China opens $30m credit line at EADB

China has opened a $30 million line of credit to fund projects promoting economic development in East Africa, but only investors whose businesses feature Chinese involvement will access the money.
According to the East African Development Bank, where the funds are being channelled for on-lending in the region, “Projects to be financed shall be geographically located in the Bank’s member states, and shall have Chinese content.”
EADB corporate affairs officer Pauline Kathambana described Chinese content as joint ventures between locals and locally sponsored projects importing capital items from China.
Loans to be advanced will be between $0.5 million and $5 million for each applicant, and will be payable in a period of up to 10 years. EADB, however, said that the initial repayment schedule will be derived from the company’s cashflow projections.
EADB said that the interest rate currently is 8.12 per cent, and will also include a risk margin of between one and three per cent.
However for a company to qualify for the credit, it also must meet EADB’s accepted debt equity ratio of 1:1, which means that the prospective investor’s contribution must not be less than half of the project cost.
In the preliminary stages of releasing this credit line, Chinese bureaucrats visited the region in 2006, and pledged long-term finance through EADB for projects that help increase production and export.
“Our business community should also be keen on entering these partnerships, because if they do not, the Chinese could still come and set up plants here anyway,” said executive director of Enterprise Uganda Charles Ocici.
The Uganda Investment Authority licensed over 75 projects worth over $90 million from China between 1993 and 2006.
Statistics from Uganda Export Promotions Board show that between 2002 and 2004 alone, Uganda’s imports from China — mainly electrical appliances, pharmaceuticals and clothes increased from $28 million to $76 million. During the same period, exports from Uganda to China — mainly cotton and animal products — increased from $5 million to $11 million.
The projects that China has sponsored in Uganda include Rice schemes, biogas development, the Mandela National Stadium, and hospitality business. In 2006, China formally expressed interest in investing directly in the region during President Hu Jintao’s visit to Kenya, and later Premier Wen Jiaboa’s to Uganda and Tanzania.
The line of credit opens over a year after the China Development Bank and EADB signed a pact for the former to finance projects in East Africa through the Community’s bank. China Development Bank is one of the world’s biggest financial institutions with over $300 billion in assets.
EADB is aggressively mobilising funds to aid developmental projects in the region following a directive by member states that the bank position itself as the leading agency to facilitate regional integration and development.
Prior to getting the credit line from China, EADB signed an agreement with European Investment Bank for 25 million euros ($81 million) as credit targeting small and medium enterprises.
In 2006, EADB entered into a similar agreement with the Japan Bank of International Co-operation. Earlier in the same year, the Bank had entered into a cross currency swap agreement with Standard Chartered Bank Kenya and Co-operative Bank of Kenya to raise Ksh1 billion ($15.8 million) and Ksh500 million ($7.9 million) respectively to fund operations that mainly require local currency.
The bank has raised money from capital markets in the region as well, in to nine bond issues, the last one, worth $10.9 million, being listed on Uganda’s bourse.

(The EastAfrican)

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