China beats Japan to become Kenya’s top foreign financier
Treasury secretary Henry Rotich (seated right) and Chinese minister of Commerce Gao Hucheng sign the standard gauge railway deal at State House Nairobi in May. The signing ceremony was witnessed by Chinese PM Li Keqiang and presidents Uhuru Kenyatta, Yoweri Museveni (Uganda), Paul Kagame (Rwanda) and Salva Kiir (South Sudan). PHOTO | BILLY MUTAI | NATION
What you need to know:
This is the third consecutive year that Beijing’s lending to Kenya has expanded by a margin of 30 per cent annually.
Japan has been Kenya’s leading bilateral lender in the past 10 years, only second to the World Bank — a multilateral donor.
Economists said the change in Kenya’s sources of development finance is seen to be partly dictated by the ability of the lenders to read the growth path of East Africa’s largest economy in the long term.
China has replaced Japan as Kenya’s largest bilateral lender, helped by its participation in the East African nation’s mega infrastructure projects, the Treasury’s latest debt report shows.
Kenya, East Africa’s largest economy, now owes China a total of Sh80.9 billion, the debt pile having risen 30 per cent in 12 months to May, according to the Treasury’s 2014 Debt Bulletin.
This is the third consecutive year that Beijing’s lending to Kenya has expanded by a margin of 30 per cent annually.
The growth in Beijing’s lending to Nairobi is all the more striking given that it does not include the Sh327 billion standard gauge railway (SGR) loan that was signed in May and whose disbursement is expected to begin in October with the commencement of construction work.
The Treasury is expected to start showing part of the railway funds from China’s Ex-Im Bank in its loan book later this year — a move that is expected to push Beijing’s total bilateral lending to Kenya above Sh100 billion.
Japan has been Kenya’s leading bilateral lender in the past 10 years, only second to the World Bank — a multilateral donor.
Since 2011, however, Japan has gradually decreased its new lending to Kenya, keeping its total debt portfolio in Nairobi at Sh67.7 billion.
Kenya’s indebtedness to Japan first fell four per cent to Sh64.95 billion in the year to May 2012 but the amount still left Tokyo far ahead of the then second-largest bilateral donor Beijing’s Sh46.58 billion.
The continued decline in Japan’s bilateral lending to Kenya has been partly linked to economic reforms that the world’s third-largest economy has been undertaking in the past three years to reverse two decades of economic stagnation.
Tokyo has in the past couple of years embarked on a series of spending cuts and recruited new leadership for its central bank with the mandate to bring down interest rates and weaken the yen to increase exports.
The Treasury first separated China’s lending to Kenya from the non-Paris Club (mainly European) foreign debt book in 2012, giving a clear picture of Nairobi’s engagement with the Asian nation.
The Treasury’s May 2014 Debt Bulletin shows that despite the long-standing military and political links with the US, Washington’s bilateral lending to Kenya remains relatively small.
Kenya owes the US only Sh4.5 billion, according to the latest debt report, an amount that places it behind two European nations, Germany and Belgium — and Japan.
Germany’s total lending to Kenya stood at Sh26.58 billion in May, having risen gradually in the past five years from Sh17.2 billion in August 2010.
Economists said the change in Kenya’s sources of development finance is seen to be partly dictated by the ability of the lenders to read the growth path of East Africa’s largest economy in the long term.
“The ability to interpret economic intelligence data and future developments is a key determinant of the financing mix,” said Joseph Kieyah, the principal analyst at the Kenya Institute of Public Policy Research and Analysis (KIPPRA).
Prof Kieyah said that China has been able to identify Kenya’s financing needs and used the information to strategically position itself in the lending market.
Kenya signed multi-billion-shilling financing deals with China during the May visit of Premier Li Keqiang to Nairobi. The list of deals signed included the Sh327 billion SGR loan, wildlife conservation, agriculture, health, water, sports and culture.
“Beijing appears to be taking a long-term view of Kenya’s economic prospects unhindered by politics or the security concerns that some bilateral lenders may be seeing as a obstacles to continued engagement,” Prof Kieyah said, adding that Japan is being fettered by its own economic problems at home.
The bilateral lending mix is also seen as reflecting key concerns of each lender, including human rights records, political realities, as well as corruption that has seen some governments such as the US use other avenues to support Kenya financially.
Much of the US government’s development financing in Kenya, for instance, comes through non-governmental organisations and the private sector.
“China’s rise as the big lender is mainly linked to its large presence in the infrastructure sector, which consumes billions of shillings annually,” said Rose Wanjiru, the executive director of the Centre for Economic Governance.
An article on the German TV website appears to capture the essence of the Western nation’s emphasis on governance as a condition for financial engagement with Kenya.
“Germany’s development aid policy places high value on good governance in partner countries, coupled with a commitment to fight corruption. Future development aid from Germany will depend on Kenya’s political progress,” it says.
Germany has gradually increased its development financing to Kenya but much of the money has gone into humanitarian causes such as feeding refugees, fighting HIV/Aids and alleviating rural poverty.
Good governance is also one of the main conditions for American aid. “Even where the US has given aid to Kenya, they have tried to control the way it is spent as was the case with the HIV/Aids money,” said Ms Wanjiru.
US President Barack Obama, who hosted African leaders in Washington last week, sought to relax that rule of engagement, having extended invitation to nearly all African regardless of their human rights and democratic credentials.
Belgium’s financial aid to Kenya has averaged just over Sh7 billion over the past five years, but other European countries such as Denmark and the UK have seen their debt to Kenya decline over the same period.
