Age of choice: Uganda in the new development finance landscape

Research reports and studies
April 2016
Cathal Long, Fiona Davies, Martin Wabwire

National financing strategies will play a decisive role in implementing the Sustainable Development Goals.

But the development finance landscape has dramatically changed since the early 2000s: there are now more development finance providers than ever before, offering a new ‘age of choice’ in financing options to developing countries. Governments need to better understand the sources of finance and potential partnerships available to them if they are to capitalise on this age of choice in a way that effectively supports their national objectives.

Official development finance beyond ODA (official development assistance) accounted for just 6.3% of total development finance to Uganda between 2002 and 2013, amounting to $1.4bn. Since 2013, there has been a step change. In 2014-15 the Ugandan Parliament approved $2bn of non-ODA loans, primarily from China. These made up 67% of total new external financing commitments for the year, including grants. Non-ODA loans are expected to constitute 70% of new government borrowings to 2025/26, amounting to $7.4bn in value. Borrowing from China Exim Bank is expected to account for almost 80% of non-ODA loans to 2025. The government has decided not to issue sovereign bonds for the time being, given the availability of cheaper sources of financing, including from China.

Politically, Chinese loans are considered preferable to public-private partnerships (PPPs) for large-scale infrastructure investments because they are faster and deemed to deliver a lower cost for end-users. Scope remains to develop PPPs for projects where there is less immediate political pressure for visible results and/or donor support to structuring the PPP arrangements.

This study is one of a set of case studies examining the challenges and opportunities facing governments in managing this new context for development finance.