Uganda has borrowed $48 million from two German banks to construct an inland port at Bukasa on the shores of Lake Victoria, in a move that is aimed at widening the database of non-concessional lenders.

Over the past eight years, Uganda has invested heavily in infrastructure and the increasing cost and number of projects has caused the country to look beyond concessional lenders like the World Bank, African Development Bank and Western governments to China, which had become a popular option.

But reports of Chinese reluctance appear to have forced Uganda to look at other institutions that can provide funding for infrastructure. These include the German banks which are now showing interest in lending more to Uganda.

Speaking at the signing ceremony of the Bukasa port loan agreement, Doris Icke, the senior vice president for European Export and Trade Bank (AKA Bank) said the new deal represented an opportunity for Uganda to access funding for other projects in future. AKA Bank and Commerzbank AG are the two German banks that have lent Uganda the money to construct Bukasa port.

The loan will be paid back within 15 years, at an interest rate of the Eurobond average rate plus 1.8 per cent. At the moment, this translates into an interest rate of 2 per cent, per annum.  Uganda will provide $8.5 million in counterpart funding to make a total project cost of $56.4 million.

“The project, which is part of the Central Corridor Development Programme aims to secure an alternative way of providing efficient transport systems between Uganda and the world markets,” said Finance Minister Matia Kasaija, during the signing ceremony of the loan agreement.

But Dr Fred Muhumuza, an economist and former advisor to the Ministry of Finance said Bukasa is not an economically viable port as it is reportedly shallow, and will require a lot of dredging, before it can be used by big modern ships.

This will increase the cost of construction, yet it is not a strategic port since Uganda exports and imports less through Dar es Salaam — about 80 per cent of Uganda’s international trade goes through Mombasa port.

Having borrowed at least $3.3 billion in non-concessional financing from China Exim bank for infrastructure project but some experts including some of the lenders, suggest that Uganda needs to slow down debt acquisition. 

Sources that attended meetings to negotiate financing for the standard gauge railway-another China funded project, say that there are jitters over Uganda’s capacity to back pay this money.

As a result, the Chinese told Ugandan representatives negotiating financing for the Malaba-Kampala section of the Standard Gauge railway that the country should look at options to reduce cost from the current $2 billion.