China made smart move on standard gauge rail financing

Last week, the Chinese government hosted the second Belt and Road Forum, inviting countries around the world to engage in the conversation on the Belt and Road Initiative (BRI).

African countries are key players in the BRI, not only because it serves interests from the Chinese government and private sector but also because it provides what African governments view as an opportunity to meet the continent’s infrastructure deficit.

During the forum, key developments occurred that affect African governments, one of which concerned Kenya.

It was revealed that the Kenyan government failed to secure $3.68 billion from China (in loans and grants) to take the Standard Gauge Railway (SGR) from Naivasha to Kisumu, and on to the Malaba border with Uganda.

The Kenya government has consistently sold the SGR as a key infrastructure development and investment it has made on behalf of its people.

And yet, during a conference focused on infrastructure financing from China, their core financing objective from Beijing was not met.

The question is why? And what does this mean for Kenya? In my view this is good news and demonstrates a seriousness from the Chinese government that perhaps Nairobi did not anticipate. Firstly, Kenyans seem relieved by this development. The citizens have grown weary of what they view as a government with fundamental problems with corruption and fiscal accountability, continuing to secure massive amounts of debt.

In declining to finance the final stages of the SGR, this seems to signal the Chinese government is cognisant of these concerns.

Financial feasibility is a core concern, and given the serious problems with corruption linked to the previous phases of SGR that the Kenyan government has clearly seemed unable to resolve, why should they get more money? Diplomacy issues aside, money is money and it has to be feasibly and prudently used.

China has signalled that there are pending issues to be addressed and they have a keen interest on how their money is used.

Secondly, it has given the Kenyan government pause for thought. When what has been profiled as an important diplomatic and developmental project fails to secure financing from the Chinese government, the Kenya government is being asked what went wrong?

As a Kenyan economist, this signals that as far as China is concerned, it is not business as usual.

The SGR is an anchor BRI project, and yet it has been put on hold. Kenya needs to use this as yet another signal: that there are fundamental problems with its financial accountability structures. There are no shortcuts on this issue.

Finally, it points to a shift in China’s approach to lending and debt to African governments. While Ethiopia got debt relief, Kenya was unable to secure new debt. So a willingness of China to lend or forgive debt is not the issue. Context is important. In some cases, China has communicated a willingness to forgive debt, in other cases, such as Kenya, China has made it clear that core concerns have to addressed before substantial debt is offered.

In short, the Belt and Road Forum is a key turning point in how China lends to Africa. It is up to each African government to demonstrate that it is a responsible custodian of public finances. Not because of China or any other external party, but because their countries will never develop as long as African governments continue to misappropriate public funds.

Let African governments play this as they will, African publics are watching.