20 June 2017

Kenya: Lessons From Kenya's New, Chinese-Funded Railway

Photo: PSCU
President Uhuru Kenyatta and his deputy, William Ruto, flag off a cargo train in Mombasa.
analysis

Despite cost concerns, Kenya's deal shows that infrastructure agreements with China can be made fairer for citizens of partner countries. Its neighbours should take note.

On 31 May, Kenya's president, Uhuru Kenyatta, and his election campaign team descended on Mombasa for the inauguration of Kenya's Standard Gauge Railway (SGR). The SGR is Kenya's biggest infrastructure project since independence, and its first new railway since Britain opened East Africa to imperial control with the completion of the 'lunatic line' in 1901.

Kenyatta is in the midst of his campaign to secure a second term as president, and hopes the opening of the railway will substantiate his core message to voters: that he has improved the country's infrastructure and economy. However, the high cost of the project - at a time of spiralling food prices - has clouded the SGR's grand unveiling. A huge sum is now owed to China, which funded 85 per cent of the SGR's construction. This represents Kenya's biggest ever loan, equivalent to 6 per cent of GDP.

The elections on 8 August will reveal whether Kenyatta retains sufficient popularity among Kenyans who are not feeling the benefits of headline national growth to stay in power. But whether the partnership with China can deliver sustainable development will be much harder to determine, and is a question that will shape Kenyan politics for many years to come.

Construction work on the Mombasa-Nairobi SGR began in November 2013 and was completed 18 months ahead of schedule. The government has promised that the railway will bring a number of benefits: reducing transport costs and times by over 60 per cent; carrying ten times more of the cargo unloaded at Mombasa port than the current trains, thereby relieving congested roads; and offering freight costs more than 30 per cent below the prices charged by truck operators.

The $3.8 billion contract to fund the project was signed between the China Road and Bridge Corporation and the government of Kenya in May 2014, under the auspices of China's immense Belt and Road Initiative. While the minister for transport has declared that the resulting debt could be repaid in four years, this is likely to prove optimistic. Growth forecasts were recently lowered, as the effects of the country's worst drought in 30 years make themselves felt.

Ordinary Kenyans struggling with high food prices and a shortage of maize flour, the national staple, have therefore not responded to the unveiling of the SGR as enthusiastically as Kenyatta may have hoped. Less than two months before the election, his campaign team will be worrying that voters resent the divergence between Kenyatta's narrative of a thriving country, fuelled by projects such as the SGR, and their own difficult realities. A number of commentators, both in the press and on social media, have reacted angrily to the cost of the project, which was four times as high as originally estimated, and expressed alarm over the country's debt burden. Unfavourable comparisons have also been drawn with the SGR linking Djibouti and Ethiopia, which was launched in October 2016. Despite a lower cost of $3.4 billion (80 per cent funded by China's Exim Bank), the Djibouti-Ethiopia railway is electrified - whereas Kenya's trains are diesel-powered - and is over 250 kilometres longer than the Nairobi-Mombasa line.

While Kenya's mounting indebtedness to China is concerning, its SGR deal actually provides a stronger model for sustainable development through partnering with China than Ethiopia's agreement. At every stage of the process - from the negotiations with China's Exim Bank (led by Kenyatta himself), to the procurement of construction materials, the compensation of affected landowners, and the implementation of work in Tsavo and Nairobi National Parks - Kenyan organisations and citizens have made their voices heard to secure a better outcome.

All cement for the SGR was supplied by Kenyan businesses; railway cars were made in Kenya; over 25,000 Kenyans were employed and trained; 33 crossing stations, as well as bridges and tunnels, were added to reduce the impact on wildlife; and the National Land Commission had to double its budget for compensation. Many of these issues also proved controversial, particularly land value estimates, working conditions for Kenyan employees, and the stretches of track laid in areas with high levels of biodiversity. Nevertheless, Kenya's practices compare well to Ethiopia's, which did not consult with those affected by its railway or offer compensation for the displaced (a frequent flashpoint in the country), provided only 18 wildlife crossings, ensured the employment of one-fifth fewer Ethiopian workers, and has a service being run by Chinese staff until 2021. Kenya's SGR deal shows that agreements with China can be made fairer for citizens of partner countries.

The next Kenyan government must ensure that it pushes for guarantees on labour rights, more local content, greater procurement transparency, and stronger dialogues with stakeholders in the extension of the SGR to Uganda and Rwanda. Kenya is the second most unequal country in East Africa, and much of the population is becoming increasingly frustrated with growth and grand projects whose benefits do not seem to reach them. Better deals with China will need to play a part in tackling this. Neighbouring Rwanda and Uganda are weighing up their own SGR deals with China and should consider the lessons from Kenya's and Ethiopia's experiences.

Rebekka Rumpel

Research Assistant, Africa Programme

Kenya

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