Chinese loans to Kenya have dropped for the first time in 15 years as Beijing adopts more cautious lending in Africa where some nations have reached the limit of their borrowing capacity and the prospect of default looms.
Data from the Treasury show China's total lending dropped to $6.83 billion in June from $7.05 billion a year ago and $3 billion in 2016.
Available public records show that Chinese loans to Kenya dropped marginally in 2022. The rare fall in Chinese debt emerges in a period when the World Bank and the International Monetary Fund (IMF) have stepped up lending to Kenya, firming the institutions’ grip on the country’s economy.
Nairobi has been a major beneficiary of China’s loans for the development of mega infrastructure such as roads and a modern railway over the last decade, making Beijing the largest bilateral creditor since 2015.
The IMF in 2020 listed more than 20 African countries, including Kenya, as being in, or at high risk of, debt distress.
In response, lenders, including China Eximbank and China Development Bank, China’s two main policy banks, have adopted increasingly hardline lending terms.
Chinese President Xi Jinping reinforced that caution in a video speech to the triennial Forum of China-Africa Cooperation held in Senegal in November 2021.
Over the next three years, the Chinese president said, the country would cut the headline amount of money it supplies to Africa by a third to $40 billion and, he implied, redirect lending away from large infrastructure towards a new emphasis on SMEs, green projects and private investment flows.
“China is moving away from this high-volume, high-risk paradigm into one where deals are struck on their own merit, at a smaller and more manageable scale than before,” an analysis of China’s lending to Africa by Chatham House, a UK think-tank, said.
Lower funding to Africa, local analysts say, could be a pointer that Beijing is starting to see signs of reduced benefits from the cash it commits in the continent.
“I think the Chinese debt has reached or it’s nearing a point of diminishing returns if the big-ticket public expenditures in Kenya, for example, are anything to go by. As such, I see China being selective in terms of projects they fund going forward,” Churchill Ogutu, an economist at IC Asset Managers (Mauritius), told the Business Daily earlier.
Chinese lenders have traditionally shown flexibility on loan terms for projects in Africa, seen as politically important for Beijing.
China has over the last two decades established itself as a financier of first resort for many low- and middle-income countries, providing record amounts of international development finance, according to the researchers at College of William & Mary in a report late September.
Their findings suggested that African countries received 42 percent of all Chinese official development assistance between 2000 and 2017.
China’s influence on Kenya’s mega projects started gathering steam with the construction of the Thika Superhighway between January 2009 and November 2012 at a cost of nearly Sh32 billion in the last term of President Kibaki.
China Road and Bridge Corporation, a subsidiary of China Communications Construction Company, has since bagged the lion’s share of Kenya’s mega projects — at least two railways, two ports and 23 road projects.
They include the $3.5 billion (Sh393.82 billion) standard gauge railway, a $398 million (Sh44.78 billion) oil terminal at the Mombasa port and road projects such as the Southern and Eastern Bypass in Nairobi.
Treasury data show debt contracted from China has grew by single-digit in the two financial years to June 2021 compared with double-digit growth previously.
For example, China’s debt to Kenya grew 4.55 percent in each of the two financial years from to June 2021 before dropping last year by 3.2 percent. It grew 49 percent to $4.6 billion in the year ended June 2017.
Kenya has in the past two years secured hundreds of billions from the IMF and World Bank, a key plank being direct lending for the budget to top up the public purse for items like paying civil servants’ salaries.
World Bank loans nearly doubled in the three years to June from $5.9 billion to $11 billion while those of the IMF more than tripled to $1.75 billion from $0.48 in the same period.
This has offered the World Bank and the IMF influence on Kenya’s economic policy planning that would require the government to implement tough conditions across many sectors, including a freeze in civil servants' pay and the imposition of new taxes.
It has triggered echoes of the past when the IMF and World Bank lent generously to African governments in the post-independence period only to impose harsh structural adjustment programmes on them from the 1980s after governments struggled to repay.
Typically, World Bank loans have zero or very low-interest rates and have repayment periods of 25 to 40 years, with a five- or 10-year grace period.
Former President Uhuru Kenyatta, who took office in 2013 and exited last month, oversaw a jump in public borrowing.
Total debt stands at 70 percent of gross domestic product (GDP), up from about 45 percent when he took over -- a surge that some politicians and economists say is saddling future generations with too much debt.