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Kenya: China faces a critical test in train debt

Eric Olander
By Eric Olander

Managing Editor, The China Africa Project

Posted on Wednesday, 30 September 2020 00:46

china kenya rail
A Standard Gauge Railway cargo train rides from the port container depot on a Chinese-backed railway costing nearly $3.3 billion, opened by Kenya's president as one of the country's largest infrastructure projects since independence, in Mombasa, Kenya. (AP Photo/Khalil Senosi, File)

Kenya’s difficulties in servicing its debts for the newly-built, Chinese-financed Standard Gauge Railway (SGR) is nearing a breaking point.

Even before the COVID-19 outbreak, the railway failed to meet passenger and cargo volume targets and now the economic downturn brought on by the pandemic is making the problem even more acute.

The railway is losing money at an unsustainable rate of $9.2 million a month making it inconceivable that Kenya Railways will be able to repay its Chinese creditors at the current rate.

READ MORE African countries aren’t borrowing too much: they’re paying too much for debt

Earlier this summer, Kenya’s parliament was warned that portions of the new railway network could be forced to halt operations, after Kenya Railways defaulted on $350 million payment to the China Road and Bridge Corporation’s subsidiary, Africa Star, which operates the SGR.

Now, lawmakers are speaking out in uncharacteristically frank terms: “Look, our economy is beaten and we are not able to pay,” said Kimani Ichung’wa, chairman of the Parliamentary Budget and Appropriations Committee. “We are not saying the debt is not there, but we simply want to renegotiate what we owe you and the terms of payment,” he added.

In a recent report, the parliament was urged to slash the SGR’s operational costs by 50% and urgently renegotiate the loans with Chinese creditors before it is too late.

READ MORE China’s infrastructure finance model is changing. Here’s how

The collapse of Kenya’s SGR would be a spectacular failure for both President Uhuru Kenyatta, who staked his legacy on big infrastructure projects like this, and the Chinese who held up the railway as an exemplar of its Belt and Road Initiative.

And whatever they do, the Chinese are going to face intense scrutiny.

Kenya is home to one of Africa’s most vibrant, professional news media sectors. Kenyan journalists have spent years investigating the SGR deals.

Also, the likes of U.S. Ambassador to Kenya, Kyle McCarter, a Trump appointee who’s been a vocal critic of Chinese engagement in Kenya and a proponent of the so-called “debt trap” allegation, will no doubt be ready to pounce should the trains stop running.

READ MORE Is China weaponizing ports built along the Belt Road Initiative?

And let’s not forget that, should Kenya Railways default on the Nairobi-to-Mombasa SGR loan, the Port of Mombasa serves as collateral.  While China has said repeatedly that it will not seize the port in the event of a default, Beijing’s recent flirtations with debt-for-equity swaps could be enough to serve as the prime example of how a country’s sovereignty is threatened when it becomes too indebted to China.

China must know that the hyenas have sniffed out a wounded animal and the vultures are circling overhead. Its reputation on the continent is at stake. Africa needs fast, efficient and transparent debt renegotiations – a significant change from China’s dealings with the continent so far.

A failure to do so could inflict widespread and lasting damage on China’s entire African agenda.

This article was first published on the China Africa Project

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