China rejects Kenyan president’s $3.8bn loan request

Kenya has, for the second time, failed to obtain funding from China for the extension of a major railway project in the country. The president, Uhuru Kenyatta, has been pushing for a loan of more than $3.6 billion to finance a railway between the cities of Naivasha and Kisumu, then to Uganda to boost trade in the sub-region.

In his latest visit to Beijing for the Belt and Road Initiative (BRI) forum, Kenyatta had hoped to secure funding for the extension of the Chinese-built Standard Gauge Railway (SGR) project.

Instead, the government secured only Sh40 billion (about 395 million dollars) to revive an old meter gauge line to enhance the movement of goods from the dry Port of Naivasha to Western Kenya and other East African countries.

This project will be a priority before any discussions of the funding of the SGR between the cities of Naivasha and Kisumu could begin, Transport cabinet secretary James Macharia said in an interview with Saturday Nation from Beijing.

Kenya, in May 2014, entered into a deal to borrow $3.233 billion loan from China’s Exim Bank to build a 385km modern railway between the port city of Mombasa and the capital, Nairobi.

The Mombasa-Nairobi SGR project is meant to replace the meter gauge railway that was constructed more than 100 years ago during the British colonial rule. It is part of China’s Belt and Road initiative of massive global infrastructure projects, said the BBC.

According to a report by the Daily Nation, the five-year grace period given by the China Exim bank comes to an end this year. “Taxpayers will from June cough out Sh56.7 billion [about $600 million] or 0.7 per cent of the economy to the Chinese for funding the Nairobi Mombasa leg of the SGR,” the report added.

The Mombasa to Nairobi line has ferried 2.6 million passengers and 3.6 tons of cargo since it was launched in June 2017. It, however, made a loss of Sh10 billion ($98 million)in the first year mainly due to low usage.

What is worse is that Kenya is paying China Communications Construction Company a billion shillings a month to run the railway, which is not only making losses, but one whose loans are supposed to be paid from this year.

Media reports state that both China and Kenya appeared to have agreed that the SGR could only be economically feasible if it is linked to Uganda. But China has refused to lend Kenya more money towards the expansion of the project because the Mombasa-Nairobi leg of the project is not performing well as expected, experts say.

“China has realised that it has got into projects all over the world without due diligence so it has decided to take a keener look on its loan portfolio,” Robert Shaw, a public finance and policy expert was quoted by the Daily Nation.

Meanwhile, the Kenyan government says it has secured 67.5 billion shillings ($666 million) in funding from China to build a data centre in a tech city currently under construction and a highway in Nairobi, Reuters reports.

A statement issued from Beijing where the president is attending the second Belt and Road Forum said Chinese telecoms firm Huawei [HWT.UL] will develop the Konza city tech project at a cost of 17.5 billion shillings.

It added that the remaining 50 billion shillings will be used to build the highway in the capital linking the main airport with the suburbs. This will be carried out by China Road and Bridge Corporation.

In recent years, China has made huge investments in Kenya, including the railway linking Kenya’s capital, Nairobi, to the coast and the mega city that will be based in Kenyan capital, Nairobi.

At a recent China-Africa summit, Kenyan President Kenyatta expressed his appreciation to China for its “commitment in supporting Kenya’s development goals.”

Kenyans have, however, raised concerns about China’s footprint across the country. Many have blamed China for stealing local jobs, adding that Chinese investment brings racism and racial discrimination, and could saddle the country with uncontrollable debt.

Last October, President Kenyatta questioned why some Kenyans only focus on debt owed to China while there are other states that have lent money to the country.

“Why are we focusing ourselves only on one lender?” Kenyatta asked in an interview with CNN.

“As far as I am concerned, we have a very healthy mix of debt from the multilateral lenders – who are basically the World Bank and the African Development Bank – to bilateral lenders like Japan, China, France, all who are participating and working with us to help us achieve our objectives,” he added.

“We have an infrastructure gap that we need to fill and we are going to work with our partners across the globe who are willing to partner and to work with us.”