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.
Yet, with the realization that China might not release more funds, Kenyan President Uhuru Kenyatta has given the go-ahead to link the line to a narrower-gauge railway that is more than 90 years old.
Uganda, which had also banked on Chinese funding, has decided to refurbish the colonial-era line on its side of the border.
However, that still means shouldering more debt at a time when the IMF is urging spending restraint.
China is already Kenya’s biggest external creditor, with about 22 percent of the country’s external debt as of December last year, Kenyan National Treasury data showed.
The situation does not bode well for Kenyatta’s legacy, which he was building around the railroad as the nation’s single-biggest investment since Kenya attained self-rule more than five decades ago.
Knowing that alternative — and probably more expensive — debt could further widen Kenya’s deficit, Kenyatta is courting private investors to build the link between the new and old railroads.
Meanwhile, Uganda is to include the US$205 million needed to rehabilitate its old tracks in its budget, but has not said how it plans to raise the funds.
In 2013, when Kenyatta asked Beijing to fund the railway, a condition was that China supply the constructors.
The Export-Import Bank of China financed the US$3.6 billion line to Nairobi, China Road and Bridge Corp built it and China Communications Construction Co was picked as the operator.
Revenue from the railway is supposed to repay the loan, but critics have said that the cost was too high and that it would not turn a profit for a long time.
They pointed to southern neighbor Tanzania, which in 2016 canceled US$7.6 billion in Chinese funding for a 2,200km railway and contracted Yapi Merkezi Insaat Ve Sanayi of Turkey and Portugal’s Engenharie and Construcao Africa to build a shorter line at roughly half the cost per kilometer.
Beijing’s tighter scrutiny of Belt and Road projects comes as China shifts the program away from low-cost loans to a more commercial basis involving its private sector.
Clearer rules for state-owned enterprises and building overseas auditing and anti-corruption mechanisms were among other steps floated by officials at the time of the Belt and Road Forum in April.
China supports the Kenyan railway project, but requires a reasonable and sustainable financing plan, a person involved with the project said.
As China now requires high-quality projects and a more thorough feasibility study, the process of approving loans has slowed in general, but it does not mean that the project is terminated, said the person, who asked not to be named, as they are not authorized to speak publicly.
Related parties in the Chinese government and banks are still deliberating financing options, the person said.
Chinese Ambassador to Kenya Wu Peng (吳鵬) was in May asked by local newspaper the Daily Nation about expectations Kenyatta’s visit to China that month would secure funding for the missing section of the railway to Kisumu by Lake Victoria.
“I really don’t know where those expectations came from,” Wu was quoted as saying.
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