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#studentviews: How should Kenyan policy-makers respond to Chinese money?

China’s investment strategy risks dampening Kenya’s growth outlook, threatening the livelihoods of an already struggling population. Not only are profits from big infrastructure projects often retained by Chinese firms, but mounting debt could lock the Kenyan economy into a cycle of dependence.

It is hard to ignore China’s presence in Nairobi. A monstrous 27km highway towers above existing roads and houses, running right through the centre of the city.

The road, known as the Nairobi expressway, cost the Kenyan taxpayer $170 million when it was built in 2022. But the job of actually building the road was given to a Chinese contractor, and China pumped a further $600 million into the project (which probably helped too). In return, China will collect the toll fees for 27 years.

The longevity and level of control that China gains from projects like these are undisputable. But for Kenya, accepting such huge amounts of investment from China could stunt longer-term growth plans. The Nairobi expressway is just one of many projects that the Chinese government has funded in Kenya. The Mombasa-Nairobi standard gauge railway and the Thika road are two further examples.

Typically, such infrastructure projects are met with optimism, creating jobs and improving local services. But Kenya has only been receiving partial benefits from such investments, due to construction contracts being given to Chinese firms. The main concern, however, is the growing debt owed to China, as well as the dangers such projects can bring.

Kenya’s debt to China is worth 19.4% of its external debt, according to the latest published figures. For context, China is by far Kenya’s largest creditor country, with France next (at just 2.2%). The estimated value of the debt to China is $6.3 billion, without taking account of debt servicing charges and interest. Such vast debt threatens Kenya’s financial independence. Taking more Chinese investment could compound the issue.

An example of this is the dramatic increase in toll prices when the Nairobi expressway opened. This was due to the weakening Kenyan shilling against the Chinese yen. A foreign entity being able to control prices removes any sense of financial independence, and it could cause greater conflicts of interest with Kenyan people and their creditors in the future.

By way of warning, many analysts point to the Hambantota international port in Sri Lanka in 2016, where similar Chinese investment took place. When Sri Lanka realised that it couldn’t keep up the loan repayments, it was forced to hand over the port to China on a 99-year lease. Djibouti and Zambia are also considering handing over their ports and national broadcasting network too (because of failing repayments to China).

This ‘debt-trap diplomacy’ is a cautionary tale for Kenyan policy-makers, who should be wary of becoming too financially dependent on Beijing.

Kenya already risks burdening future generations by creating substantial debts, while also putting a large share of taxpayer money into these projects. The associated opportunity cost is huge. Kenya itself could not afford these projects alone – but did all the projects have to be completed in such short succession?

Within ten years, Nairobi gained two mega-highways and a fully upgraded railway, all financed by the Chinese. The money could have been spent starting sustainable infrastructure projects using Kenyan contractors, at a slower pace to ensure financial stability while hiring more Kenyan workers. This could have given a greater boost to the local economy.

The relationship between China and Kenya grows every time new investments are made. But whether this relationship is in the public interest is another question. Since former president Kenyatta embarked on his ‘Look East’ policy in 2005, the presence of Chinese nationals in the country has increased 12-fold.

This has resulted in more Chinese-run businesses, which are able to source from China at a much cheaper rate than local businesses, meaning their prices are also lower. This has caused local businesses to shut down.

The March 2023 protests against ‘China Square’ – a Chinese-run supermarket in Nairobi – are an example. The crowding-out of Kenyan business cannot continue if the country wants to maintain sustainable long-run growth, as boosts to the economy will not be felt if the majority of profits end up in bank accounts in Beijing.

Now is an especially important time for Kenya to secure long-term economic stability. The country is currently in poor financial condition. Six million people face severe food insecurity, the Kenyan shilling is 127 against the dollar (down from 122 a year ago) and debt has risen from $58 billion last June to nearly $70 billion in June 2023. If Kenya continues to go down its path of reliance on Chinese investment, China could assert huge control over the country if the economic situation fails to improve.

But perhaps Kenya has left it too late. Accepting Chinese money was a mistake, but what are the alternatives at this point? Kenya is currently exploring partnerships with other countries, including Taiwan, showing some acknowledgement of the dangers of economic reliance. China has a hold on Kenya already, but accepting further investment would only tighten its grip.

Author: Anand Thakkar
Editor’s note: This article is from the University of Bristol’s communicating economics class of 2023-24.
Picture by JOHN NGOJA MUTHIANI on iStock
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