The government of Uganda announced that it canceled a 2015 contract with China Harbor Engineering Co. (CHEC) to build a rail line linking the capital of Kampala and the Kenyan border. This follows an eight-year lag as the contractor failed to get Chinese policy bank funding for the $2.3 billion project.
Uganda has now signed an MoU with Yapi Merkezi, a contractor from Türkiye, and is reportedly considering a syndicated loan to finance the 273 km project. If this comes with a shift from the concessional rates usually charged for Chinese policy bank loans to commercial rates, it could have significant debt implications.
The Ugandan rail line would have linked the landlocked country to Kenya’s Mombasa port via the Chinese-built Standard Gauge Railway (SGR). Chinese funders reportedly delayed the confirmation of the loan to track the SGR’s progress, which would determine its commercial viability. As the SGR faced increasing questions about its loan impact, business plan, and possible corruption, Chinese funders also declined to fund its third phase.
However, Uganda’s President Yoweri Museveni remains committed to turning Uganda into a regional logistics hub, either by linking it to Kenya’s SGR or to a similar network being built in Tanzania, where Yapi Merkezi is also a major contractor. The President took his signature Panama hat to the United Arab Emirates this week, where the topic of rail funding was likely high on the agenda.
WHY IS THIS IMPORTANT?: Some reporting sees the contract cancellation as Uganda ‘turning away’ from China towards Türkiye. But it’s arguably more realistic as a confirmation that China has largely retreated from funding African railways. Very similar dynamics have delayed Nigerian mass-transit projects. It’s another sign that even though China kicked off Africa’s rail revolution, the continent’s infrastructure vision is now diverging from Beijing’s.
SUGGESTED READING:
- Bloomberg: Railway Talks with China Collapse as Uganda Turns to Turkey by Fred Ojambo, Burhan Yuksekkas and Lucille Liu
- Reuters: Uganda Drops Chinese Firm from Railway Deal, Eyes Turkish Rival by Elias Biryabarema
