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Columnists

We should go slow on Chinese loans, they are hurting us

Standard Gauge Railway
Currently, the Standard Gauge Railway which runs from Mombasa through Nairobi has reached an obscure place called Daraja Moja in the Naivasha area. FILE PHOTO | NMG 

Currently, the Standard Gauge Railway which runs from Mombasa through Nairobi has reached an obscure place called Daraja Moja in the Naivasha area.

If it is not extended to Kisumu and Malaba- we will have ended up with a road to nowhere. This is the reason anxiety has been building up ahead of the visit to China by President Uhuru Kenyatta where he is leading a delegation to sign another massive loan agreement to fund the building of the extension of the line to Kisumu and Malaba.

Just the other day, we saw president Yoweri Museveni subjecting himself to a four-hour ride on the SGR from Mombasa all the way to Nairobi.

It was not a gesture without significance. Neither was the announcement by President Kenyatta- during Museveni’s recent visit that the government would gift Uganda land in Naivasha to build a logistic platform- without major significance.

Exim Bank of China, who will financing the Uganda side of the line has been demanding to see progress and movement on the extension of the line from Mombasa to Kisumu and Malaba before committing itself on the loans they are supposed to offer Kampala for their side of the SGR.

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Thus, China EximBank has made the progress on the Naivasha-Kisumu- Malaba a pre-condition for progress in the negotiations and signing of the loan for Uganda.

When you examine the issue broadly, it is as if what is at play here is China’s global geostrategic interests under the so called China Road and Belt Initiative, whereby China has decided to build road and rail links connecting to connecting all developing economies to Bejing.

In China’s geostrategic vision, the SGR only makes sense if it extends to Uganda, Rwanda and to the Democratic Republic of Congo.

Still, China and the China Road and Belt Initiative factor is just but one of the factors at.

Another factor at play is the issue of economic viability.

Indeed, there are economists who project that the Standard Gauge Railway will only start making serious economic sense viability after it reaches and starts connecting to the mining belts of the region especially in the DRC.

In the medium term, I see China intensely lobbying countries in the region to implement policies aimed at making improving SGR’s financial sustainability.

Major interventions to shift tariffs from road to rail will be required.

It should not surprise if we see introduction of road user fees for freight truckers, regulations on truck sizes, weight limits and development of new mining projects.

I see countries being lobbied to deliberately build roads to serve as feeder roads to the SGR and building and construction of inter modal platforms along the SGR, along the lines of what Uganda is planning to build in Naivasha on the land donated by President Kenyatta.

I am still worried about the size and rate at which we are gobbling up Chinese loans, for the standard gauge railway.

We borrowed a massive $4 billion to build the Mombasa-Nairobi part.

Then we hurriedly moved to sign off another $1.5 billion for extending the line to Naivasha.

We have signed a commercial contract with a Chinese railway contractor to allow us access to another $5 billion for the extension of the railway from Naivasha to Malaba.

In total, we are supposed to borrow a massive $10 billion- nearly 20 per cent of our GDP from the Chinese for the railway to get to Malaba.

I am not against borrowing to fund infrastructure. Indeed, a dollar borrowed to finance critical infrastructure is likely to promote more economic growth than a dollar borrowed to pay salaries.

But these Chinese loans are driving us to debt levels never witnessed before in the history of Kenya.

We have crossed the debt sustainability threshold, which stands at a ratio of 45 per cent to GDP. The Chinese loans are beginning to tip us into unsustainable debt territory.

If we leave these big projects to the corrupt elite and crafty Chinese contractors, they will bankrupt us.

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