Are the Chinese-funded projects worth debts we are sinking in?
What you need to know:
- We are borrowing a massive $10 billion from the Chinese for the railway, this is 20 per cent of Kenya's gross domestic product.
- Loans from the African Development Bank or even the International Development Association would appear to me way cheaper.
- The Exim Bank of China will only give you money once you have signed a commercial contract with a Chinese contractor.
I am worried about the size and rate at which we are gobbling up Chinese loans, especially for the standard gauge railway. We borrowed a massive $4 billion to build the Mombasa-Nairobi part from the Export-Import Bank of China, commonly known as the Exim Bank of China.
Recently, we hurriedly moved to sign off another $1.5 billion for extending the line to Naivasha.
We have signed a commercial contract with a Chinese railway contractor to allow us access to another $5 billion for the extension of the railway from Naivasha to Malaba.
In total, we are borrowing a massive $10 billion from the Chinese for the railway. $10 billion is 20 per cent of our gross domestic product.
Do we have the right to saddle unborn generations with Chinese loans?
The figures on the Chinese loans are not from my head. I have extracted the numbers from a Cabinet memo I came across recently.
I have also read through a copy of the buyer credit loan agreement between the Government of Kenya and the Exim Bank of China for the Nairobi-Naivasha railway line.
Indeed, the theory that Exim Bank loans are cheaper is a big myth. Loans from the African Development Bank or even the International Development Association — the World Bank’s concessionary lending affiliate — would appear to me way cheaper.
The Chinese story is about the tale of the camel and the tent. Once you let them in to finance the first phase of a project, they will not stop.
We must not forget that the Exim Bank of China will only give you money once you have signed a commercial contract with a Chinese contractor.
The standard gauge railway has offered us new insights into the dynamics behind the phenomenon known as Chinese contractor-negotiated loans.
They will come dangling offers to you, promising to negotiate and arrange an Exim Bank of China loan on your behalf and carry out a feasibility study free of charge.
This is the reason our appetite for Chinese contractor-negotiated loans has exploded.
Why did it become necessary to fast-track the Nairobi-Naivasha line? On paper, the government says that it is to serve the planned industrial park in Naivasha.
MASSIVE EXTERNAL LOAN
But why are we hurrying to commit the country to a massive external loan to build a railway leading to an industrial park which, to the best of my knowledge, is still at the conception stage?
Indeed, going through government documents, the industrial parks that were in the works even before the Naivasha one was conceived were special economic zones in Dongo Kundu, Kisumu, Diani, Lamu, Isiolo, Eldoret, Kisumu, Nairobi, Mariakani, Konza, and northern Kenya.
So, are we fast-tracking the proposed Naivasha industrial park to provide justification for fast-tracking the Nairobi-Naivasha railway line?
Clearly, Chinese contractors and their influential allies in the government are on top of their game.
And the Exim Bank of China can come up with new conditions at any time to support the interests of the Chinese contractors who have friends in high places.
For example, I read from a Cabinet memo that the China Exim Bank has made it clear that before it disburses money for the Nairobi-Naivasha line, the government must first complete the building of an inland container terminal in Embakasi to handle the much larger volumes from the standard gauge railway.
Initially, the plan was that the inland container depot would be built by funds from the railway development levy. Apparently, the government has blown all the money from the railway levy on paying land compensations.
We are now going back to the Exim Bank of China for another expensive dollar loan to build the inland container terminal estimated to cost $125.7 million.
I am not against borrowing to fund infrastructure. Indeed, a dollar borrowed to finance critical infrastructure is likely to promote more economic growth than a dollar borrowed to pay salaries. But these Chinese loans are driving us to debt levels never witnessed before in the history of Kenya.
As of June 2015, Kenya’s gross public debt to GDP ratio was 49.7 per cent. We have crossed the debt sustainability threshold, which stands at a ratio of 45 per cent to GDP. The Chinese loans are beginning to tip us into unsustainable debt territory.
If we leave these big projects to the corrupt elite and crafty Chinese contractors, they will bankrupt us.
