Kenya returns to China in Sh38bn Kiambu dual road loan

Treasury
Treasury

Kenya has secured a deal for a Sh38.3 billion loan from China to expand Kiambu Road into a dual carriageway, making it the first major debt Nairobi will tap in the past three years from Beijing that has since 2020 adopted a more cautious approach to lending in Africa.

The 25-kilometre dual carriageway, which cuts through Muthaiga, Kiambu to Ndumberi, is expected to cost $286.1 million (Sh38.3 billion), including Sh7.4 billion for land acquisition and relocation of services in a stretch dominated by car yards.

Roads Principal Secretary Joseph Mbugua told Parliament the project will be funded by the government of Kenya in partnership with China through the China Exim Bank— which funded the Mombasa-Naivasha standard gauge rail (SGR) line.

The latest China Exim Bank deal comes in a period when the stock of Chinese loans in Kenya’s books dropped to $6.56 billion in December from $7.05 billion in June 2021, ending the sharp rise in Beijing-linked debts that started nearly two decades ago.

China has adopted more cautious approach to lending in Africa where some nations have reached the limit of their borrowing capacity and the prospect of default looms.

The Kenya Urban Roads Authority (Kura) has inked a memorandum of understanding (MoU) with M/s Sinohydro Corporation Limited of China for the execution of the dualling of Kiambu Road.

“The concept notes, feasibility studies, preliminary engineering designs, and environmental impact assessment have been completed and submitted to the National Treasury which has granted Kura the approval to proceed with the project preparation within the existing legal and regulatory framework,” Mr Mbugua said.

“The timelines on implementation of the plans will be determined once the requisite legal regulatory and funding approval clearances are completed.” The dualling of Kiambu Road will hand motorists and commuters a big relief from the unending traffic snarl-ups experienced during peak hours on the motorway that feeds traffic in and out of the populous Nairobi and Kiambu counties.

It is one of 11 infrastructure projects that the Kenyan government delegation showcased to global investors during the two-day Belt and Road Forum for International Co-operation in Beijing, China, in May 2017.

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 past decade, making Beijing the largest bilateral creditor since 2015.

Chinese loans grew from $3 billion in 2016. 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 at 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’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 former president Mwai 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 (Sh469 billion) for SGR, a $398 million (Sh53.3 billion) oil terminal at the Mombasa port and road projects such as the Southern and Eastern Bypass in Nairobi.

While Kenya has cut down on Chinese loans over the past two years, it has stepped up borrowing billions of shillings from the IMF and the World Bank, a key plank being direct lending for the budget to top up the public purse for items like paying civil servants’ salaries.

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