Chinese loans keep Kenya railway project rolling

Nairobi­Mombasa is first leg of line in emerging trade bloc but critics fear white elephant

A few miles outside the town of Makindu on the Nairobi­Mombasa road sits a heavily guarded compound. Only the sign outside, in red Chinese lettering, indicates that this is the project site for “section 9” of a new $4bn Chinese­built railway that will run for 300 miles between the Kenyan capital and the Indian Ocean port.

The railway is the centrepiece of an infrastructure splurge by President Uhuru Kenyatta, who faces re­election this year and whose Kenyan government has invested heavily in roads, pipelines, oil development and geothermal power.

It is also one of China’s most important investments in east Africa and follows the opening in January of a $4.2bn, 470­mile line from Djibouti to Addis Ababa, the capital of landlocked Ethiopia. And contrary to some critics, who have voiced concerns at China’s growing presence in Africa, residents of Makindu are upbeat on the biggest infrastructure project in Kenya since independence 53 years ago.

“It’s very smart,” says Elizabeth Wanjiru Ngima, a housewife, referring to the elevated line and towering new station just outside town. “It’s very quick, very quiet and when you are on it you [will] feel like you are in heaven,” she adds, conceding that she has not yet ridden on the new train, which will be commissioned in June.

Other residents of Makindu counter a common complaint in Africa that Chinese do not hire local people, saying the construction company employs Kenyan labourers, guards and chefs.

In the past 10 years, China has gone from having little presence in Kenya to becoming one of its most important trading and investment partners. Thanks to shipments of rolling stock and other equipment, Kenya’s imports from China ballooned to nearly $5bn in 2016 ­ a threefold increase from 2010 ­ against $780m from the US.

Kenya is on the outer reaches of China’s One Belt, One Road project, through which Beijing intends to invest almost $1tn in infrastructure on the old Silk Road and as far as Africa’s east coast, in a push to improve trade links, win political influence and deploy the excess capacity of its steel and construction industries.

The Nairobi­Mombasa railway is the first leg of a line intended to go all the way to Kampala in Uganda and, eventually, to Rwanda, knitting together swaths of the East African Community’s emerging trade bloc.

It will replace the near­defunct British railway ­ dubbed the “Lunatic Line” because of the cost in lives and money it took to build ­ constructed in the late 19th century.

“The entire Africa continent can be connected by Chinese rail, so this Kenya rail is a kind of prototype for all future projects,” says Wang Dehua, a professor at Shanghai Institute for International Studies. “It is a big strategic move for our country.”

China is providing Kenya with financing for roughly 90 per cent of the Nairobi­Mombasa project. The railway is being built by state­owned China Road and Bridge Corporation, which will operate it for the first five years, and financed by the Export­Import Bank of China. Of $3.6bn in financing, $2bn is a 15­year loan at Libor plus 360 basis points. The remaining $1.6bn is on concessional terms of 2 per cent interest, repayable over 20 years, according to the China­Africa Research Initiative at Johns Hopkins University.

The loans, which have pushed Kenya’s debt above 50 per cent of output, have raised concern that Mr Kenyatta’s government might be building a white elephant. Critics say the railway will cost significantly more per mile than equivalent projects in Ethiopia and Morocco, raising fears that much has been creamed off by unscrupulous politicians.

Kwame Owino, executive director of the Institute of Economic Affairs, complains over the lack of transparency of a project he says was negotiated in secret.

“It’s clear that Kenya got the short end of the stick,” he says. “This is a very expensive piece of infrastructure whose specifications have been overstated.”

Mr Owino adds that the advertised improvement in speed ­ just four hours from coast to capital, compared with double that by truck ­ is not important when it comes to cargo. “The economic benefits for Kenya are exaggerated.”

By David Pilling and ­Makindu Emily Feng

Published on Apr 08,2017 [ Vol 17 ,No 883]



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