Wed, Jul 24, 2019 - Page 9 News List

China pulls out of Kenya after building a railroad to nowhere

By David Herbling and Dandan Li  /  Bloomberg

Gleaming concrete sleepers run across a new railway bridge in Kenya, the latest stretch of a Chinese-built line from the coast all the way to Uganda.

Only, it does not quite reach the border. Instead, the railroad ends abruptly by a sleepy village about 120km west of the Kenyan capital, Nairobi; the tracks laid, but unused.

Construction of what was intended to be a flagship infrastructure project for eastern Africa was halted earlier this year after China withheld about US$4.9 billion in funding needed to allow the line’s completion.

Beijing’s sudden financial reticence appeared to catch the governments of Kenya and Uganda off guard: Both might now be forced to reinstate a colonial-era line in a bid to patch the link and boost regional trade.

The reason for China’s attack of cold feet might lie in the project’s high profile.

Chinese state media had repeatedly used the Mombasa-Nairobi Standard Gauge Railway project as a showcase for Chinese President Xi Jinping’s (習近平) Belt and Road Initiative.

However, with concerns rising globally that the initiative was loading poorer nations with unsustainable debt, Xi in April signaled that Beijing would exert more control over projects and tighten oversight.

That extra rigor is beginning to be felt worldwide.

A planned light railway system that was the most high-profile Belt and Road project in Kazakhstan is on hold after the collapse of a local bank that handled Chinese funds.

In Zimbabwe, a giant solar project hit a funding shortfall after the Export-Import Bank of China backed out of providing financing due to the Zimbabwean government’s legacy debts, RWR Advisory Group’s Belt and Road Monitor reported this month.

Kenya’s line might be next.

The Chinese “are adopting a more cautious approach to their debt exposure in Africa,” said Piers Dawson, a consultant at London-based investment consultancy Africa Matters, citing “increased noise around its sustainability and potential default.”

China is now the single largest financier for infrastructure in Africa, funding one-in-five projects and constructing every third one, professional services network Deloitte said in a report.

With infrastructure needs that the African Development Bank has estimated at US$130 billion to US$170 billion yearly, governments are only too willing to take out Chinese loans to plug the funding gap.

The downside is that Kenya was one of three African countries identified in a report in March last year by the Washington-based Center for Global Development as being at risk of debt distress as a result of its Belt and Road participation. The others were Egypt and Ethiopia.

“China has its own issues it’s dealing with, including perceptions that it is ‘trapping’ many of its Belt and Road partners by drowning them in debt,” NKC African Economics economist Jacques Nel said.

China’s government has “put the brakes on its external expansion plans, or has at least become more focused on the viability of projects due to its own corporate debt concerns,” he said.

The first half of the Kenya-Uganda railway, a 470km stretch between the port city of Mombasa and Nairobi, is operational, but not yet making money.

Beijing balked at funding the extension to Uganda amid concerns that it might be a step too far beyond viability.

Kenya and landlocked Uganda had coordinated their plans for the new railway to reduce transport costs and the time it takes to move goods from the coast across each country and further into the eastern and central Africa hinterland.

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