- - Sunday, April 24, 2011

KAMPALA, Uganda | Ugandan retailers are pressing the government to crack down on foreign competitors, especially the Chinese, who illegally supply local markets and undercut their fledgling businesses.

The situation touches on the tender issues of free trade, protectionism and immigration in one of East Africa’s largest economies and highlights Ugandans’ ambivalence toward Chinese merchants, a growing presence in local markets.

Late last month, four retailers from Kampala with signed endorsements from nearly 1,000 other Ugandan traders filed a lawsuit seeking damages from the government for failing to enforce laws governing foreign businesses.

Under the country’s Investment Code Act, a foreign merchant is required to deposit $100,000 in the Bank of Uganda, which then releases the funds for buying trade goods. The lawsuit accuses the Immigration Department and the City Council of Kampala of allowing foreign traders to do business without meeting the investment requirement.

“Let this serve as a wake-up call to the government,” said attorney Fred Muwema, who is representing the local traders. The first hearing in the case is scheduled for April 20.

Chinese wholesalers and retailers have become more conspicuous in the main business district of this overcrowded capital, plagued by high unemployment.

Jeff Lim, vice chairman of the Uganda Overseas Chinese Association, estimates that the number of Chinese merchants in the country has grown from 200 to 2,000 over the last decade.

An owner of one of the companies represented in the suit, Edison Mubangiza said some Chinese traders have bribed customs officials and leveraged insular networks to access lines of credit that are unavailable to most Ugandans.

Mr. Mubangiza said he makes about five trips a year to China to buy fabrics but still fails to import them as cheaply as his Chinese competitors.

“It’s not about money. It’s not about protectionism. It’s about leveling the playing field,” he said of the lawsuit.

“We’re not against foreigners. We just want them to do what is legal,” he added.

Ugandan traders have begun to question Chinese competitors’ contributions to the local economy beyond paying rent, accusing them of employing fellow Chinese, avoiding taxes and not banking locally, thereby stunting the country’s ailing manufacturing sector.

Chen Xiao Lu, 25, defies that depiction. She followed her husband to Kampala from Zhejoang, China, four years ago.

Without depositing $100,000, the couple set up a suitcase factory and have since opened a downtown supermarket. They chose Kampala for its centrality and because there were fewer strong competitors here than in China, Europe and the U.S.

Between the supermarket and the factory, the couple employ 45 people, 37 of whom are locals. And they plan to settle in Kampala, praising the weather and friendliness of Ugandans.

By contrast, all but one of the six people whom Ding Lia Shi, 25, employs at his retail apparel shop in Kampala are Chinese. He sends his earnings directly to China, has no ties to local manufacturing and says he might soon return home for good, citing the Ugandan shilling’s value against the dollar as a main reason.

“No money,” he says, shaking his head. “What to do?”

Maggie Kigozi, executive director of the Ugandan Investment Authority, said fears of Chinese impact in the region are overblown. “Every reporter from your part of the world asks about China,” she said. “You think we are little children that the Chinese are going to walk all over.”

China has made inroads through infrastructure projects, resource deals and soft loans, all of which could help the continent shake its prolonged underdevelopment.

But global media have tended to downplay or overlook that Africans’ cultural affinity toward the Chinese among generally remains low.

China accounts for about 15 percent of the continent’s total trade, and China’s foreign direct investment in Africa totaled $7.8 billion, compared to the $69 billion for the U.S., according to Business Daily Africa.

Europe, meanwhile, remains Uganda’s as well as sub-Saharan Africa’s biggest investor, and Uganda Investment Authority statistics show that even India outperformed Chinese companies last year, with 47 investments vs. 33 from China.

Ms. Kigozi disputes Mr. Lim’s estimate of thousands of Chinese traders in Uganda, adding that those in the country are good for business.

“Competition will force local traders have to up their game,” she said. “They have to learn to be more customer-oriented.”

And a case could be made that Uganda cannot afford to get tough on foreigners, who accounted for more than half of the licensed projects in the country last year and 41 percent of total investment, or around $1.7 billion.

The last time the Ugandan government aggressively targeted foreign traders was in 1972, when dictator Idi Amin gave the country’s Asian, mostly Indian community, 90 days to leave the country.

That gambit ended in financial disaster, with most native Ugandans lacking the expertise to run the businesses the Indians were forced to abandon.

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