Having burnt its fingers by signing a Belt and Road Initiative agreement with China, Kenya has now turned to the United States for help. President William Ruto of Kenya who is now on a state visit to Washington, the first such visit to the U.S. by an African leader in more than 15 years, has called on American President Joe Biden to take action to reduce the enormous debt burden crushing Kenya and other developing nations.
The debt burden on Kenya is so bad that the debt to Gross Domestic Product ratio of facing Nairobi is 70 percent. This ratio rose from 66 percent in 2019-20 to nearly 72 percent in June 2023. The bulk of the debt is owed to China. Credit rating agency Fitch has estimated that Kenya will spend almost one-third of its government revenues just on interest payment in 2024.
An analysis carried out by AP in a dozen countries most indebted to China, among them Pakistan, Kenya, Zambia and Laos, has found that debt is consuming an ever-greater amount of tax revenue needed to keep schools open, provide electricity and pay for food and fuel.
Pakistan was estimated to owe in 2023 to external creditors a staggering $125 billion, the primary reason behind the economic woes of Islamabad; one-third of the amount being due to China. The projected investment in China Pakistan Economic Corridor, the flagship BRI project in Pakistan, is $62 billion.
At the end of 2021, Zambia had a total external debt burden of nearly $ 15 billion, of which over $ 6 billion was owed to China. In 2022, the total public debt and publicly guaranteed debt facing Laos was about 88 percent of the GDP of the country. Valued at over $ 14 billion, about half of it was owed to China on loans to fund infrastructure projects including the China Laos railway, according to a World Bank report quoted in the Voice of America.
According to a Chatham House analysis on the debt situation in Kenya, Nairobi has faced a Chinese state-linked hacking team carrying out systematic cyber attacks on Kenyan government institutions, driven by a desire to assess the status of repayments.
The apprehension in the Kenyan media and the people of Kenya is that the strategic Mombasa Port has been posted as collateral for Chinese loans and it may go the Hambantota Port way in Sri Lanka; the port which Colombo has been constrained to hand over to China on a 99-year lease, having failed to repay Chinese loans.
The situation facing Kenya has now reopened the controversy over Beijing’s debt-trap diplomacy and reignited apprehensions around Chinese lending. From 2013 to 2022, Kenya was dominated by a Chinese loan of $5.3 billion from the China Exim Bank, disbursed in three tranches, for the construction of a standard gauge railway project connecting the post of Mombasa with the capital Nairobi.
The China Exim Bank has financed 90 percent of the railway project, with the contribution of the Kenyan government being only 10 percent.
The Mombasa-Nairobi railway project is the flagship project of the BRI in China, the primary contractor being China Road and Bridge Corporation.
The other projects include the Kenya Nairobi Expressway connecting Jomo Kenyatta Airport with the city of Nairobi under a public-private-partnership arrangement between the Kenyan government and the same Chinese company. There are also several projects in the telecommunication sector in Kenya under the BRI, in collaboration with the Chinese company Huawei which, it may be mentioned, has been banned in several countries, including the U.S. and India. Beijing has been using the Huawei network in carrying out spying activities in other countries.
The Mombasa – Nairobi railway project has been beset with problems from the beginning, says an analysis by Foreign Policy Research Institute. Though it has created about 30,000 new jobs for local people, most of the jobs are for unskilled workers and low-paying. During the construction of the Standard Gauge Railway project, local people of Kenya had accused the China Road and Bridge Corporation of discrimination against them; including a racist segregation policy. Kenyan members of teams working in the project were allotted separate accommodation, eating areas, toilets and travelling facilities. Chinese managers had been accused of tasking highly qualified Kenyans with menial jobs and severely underpaying the Kenyan staff.
There had even been incidents of Chinese managers assaulting Kenyan colleagues.
From the very beginning, the railway has run at a loss, losing over $ 200 million between 2019 and 2022. Deficiencies in initial planning, including an over-optimistic prediction of profitability and inflated construction costs, have contributed to the problem and landed Kenya in a major debt burden.
In Kenya, government officials have been accused of corruption in the procurement of the flawed Standard Gauge Railway project from China. Newspapers have branded the railway project as a “white elephant.” Tax-payers in Kenya have realised that the burden of the unprofitable railway has fallen solely on them. They see little prospect of the railway transforming the economy of Kenya.
The questionable BRI investments in Kenya have heightened the tension between Chinese and African people. There have been xenophobic attacks on Chinese migrants in Kenya. Anti-African feelings have erupted in China. In 2020, hundreds of Africans in China were mistreated in the wake of the pandemic. In the Chinese city of Guangzhou, Africans faced abuse from landlords, hotel managers and officials and in local restaurants. They were subjected to random Covid-19 tests and forced into 14-day quarantine without receiving the results of the tests.
Now the U.S. has come forward to offer developing nations reeling under the impact of Chinese debt the much needed succour. The meeting between Joe Biden and William Ruto has resulted in a call to action; named ‘Nairobi – Washington Vision.” The U.S. President has appealed to the African nations that the U.S. can be a better partner in the economic revival of these nations than China. The loans from Beijing carry high interest and other difficult financing terms. China is reluctant to forgive debt and maintains extreme secrecy about how much money it has loaned.
The U.S., on the other hand, has called on international financial institutions to coordinate debt relief and support through multilateral banks and institutions providing better financing terms.
In between, the White House has announced $250 million in grants for the International Development Association, part of the World Bank, to assist poor countries facing crises. Besides, a $1.2 trillion government funding bill was passed by the U.S. Congress in March this year, allowing the government to lend up to $21 billion to the International Monetary Fund Poverty Reduction and Growth Trust that provides loans at zero percent to support low-income countries to stabilize their economies and help in debt sustainability.
The upshot of the meeting between Joe Biden and William Ruto is that the U.S. President is going to designate Kenya a major non-NATO ally. The honeymoon of Beijing with Nairobi thus seems to be over.
