The Chinese firms constructing Karuma and Isimba hydropower plants are not buying steel from Ugandan manufacturers, according to Sikander Lalani, the chief executive officer of Uganda’s largest steel manufacturer, Roofings Group.
Lalani said the Chinese contractors claim that Uganda does not fabricate quality, even though Roofings has been certified by national and international certification authorities.
The 600MW Karuma and the 188MW Isimba dams are being constructed by two Chinese state-owned firms, Sinohydro (Karuma) and China International Water & Electric Corporation (CWE). China also provided debt financing for the two projects.
Lalani, who was speaking at a roundtable discussion on interest rate caps organised by the Uganda Bankers Association, downplayed the impact of loan interest rates on his business. Instead, he said his group faces bigger threats from exchange rate movements – because most of its borrowing is in US dollars – and importation of materials by foreign contractors.
“There are mega projects which are coming into the country – mega projects like Karuma dam, Isimba dam, next would be the railway; we have already missed out on Karuma dam. Here in Uganda, they do not buy Ugandan,” he said.
He said there is no way they can compete on price with Chinese manufacturers because they have a cost advantage by virtue of their bigger size. “In China, one industry like ours will be manufacturing three million, four million, up to ten million tonnes; we manufacture only 15,000 tonnes. So we cannot be as competitive as China.”
The Chinese claim that Ugandan manufacturers do not fabricate quality products, Lalani said. He however disputed the claim. “We have the quality,” he said, pointing to quality certification from the Uganda National Bureau of Standards and authorities in the United Kingdom and Japan. The most affected products are reinforcing bars and sheet metal, both of which are produced at the group’s plants.
Lalani says local content producers should be given preference on such projects if they are to remain competitive. Another presenter at the discussion concurred, saying a major issue for local manufacturers and businesses is the high cost of doing business and competitiveness of different sectors, which is not helped when government lets contractors import products at the expense of local producers.
Government is however “trying their best” with new projects, Lalani said. It is insisting that the contractors on the Chinese-funded standard gauge railway – who are also Chinese – use local content, he said.
China’s presence and involvement on the continent has increased over the last twenty years. Its concessional funding is preferred by African leaders as it usually comes with less conditions compared to funding from traditional development partners. However, according to a research paper published by the School of Advanced International Studies at The Johns Hopkins University, “infrastructure projects undertaken by Chinese companies are often financed by soft loans from the Chinese government, on the condition that they are carried out by Chinese companies.”
These loans are disbursed by China Exim Bank, whose concessional loan requirements stipulate that “in principle no less than 50 percent of the contract’s procurement in terms of equipments, materials, technology or services must come from China.”
The Chinese loans financing Karuma and Isimba dams were disbursed by China Exim Bank. And despite Lalani’s upbeat position on the standard gauge railway, it’s funding will most likely be disbursed by the same bank.
Complaints like Lalani’s have also been voiced in neighbouring Kenya, which has an even bigger Chinese presence. Chinese cement imports to Kenya grew tenfold in the first half of this year compared to the same period last year “even as [Chinese] contractors of flagship projects continue to deny shipping materials available locally into the country,” Kenya’s Business Daily reported recently.
Even then, where the Uganda government has leverage it has enforced stipulations that foreign firms undertaking public projects have to prioritise local firms and content. The Petroleum Act (2013), for example, directs that oil companies that have received licences to participate in Uganda’s petroleum activities, their contractors and subcontractors “shall give preference to goods which are produced or available in Uganda and services which are rendered by Ugandan citizens and companies.”
If the goods and services are not available in the country, the acts says “they shall be provided by a company which has entered into a joint venture with a Ugandan company provided that the Ugandan company has a share capital of at least forty-eight percent in the joint venture.”