Silk Roads: Cautious China and Turkey poised for takeover

According to the latest information, A $2.2 billion Chinese-funded railway project in Uganda ultimately failedChinese investors doubt the implementation of the project.

The project, which would initially link Uganda’s capital Kampala to the Kenyan border, was to be linked to another Chinese railway project being built in Kenya, with the aim of improving trade and access between the two countries. Uganda would particularly benefit from this project given that the country is landlocked while Kenya has significant seaports.

A development agreement was signed with Uganda China Port Engineering Company (CHEC)but it seems so CHEC had difficulty convincing Beijing to participate in the financing. According to the terms of the contract, CHEC was to provide 85% of the project costs, which were to be recovered from cash proceeds from subsequent exploitation.

There have also been problems with rail links between Uganda and Kenya and legal issues surrounding the use of cross-border trains. Kenya has only built the section from Mombasa to Naivasha and has not yet started the road to the Ugandan border. It is not yet clear when the third phase link between Kenya and Uganda will start, indicating that Beijing is tired of delays in planning routes in Africa.

Given the facts and doubts about the project’s realization, it is not surprising that it was canceled China also needs to renegotiate many loans related to the New Silk Roads (BRI). subject to delays, primarily due to Covid and the impact on cash flows to cover development capital expenditure.

A little more cautious, Beijing is waiting for some of these delinquent loans to be secured before continuing to lend for larger projects, which is a normal and responsible attitude in banking.

During this time, Turkey could fill the gap for the first time it is initially seen as a replacement for the Belt and Road project. Turkey is also a member of BRI and its construction society. Building Centersigned a memorandum of understanding with the Ugandan government to assess but did not undertake the construction of the project.

It is also a source of embarrassment for the European Union, as its “Global Gateway” project was specifically designed to provide an alternative to China’s BRI financing, with its strong commitment to Africa of €150 billion promised. It seems so The EU has said it is not ready to lend money to Uganda, and that it is mainly an announcement effect to counter China on paper.

Three main problems can be deduced from this situation:

  • In line with prudent financial management, China is increasingly examining the viability of projects before funding under the Belt and Road Initiative.
  • The EU’s Global Gateway funding arm can’t finance anything for big projects.
  • Other regional lenders are willing to take over what was previously financed by the BIS.

Two other possibilities may arise: Turkish manufacturer may join forces with Russian manufacturers to help Uganda’s railway project if viability issues are resolved. Russia has extensive experience in railway development, is already involved in railway development projects in Africa and recently won contracts for railway development in Saudi Arabia.

They may also partner with Chinese subcontractors and suppliers for the required component parts and even part of the construction, which means that a complete rejection of the project by China will not necessarily be the end result. Beijing perhaps prefers small parts of the Ugandan project rather than taking on the full responsibility.

The reality is that with China’s experience in BRI projects and the success of loan financing, the two can now be expected to combine with attractive returns on investment, prompting other BRI partners such as Turkey to do the same in their region.

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