France topples China on loans as President Ruto looks West

Photo credit: Compiled by John Waweru | Designed by Gennevieve Awino

France and Germany have toppled China in budgeted loans from rich countries for the new year starting July, underlining President William Ruto’s realignment with the West in a foreign policy shift from that of his two predecessors.

The Treasury has in the budget books listed France as the largest bilateral financier for projects in the Ruto administration’s Sh3.9 trillion expenditure plan for the financial year starting in July, followed by Germany.

Europe’s third-largest economy will fund projects worth Sh26.49 billion, or 30.45 percent of the Sh86.99 billion that the Treasury expects to receive from rich countries in loans and grants, according to the budget estimates before Parliament for approval. Germany has committed Sh16.71 billion through KfW — its State-owned investment and development lender.

China, which has since 2015 been Kenya’s largest bilateral lender after it landed a lucrative deal to build the standard gauge railway (SGR), has committed to lend Kenya Sh7.25 billion in fresh loans. That is a sharp decline from a peak of Sh140.03 billion advanced in the financial year 2025/16.

The projected funding from China for the new financial year is half of Sh14.39 billion expected from Japan.

Beijing has in recent years adopted a cautious approach to lending to Kenya and other African countries amid warnings that key economies were facing many debt tripwires in the wake of global economic turmoil and could default on payments.

The increased funding expected from France and Germany amid a sharp fall from China has come at a time when political analysts say Dr Ruto is leaning more towards the West (the US and its allies in Europe) than the East (particularly China). Some of them have labelled the Kenyan leader “the blue-eyed boy of the West in Africa’.

The analysts point out Dr Ruto has not only made several visits to Europe and the US but managed to successfully invite German Chancellor Olaf Scholz and King Charles of the UK in May and October last year, respectively. King Charles’ four-day visit was the first in Africa as monarch.

“There is definitely a move to realign Kenya with its traditional partners in the West. President Ruto has made four visits to the US, three to France, two to Germany and the United Kingdom. In comparison, President Ruto has made only one visit to China so far,” David Monda, a Kenyan international relations scholar who teaches political science at the City University of New York, said via email.

“In addition to this, the Ruto administration has taken positions on the Russia-Ukraine war and the Israel-Hamas conflict that are at odds with the West’s rival, China. Again, these are positions aligning with Kenya’s traditional Western allies, the US and the United Kingdom.”

And in a significant development to strengthening trade and investment relations with the West, Dr Ruto this week made a State visit to Washington, the first by an African leader in 18 years since former Liberian president Ellen Johnson Sirleaf.

The Joe Biden administration has, through the ongoing US-Kenya Strategic Trade and Investment Partnership (STIP) negotiations, pledged to improve Kenya’s investment climate to levels which will act as a model for other African countries.

“President Biden and his entire administration are deeply committed to a partnership with Africa, which has the fastest-growing population, largest free trade area and a diverse ecosystem,” US Commerce Secretary Gina Raimondo said in Nairobi on April 24.

“We see Kenya as a leader in these efforts: a leader in business, technology, digitisation, policy innovation and a model for engagement across sub-Saharan Africa.”

Kenya’s leaning towards the West for funding has seen it take out billions of dollars in additional funding from West-affiliated multilateral lenders — the International Monetary Fund (IMF) and the World Bank Group — towards direct budgetary support.

The administration of President Mwai Kibaki, largely seen as Kenya’s most successful president, had steered away from seeking funds from the World Bank and the IMF towards budgetary support, with the bulk of the loans coming in the form of direct project support.

Such loans come with tough conditions around economic policies, including tighter taxation measures.

“Our intentional, consistent and sustained efforts, here and abroad, have enabled us to normalise our relationships with the International Monetary Fund, World Bank, the Africa Development Bank and various development partners to such an extent that they are now working with us to implement the Bottom-Up Economic Transformation Agenda,” Dr Ruto said in his State of the Nation Address last November.

Indeed, the IMF support was key in boosting confidence in international investors to lend Kenya $1.5 billion on February 13, funds which helped Kenya repay the bulk ($1.44 billion) of the $2 billion Eurobond maturing in June. The successful issue helped cool fears of a sovereign default.

Funding from the Bretton Woods institutions has largely come with unrealistic tax targets for Kenya.

These include the 16 percent Value-Added Tax on fuel which Dr Ruto’s administration enforced in the first full financial year in office. His predecessor, Uhuru Kenyatta, had failed to fully implement that IMF-backed reform during his decade-long reign.

“The West tends to tie its loans with numerous conditionalities, including a country’s commitment to human rights, democracy, free press and transparency,” Prof Monda said.

“In comparison, China tends not to want to interfere in the domestic affairs of countries it engages with. This has led to critics of China accusing Beijing of engaging in debt diplomacy, whereby African countries are saddled with enormous debt Beijing knows they cannot possibly pay.”

A study by AidData, a research laboratory at the College of William & Mary in the US, found that the terms of Beijing’s loan deals with developing countries were usually secretive and required borrowing nations such as Kenya to prioritise repayment to Chinese state-owned lenders ahead of other creditors.

The dataset, based on an analysis of loan agreements between 2000 and 2019, suggested the Chinese deals have clauses for “more elaborate repayment safeguards” than its “peers in the official credit market”.

The terms further give “Chinese lenders an advantage over other creditors”.

The Chinese banks, for example, declined Kenya’s request to extend a debt repayment holiday at the height of Covid-19 shocks on the economy for a further six months through December 2021, prompting the Treasury to recall the application for “mutual benefit”.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.