Kenya’s unfinished railway & the danger of over-reliance on China
Kenya’s Mombasa-Nairobi Standard Gauge Railway has proven very popular with travellers moving between the country’s capital and the coastal city on Mombasa. However, the real aim of the project was to boost trade freight heading from the Kenyan coast to the capital and beyond.
In fact, the Mombasa-Nairobi SGR is part of a much larger railway project that’s designed to connect Kenya with Uganda, South Sudan, Rwanda and the DRC, upgrading the trade prospects of several landlocked nations in the East African region.
There are numerous problems with this project, though.
While the Mombasa-Nairobi portion of the project is complete and fully operational, the network has failed break even, let alone make any profit since opening to passengers in May 2017 and freight in January 2018.
According to the Kenya National Bureau of Statistics, the SGR generated $57m in sales revenue in 2018, down 45% from the $103m projection figures and even further behind the $120m annual operating costs.
The unprecedented deficit adds further debt to the $3.2 billion borrowed from China to complete the railway.
That’s not all, though.
The Mombasa-Nairobi SGR continues to run beyond Kenya’s capital where it connects to a much wider network of railways connecting Kenya with Uganda and other regional neighbours. Except, the railway falls short of the Ugandan border, stopping dead in the small village of Duka Moja, roughly 75 miles west of Nairobi.
Construction of the railway has halted and Beijing is withholding the $4.9 billion in funding required to finish the project. Concerns over the debt incurred by Kenya and other African nature through Chinese investment is mounting, putting pressure on Beijing to scrutinise its lending. Which leaves Kenya with an unfinished, unprofitable railway to nowhere and hefty deficit to deal with.
What happened to East Africa’s Belt and Railroad revolution?
The project was meant to be the pinnacle of Kenya President Uhuru Kenyatta’s regime. It was also meant be one of Ugandan president Yoweri Museveni’s greatest economic achievements and one of China’s most ambitious Belt and Road initiatives – not to mention a flagship infrastructure project for the entire East African region.
However, the project is now halted, before it even reaches the border of Uganda, let alone South Sudan, Rwanda and the DRC.
The high-profile nature of the project drew a lot of attention from the international community – particularly the astronomical debt African nations were signing up to as part of the project. The debt of African countries is once again piling up and China has established itself as the biggest lender across the continent.
This has resulted in increasing pressure against Beijing to revise its process for lending money to African infrastructure projects and President Xi Jinping responded in April with vows that tighter procedures would be put in place.
The Chinese president appears to have stuck to his word, too.
Beijing is now withholding the $4.9 billion needed to finish the railway connecting Kenya with its regional neighbours. The project hasn’t been terminated but China is now demanding stronger guarantees from developing nations before funding is handed out.
This means the project is essentially on hold until Beijing is convinced of the financial viability of the railway network and the involved nations’ ability to pay off the debt it will incur.
Unfortunately, the only section of the network that’s complete and operational – the Mombasa-Nairobi SGR – isn’t anywhere close to returning a profit and it’s difficult to see how this will change until further progress is made with the railway network – at the very least, a viable connection with Uganda.
This leaves Kenya in a catch-22 where it can’t secure the finances to complete the project nor make it profitable unless it secures the finances to complete it. Either At this point, Keyna will have to refinance its debt or find a way to incorporate the SGR with its existing railways – perhaps, even both.
The dangers of over-reliance on China
A lot has been said about the extent of Chinese investment in Africa and the Western perspective has been largely negative. the piling African debt resulting from Chinese-financed development projects is very real but the case of Kenya’s railway to nowhere highlights the bigger problem in this scenario.
Africa’s over-reliance on Chinese money in recent years has left many of its countries dependent on the flow of cash from Beijing. With China facing its own economic challenges and increasing pressure over its lending policies, there was always going to come a time where the flow of money was going to weaken.
While the International Monetary Fund is urging African nations to curb spending, Uhuru Kenyatta and Yoweri Museveni have continued to borrow more from China – and they’re not alone.
One-in-five infrastructure projects in Africa are now funded by China and one-in-three are constructed by Chinese companies with many deals requiring Chinese construction firms to be used. This was the case with the Mombasa-Nairobi SGR railway project, a clause that drew plenty of criticism when the deal was announced in 2013.
Before the project was even started, critics argued the model of paying off debt from the railway’s revenue wasn’t a viable option and this is now proving to be the case.
Adding to the embarrassment for Uhuru Kenyatta, Tanzania cancelled a deal for $7.6 billion in Chinese funding to complete a 2,200km railway and contracted companies within Europe at roughly half the price per kilometre.
Kenya’s southern neighbour proved the benefit of not being overly-reliant on funding from a single source. Tanzania also negotiated a deal for a shorter railway as part of a project that had more financial viability – one that should prove easier for the country to pay off in a reasonable time-frame.
Featured image: By Macabe5387 – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=79088279