VZCZCXRO2593
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHWD #0324/01 2531448
ZNR UUUUU ZZH
P 101448Z SEP 09
FM AMEMBASSY WINDHOEK
TO RUEHC/SECSTATE WASHDC PRIORITY 0747
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHBJ/AMEMBASSY BEIJING 0104

UNCLAS SECTION 01 OF 02 WINDHOEK 000324 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB; AF/S PHAEDRA GWYN 
 
E.O. 12958: N/A 
TAGS: EINV PREL PGOV CH WA
SUBJECT: NAMIBIA REEVALUATES CHINESE EXIM LOANS 
 
REF: A. WINDHOEK 302 
     ¶B. WINDHOEK 118 
 
¶1. (SBU) Summary:  During President Hu Jintao's state visit 
to Namibia in 2007, the two governments signed an agreement 
for a concessionary loan, and a credit line - each valued at 
approximately USD 130 million.  In July, the Namibian 
government (GRN) announced the suspension of its line of 
credit from the Export Import Bank of China (ExIm).  Namibian 
officials have expressed concern that conditions that forbid 
open tendering for projects and equipment purchases financed 
by ExIm may result in the GRN having to pay highly inflated 
prices.  The GRN officials have not abandoned the line of 
credit, but have acknowledged they wish to reevaluate the 
terms of the agreement.  While the ExIm credit line 
arrangement may have fallen out of favor, there is little 
evidence China-Namibia relations have suffered any 
significant damage.  End Summary. 
 
¶2. (SBU)  During Chinese President Hu Jintao,s February 2007 
visit to Namibia, he reaffirmed his country's special 
relationship with Namibia and signed five bilateral 
agreements with Namibian President Hifikepunye Pohamba.  Two 
of the agreements covered project/equipment financing.  One 
established a soft (concessionary) loan facility of RMB one 
billion (USD 130 million), while another provided the GRN a 
credit line of an equivalent amount.  The Export Import Bank 
of China (ExIm) administers both financing packages on behalf 
of the Chinese government.  The credit line is essentially an 
export financing product that permits ExIm to lend the GRN up 
to 80 percent of the cost of Chinese equipment purchased by 
Namibia, while the concessionary loan provides a below market 
financing option for infrastructure projects. 
 
¶3. (SBU) Under both arrangements, the GRN in conjunction with 
the Chinese government identifies public infrastructure 
projects and equipment purchases to be financed. The Chinese 
government then assists with the selection of contractors for 
the projects.  Use of the ExIm financing facilities generally 
precludes the GRN from procuring goods, works and related 
services under normal Namibian or international competitive 
bidding procedures.  In several cases, Namibia's National 
Tender Board has exempted line ministries from publicly 
advertising tenders for work to be performed that was funded 
under the concessionary loan and credit lines.  By skirting 
the GRN's normal tender procedures, critics argue that there 
is no way to ensure that the Chinese companies are both the 
cheapest and most reliable since the bids are not open to 
competition or public review. 
 
¶4. (SBU)  In late July, news reports indicated that the 
Namibian government (GRN) would suspend its USD 130 million 
ExIm credit line.  According to Ministry of Finance Permanent 
Secretary Calle Schlettwein, the recent corruption scandal 
involving a contract to procure X-ray scanners from Chinese 
manufacturer Nuctech (reftel A) had pushed the GRN to relook 
at the Chinese credit line.  Speaking at a public policy 
forum on August 24, Schlettwein opined that the Nuctech 
scandal could have been averted if the GRN had refused the 
conditions of the Chinese ExIm loan and followed its standard 
competitive tendering procedures.  Schlettwein estimated that 
this government contract, which involved a third party, 
likely increased the contract price by 30 percent. 
Schlettwein clarified, however, that the GRN had not 
abandoned the credit line, but was simply looking at 
renegotiating the terms. 
 
¶5. (SBU)  Yet another proposed deal has tarnished the luster 
of Chinese lending.  Media outlets revealed that the GRN had 
declined China's offer to finance the installation of 62 
kilometers of new railway in Namibia's north.  China proposed 
the China National Machinery and Equipment Import and Export 
Corporation (CMEC), financed by ExIM, to perform the 
construction work.  The deal was contingent on the GRN not 
submitting the rail project out for public tender.  The CMEC 
quote was allegedly four to ten times higher than what other 
companies had estimated the construction should cost. 
Negotiations with CMEC to lower the cost were unsatisfactory, 
and the GRN is now seeking private sector investors. 
 
¶6. (SBU)  Asked at the August 24 public forum whether Chinese 
assistance comes with too many strings attached, Schlettwein 
said all donors impose conditions on their aid.  The Chinese, 
he explained, tie their loans to the commitment that Namibia 
will purchase Chinese equipment, labor and services.  The 
Europeans and United States, on the other hand, link their 
assistance to assurances that a recipient country's business 
and trade rules and regulations meet with their approval. 
The Permanent Secretary cited affirmative action clauses in 
 
WINDHOEK 00000324  002 OF 002 
 
 
the Namibian procurement process as sticking points for 
Europe and the United States.  As another example, 
Schlettwein remarked that Europeans have tried to block the 
imposition of royalty payments on the  export of raw 
materials - a sensitive issue for Namibia as its economy is 
highly dependent on commodities. 
 
------- 
Comment 
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¶7. (SBU) While the ExIm credit line may have fallen out of 
favor, there is no evidence that the GRN has changed its 
position on Chinese grants, interest free loans, and 
concessionary loans.  Minister of Works and Transport Helmut 
Angula recently defended the concessionary loan agreement, 
stating that the terms were quite favorable:  four percent 
interest with a five year grace period.  He further stated 
that other companies (competitors to Chinese companies) had 
no funds to offer Namibia to finance infrastructure projects. 
 Responding to questions about Chinese intentions in Namibia, 
Schlettwein insisted the GRN would look for the best 
financing options available to it, whether the financing 
comes from China or other countries.  In a conversation with 
Ambassador Mathieu on August 13, the Minister of Trade and 
Industry Hage Geingob made a similar point. 
 
¶8. (SBU)  GRN officials have long touted the Chinese 
government as "friends of Namibia" for the assistance it 
provided to SWAPO (the ruling party) during the struggle 
against apartheid.  While this "friendship" may have led 
Namibian politicians to turn a blind eye in the past to the 
conditions attached to Chinese assistance to Namibia, the GRN 
is perhaps slowly becoming more pragmatic about how it 
sources international financing in the future.  End Comment. 
MATHIEU