bank will resume lending to Uganda after suspending new loans to the East African nation in August because of “poor performance” on a road-building project, Kasaija said. The lender has given him a letter confirming it will resume its program in July, he said.

The World Bank had 17 national projects in Uganda worth $2.1 billion, and five regional ones worth $182 million as of April 2016, its website showed.

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