Kenya: how to build infrastructure and alienate people
Under pressure to repay an expensive loan from the Chinese financing the Standard Gauge Railway (SGR), the Kenya government (GoK) has resorted to diktat to shore up the new railway lines in different numbers.
In July this year, GoK will make a payment of Ksh 83 billion (USD830 million) to China EXIM Bank for the SGR, the first payment after a five-year grace period. In 2014, the government took a USD3.27 billion loan to construct a 480 km railway from Mombasa to Nairobi. It was the first of three phases of a 930 km railway project from the Kenya coast to Malaba on the Uganda border. All told the project will cost USD8.6 billion making it far and away the biggest and most expensive infrastructure project undertaken by the state since independence.
Kenya’s SGR project is also the most expensive railway project in the region. By comparison neighbouring Ethiopia’s 800 km Addis Ababa-Djibouti railway cost USD4.5 billion while the 1,320 km Tanzania-Rwanda railway, financed by the two governments, is projected to cost USD2.5 billion.
Negotiated in secret — the government has refused to make the terms of the EXIM Bank loan public — GoK allowed Chinese contractors to conduct their own feasibility studies. It is now emerging that the government provided the Mombasa port as collateral.
The government expected brisk business from the railway. However, in its first full year of operations, the SGR is far from meeting government revenue projections. The revenues earned by the SGR in that year (roughly USD 10 million) were not enough to meet the operational costs, let alone making sufficient profit to be able to meet loan servicing requirements.
As a result, the authorities, whose laissez faire policies are among the most liberal in the region, have resorted to diktat in attempts to shore up the railway’s lukewarm numbers. These measures include: (a) increased passenger fares, and (b) mandatory use of the SGR to ferry goods from Mombasa to the Inland Container Depot (ICD) in Nairobi, overturning an earlier decision that certain goods would have free choice of transport companies and methods.
Passenger ticket revenues were some 16% of last year’s railway revenue totals. An increase in in fares, whilst understandable, would be likely to show only marginal improvements in revenue.
Meanwhile, GoK’s decree that all freight business go through the SGR will likely force cross-border importers such as Rwanda, Uganda and the DRC to other regional ports such as Dar es Salaam in Tanzania. A business owner in Nairobi had the following to say to Songhai: “with the SGR, I still have to get a truck to collect goods from the ICD and bring them to my warehouse. Why should I not pay less, bring them through Dar [es Salaam] and have them directly delivered?”
At 53% of GDP, Kenya’s mounting debt is a matter of public concern (including the government’s own Controller of the Budget), a sentiment that appears lost on President Uhuru Kenyatta who has repeatedly vowed to keep borrowing to finance the country’s development, while curiously insisting that this policy is sustainable. Total debt levels are currently over USD 50 billion and the treasury has budgeted more than half of is budget to debt repayments in 2019.
In order to avoid the risk of foreclosure of collateralised assets such as the Mombasa port, Kenya will need to rapidly develop and implement a new fiscal regime, most likely targeting business, that will not be readily welcomed by investors or the business community.
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  https://www.theeastafrican.co.ke/business/Mombasa-port-SGR-loan-default-Chinsa/2560-4903360-clh5nn/index.html
 USD 82 million will be due in July when a payment date arrives