In the Chinese mind, Africa is a backward continent that is to be exploited for its
resources and used as a platform to give Chinese companies the opportunity to invest and create infrastructure that is more useful to China than the host country. Kenya is a classic example of an African nation which has gone
into debt with China. Recently, it withdrew its request for China to extend debt repayment holiday to December 2021. This happened in the wake of opposition from Chinese lenders that froze disbursements to local projects. Thus, Kenya was forced to drop its push for debt repayment holiday extension fearing a strain in relations with its largest foreign creditor.
The Kenyan Treasury says it decided not to seek an extension of the debt relief beyond June 2021 and claimed that Kenya was fully paying the Exim Bank of China, which had funded the construction of the Standard Gauge Railway (SGR). Chinese lenders, especially Exim Bank, were uncomfortable with Kenya’s push for extension of the debt service suspension with the developed nations. This prompted delays in disbursements to projects funded by Chinese financiers. The Chinese Embassy in Nairobi acknowledged that there was hitch in the funding, adding that the matter was being addressed by officials of the two countries.
Data from the Central Bank of Kenya shows that foreign exchange reserves dropped by 35.2 billion Kenyan Shilling between 15 July and 21 July. World Bank data shows that the only major debt repayment for Kenya in July 2021 was for loans linked to SGR, signalling re-payment of Chinese loans. Chinese- funded projects faced a cash crunch in June 2021, with contractors reporting delayed payments from banks like Exim Bank of China. Amidst news of Kenya’s inability to pay its SGR debt, reports also indicated that the Chinese operator of SGR had demanded billons of Kenyan Shillings in unpaid bills before handing over the project fully to Kenya.
Railway Operation Company Ltd (Afristar), the Chinese-owned company contracted to run train services, has listed clearing of its debts as a pre-condition, before SGR operations can be transferred to Kenya in May 2022. The Kenyan Parliament in 2020 revealed that Kenya had not paid 38 billion Shillings to Afristar, which is owned by China Road and Bridge Corporation. Afristar had been contracted in May 2017 to run the passenger and cargo trains on the SGR. The total amount that Kenya borrowed from China to build the SGR, is actually close to 420 billion Kenyan Shillings, mainly to build the railway line from Nairobi to Mombasa and for purchase of engines and coaches.
The SGR line began operations in 2017. Subsequently, it was linked to another new track to Naivasha, also funded by Chinese loans amounting to US$ 1.5 billion. China is one of Kenya’s biggest foreign creditors, having lent
758 billion Shillings in April 2021 to build rail lines, roads and other infrastructure projects in the past decade. The SGR operation agreement requires the Kenyan government to provide for a fixed service monthly
payment, which is made quarterly in advance, at a rate of US$ 28.8 million (3.12 billion Kenyan Shilling). Apart from the operating fees, Kenya is obligated to honour repayment of the 324 billion Kenyan Shillings it borrowed for the project from the Exim Bank of China (May 2014). It started repaying only in 2020, after the expiry of the five-year grace period.
The terms and conditions of China’s loan deals with developing countries are unusually secretive. One aspect of note is that they require borrowers to prioritise repayment of Chinese state-owned banks, ahead of other creditors. Reuters had earlier revealed number of such contracts with specific T&C. The Reuters story gives information about a dataset, compiled over three years by Aid Data, a US research lab at the College of William & Mary, Virginia. The dataset comprises 100 Chinese loan contracts with 24 low- and middle- income countries, number of which are struggling under mounting debt burden amid the economic fallout from the Covid-19 pandemic. A portion of China’s loans to Kenya have been made on a commercial basis by government agencies. Therefore, while China is a member of the G 20 and a signatory to the deal, it cannot apply the same terms as the G 20 countries, while reserving the right on the size and which loans will attract the moratorium. The challenge that Kenya faces that it needs to settle the billions of shillings in unpaid bills or restructure the liability into a debt that will be repaid over a longer period. Either way, it drags the nation further into debt.
The dataset contains several unusual features, including confidentiality clauses that prevent borrowers from revealing the terms of the loans, informal collateral arrangements that benefit Chinese lenders over other creditors and promises to keep the debt out of collective restructuring. In January 2021, China and other rich countries under the Debt Service Suspension Initiative (DSSI) gave Kenya a six-months debt repayments relief.
Kenya had already sought for an extension of the public loan repayment relief under the G 20 debt suspension initiative to December, from the initial deadline of June, saving an additional 39 billion Kenyan Shillings (US$ 361 million). The G 20 countries, rescheduled payments of 32.9 billion Kenyan Shillings in principal and interest due between January and June to the next four years with a one- year grace period.
Also, the pressure to close the Afristar issue comes during the Covid-19 pandemic hitting government revenues and forcing Kenya to turn to the IMF and World Bank for direct budgetary support. The Kenyan government’ predicament is a direct consequence of taking loans from China to construct an expensive railway line, which it does not need and afford. For China, it has given it a stake in the country’s infrastructure and intensified the level of indebtedness of Kenya. Both ways, it is only China which benefits. That should be the lesson for nations in Africa.