Kenya‘s ambitious plan to run dozens of mega-projects across the country was dealt a severe blow by a decision by China to cut funding for projects under the Belt and Road Initiative, invented by Chinese President Xi Jinping.
The shocking decision means Kenya, which relies on Beijing to fund its major infrastructure projects, must find new ways to fund planned developments.
Among other things, China has lent Kenya billions of dollars for the construction of its standard gauge railway (SGR) as part of the Belt and Road Initiative, which provides for the financing of projects primarily in developing countries through Chinese banks.
However, funds have dried up in recent years, particularly due to the corona pandemic – which makes it difficult for a country that is already facing a huge annual infrastructure investment deficit.
Sh380 billion loan
In September 2018, for example, despite all the formalities, China refused to approve a loan of 380 billion shredders for SGR Naivasha-Kisumu – a decision that forced the new railway in Naivasha to come to an abrupt end.
This was shocking as Kenya and the China Communications Construction Company (CCCC) agreed to build the 267 km long railroad in August 2018, with only the subtleties of the deal being finalized weeks later during President Uhuru Kenyatta’s visit to China .
That didn’t happen.
Instead, Chinese Prime Minister Xi Jinping asked the parties to postpone approval until Kenya completed a commercial feasibility study for the entire Mombasa-Kisumu railway line.
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It was later found that China refused the approval as part of its policy changes aimed at managing country or project debt default risks.
According to Green BRI, a China-based think tank analyzing the initiative, Chinese investments in the 138 target countries declined 54% in 2020 from 2019 levels to $ 47 billion.
This is the lowest level since the initiative started in 2013.
Interestingly, Chinese banks’ funding for infrastructure projects in 40 African countries targeted by the Belt and Road Initiative fell from $ 11 billion in 2017 to $ 3.3 billion last year, according to a study the global law firm Baker McKenzie.
Hard financing terms
Although Beijing officials attribute the cut in funding to debt risk management, analysts believe the initiative is met with hostility in many countries that are reluctant to harsh funding terms.
“A growing number of policymakers in low- and middle-income countries are mothballing high-profile BRI projects because of inflated pricing, corruption and debt sustainability concerns,” said Brad Parks, researcher at the College of William and Mary in the United States.
In 2018, for example, Pakistan withdrew the financing terms of its railways. Malaysia also canceled more than $ 11 billion in projects between 2013 and 2021, while Kazakhstan and Bolivia canceled nearly $ 2.5 billion.
However, Kenya is optimistic that after spending nearly $ 5 billion on the Mombasa-Naivasha standard-gauge railway, it is still getting the additional $ 3.7 billion needed to expand the railroad to the Uganda border.
“This standard gauge railway will still be finished because it is part of the so-called Belt and Road Initiative,” said Transport Secretary James Macharia.