VZCZCXRO5525
RR RUEHGI RUEHRN RUEHROV
DE RUEHKM #0077/01 0481100
ZNR UUUUU ZZH
R 171100Z FEB 10
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 0248
INFO IGAD COLLECTIVE
RWANDA COLLECTIVE
RHMFISS/HQ USAFRICOM STUTTGART GE
RUEAIIA/CIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 KAMPALA 000077 
 
SENSITIVE 
SIPDIS 
AF/E FOR JTREADWELL, AF/RSA FOR LMAZEL, LGRIESMER, RBOWLES 
TREASURY FOR REBECCA KLEIN 
COMMERCE FOR ROBERT TELCHIN 
 
E.O. 12958: N/A 
TAGS: PREL EAID EINT UG CH
SUBJECT: CHINESE ENGAGEMENT IN UGANDA 
 
REF: 10 STATE 10152; 08 KAMPALA 1483 
 
¶1. (SBU) Summary: China's economic ties to Uganda continue to 
accelerate on all fronts making it one of the country's top foreign 
investors.   Already heavily involved in infrastructure projects, 
China is now attempting to become an even larger player in Uganda's 
newly discovered oil deposits.  The widening Chinese economic 
footprint, however, carries with it negative perceptions among many 
Ugandans of China-centric business practices, corruption, and 
shoddy products.  China does not currently collaborate or 
coordinate with the United States or other donors in Uganda on 
areas of seeming common interest like health.  This is in response 
to reftel regarding Chinese engagement in Africa (ref. A). End 
Summary 
 
 
 
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Trade and Investment: Up, Up, Up 
 
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¶2. (SBU) The rapid expansion of Chinese involvement in Uganda that 
began five years ago has resulted in China providing the country's 
second largest source of incoming foreign investments for 2009 . 
Uganda's Investment Authority (UIA) announced in January 2010 that 
new Chinese investments worth $213 million were second only to 
Britain's $267 million. According to the UIA, these Chinese 
projects created 6,117 jobs versus 3,958 jobs created by British 
investments. The significance of China's ranking is highlighted by 
the fact that Chinese investments as late as 2005 included only a 
restaurant and hotel and ranked near the bottom of foreign 
investment in Uganda (ref. B) The Uganda Bureau of Statistics also 
report an increase in Chinese engagement, as Chinese imports to 
Uganda rose from$138.2 million in 2006 to $365.7 million in 2008. 
During the same period, Ugandan exports to China - namely fish, 
tannery products, and peanuts - nearly doubled from $6.8 million to 
$12.7 million, and the number of Chinese visitors to Uganda 
increased from 2,951 to 6,088. This growth encouraged Chinese 
investors to launch a China Enterprises Chamber of Commerce in 
Uganda in March 2009, which promotes China-Uganda trade and 
represents over 30 firms. 
 
 
 
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Infrastructure, Infrastructure... and Oil 
 
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 ¶3. (SBU) Chinese Foreign Minister Yang Jiechi visited Uganda in 
January 2009 and signed four bi-lateral agreements worth $75.8 
million for projects in infrastructure, health, and information and 
communications. The Chinese government is currently building a 
hospital in Kampala, an agricultural demonstration center, and a 
government office block building. It has donated anti-malarial 
medicine and committed to setting up a malaria clinic in Mulago 
hospital. It has also provided fishery experts to help the Ugandan 
government address the problem of declining fish stocks. Over the 
last three years, 390 Ugandan technical personnel have traveled to 
China for training on a variety of subjects. The China Road and 
Bridge Corporation is upgrading the road between Soroti and Lira in 
northern Uganda with funding from the World Bank and is expected to 
complete the project later this year. China's Export/Import Bank 
has given a loan of $106 million to build a National Data 
Transmission Backbone and e-Government Infrastructure that is 
presently under construction by Huawei Technologies of China. The 
project aims to create a national fiber optic network that will 
lower the cost of bandwidth and connect government ministries, 
local governments, schools, and rural communities to submarine 
fiber optic cable systems. While preferring Western partners for 
military training and doctrine, Uganda relies on China and other 
old eastern bloc countries like North Korea and Russia for arms and 
hardware. Chinese engagement will become even more significant if 
the China National Offshore Oil Corporation (CNOOC) is successful 
 
KAMPALA 00000077  002 OF 002 
 
 
in its bid to partner with UK firm Tullow Oil to develop Uganda's 
newly-discovered petroleum deposits. CNOOC and the French company 
Total are expected to each acquire a significant share of Tullow's 
Uganda holdings in the coming weeks.  Another small but telling 
indication of China's commitment to its bilateral relationship was 
the recent completion of a multi-year construction project to 
rebuild its chancery complex in Kampala. 
 
 
 
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The Downside Risks 
 
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¶4. (SBU) Greater Chinese investment and assistance in Uganda has 
generated some resentment due to local perceptions that Chinese 
investments favor 
 
their own businesses, and that Chinese companies often provide 
substandard products. For instance, in January 2010, the Chinese 
Ambassador to Uganda delivered 244,000 doses of two Chinese 
anti-malaria drugs to Uganda at a public event that was featured in 
large paid advertisements in local papers. The donation 
nevertheless only amounted to about one week of Uganda's 
requirements for malaria treatment. Moreover, it was later revealed 
that one of the drugs, Arco, had not been pre-qualified by the 
World Health Organization, and that part of the funding for the 
malaria clinic in Mulago hospital was earmarked for  testing of 
these drugs. 
 
 
 
¶5.  (SBU) China's growing engagement in Uganda has also raised 
concern that Chinese business practices are more susceptible to 
corruption. The National Data Transmission project for example, is 
being scrutinized by Parliament and the press due to allegations of 
wide-spread fraud with sub-standard or inadequate equipment 
installed at inflated market prices. China's close relationship 
with the Sudanese government in Khartoum has also not helped build 
trust given Uganda's support for the Government of Southern Sudan. 
 
 
 
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Cooperation with China: Unrealized Potential 
 
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¶6.  (SBU) There is great potential in Uganda for greater 
cooperation and collaboration between China and the U.S. and other 
major Western donors.  At the moment, however, tangible examples of 
such collaboration are virtually nil, even in areas where China 
professes to have interests in common with the U.S. and other 
donors, such as health.  It is unlikely that collaboration with 
other donors will increase unless the Chinese change the way they 
do business and are more open to working through established donor 
coordination mechanisms.  China is not a member of the 
Kampala-based Local Development Partners Group (LDPG), the primary 
donor policy coordination body in Uganda, and it does not 
participate in any of the LDPG's many sectoral working groups.  The 
World Bank is currently in the process of inviting the Chinese 
Embassy into the LDPG. 
LANIER