Belt and Road in Kenya: COVID-19 sparks a reckoning with debt and dissatisfaction

By Max Yoeli

The deterioration of Kenya's economic prospects during COVID-19 has intensified backlash to its participation in China's Belt and Road Initiative (BRI). The COVID-19-induced economic slowdown has accelerated a reckoning with the underlying fragility of BRI in Kenya, already the subject of scrutiny due to corruption, pollution, and debt concerns. As a recent Independent Task Force report [PDF] on BRI illustrates, while BRI has met significant infrastructure needs in Kenya and China's involvement is hardly the neocolonial debt trap many observers feared, the path forward for Kenya is challenging.

President Uhuru Kenyatta's decision to extend measures to combat a third wave of the virus comes as Kenya's economy experiences anemic growth and its government faces a rising fiscal deficit. The combination of BRI loans and an economic slowdown have left Kenya at elevated risk [PDF] of debt distress. In January, both China and Paris Club lenders agreed to defer impending loan payments, but Kenya still faces substantial debts, including some $9 billion to China, its biggest bilateral lender, largely for BRI projects.

China has sought to build economic linkages with Africa as part of its broader effort to reorient trade flows to benefit Chinese firms, set favorable technical standards, and boost its political influence. Policymakers in Beijing saw a tempting partner [PDF] in Kenya, East Africa's largest economy and a strategically located costal hub. Kenya reciprocated Chinese interest under its "Look East" policy, seeking to upgrade infrastructure and accelerate economic development.

Kenya has managed participation in BRI better than some host countries, and China has enabled an ambitious infrastructure push, including expanding Mombasa Port, building a port at Lamu, installing [PDF] safe city surveillance systems in Nairobi and Mombasa, and laying a standard-gauge railway (SGR) along an important trade and transport artery. Still, opaque contract terms and processes, unsustainable projects, and insensitivity to local concerns have led many Kenyans to question BRI's benefits.

The SGR is emblematic of the promise and shortcomings of BRI in Kenya. The railway, which opened in 2017, expanded shipping capacity and cut travel time between Nairobi and Mombasa in half. But the project has been so plagued by controversy--over corruption, procurement, labor practices [PDF], and its price tag [PDF]--that China declined to build its final phase. Fears that the $4.7 billion project could not pay for itself boiled over when it emerged that Mombasa Port serves as collateral for the SGR, giving Beijing considerable leverage. Meanwhile, the SGR has been unprofitable, accruing nearly $200 million in operating losses over three years, in part due to a steep operating contract with Afristar, a subsidiary of state-owned China Road and Bridge Corporation, which Kenya is terminating.

The economics of the SGR are now at the forefront of Kenya's debt concerns. An agreement to defer $245 million of debt payments, along with Kenya Railways' assumption of operational responsibilities, will provide some relief. These steps, combined with an uptick in SGR freight, offer some hope that the SGR can transition to economic viability, but that goal seems far off.

Beyond the postponement of debt payments to China, Kenya has also obtained relief from Paris Club creditors under the terms of the G20's Debt Service Suspension Initiative (DSSI) and agreed to an IMF funding package. Kenya is hardly the only BRI partner experiencing debt pressure; other countries are in far worse positions. Still, Kenya's experience highlights the need for the United States to advocate for extending and expanding international relief measures like DSSI, and ensure that international financial institutions have the resources, policies, and leadership to meet the needs of Kenya and other nations. Likewise, U.S. policymakers should, in concert with allies, pressure China to improve lending transparency and treat BRI-related loans as official debt subject to DSSI. Further, extensive corruption in SGR procurement and construction underlines the urgency of extending global anti-corruption efforts, with BRI-related corruption as a priority.

While debt concerns are central, non-economic aspects of BRI have likewise caused friction in Kenya. In Lamu, for instance, construction of a new deep-water port and a stalled coal-fired power project sparked backlash over possible environmental degradation of a UNESCO World Heritage Site and nearby fishing grounds, as well as fears [PDF] of population displacement. These and related carbon-intensive projects underscore the importance of pressuring China to meet its commitment to "greening" BRI by pursuing sustainable investments, such as the solar power plant in Garissa. Chinese port projects in Lamu and Mombasa also raise concerns of intelligence collection from commercial operations, undersea cables, and nearby U.S. military facilities, including a base for AFRICOM air operations. China's growing presence near sensitive data conduits and installations should spur the United States to map vulnerabilities and safeguard assets and intelligence.

Kenya's experience offers a window into tensions surrounding BRI and calls attention to the need for the United States to embrace an affirmative agenda to promote sustainable and secure development while combating Chinese efforts to shift trade flows, inflate its political influence, and expand power-projection capabilities--in Kenya, a long-standing U.S. economic and security partner, and around the world.

This article was originally published by the Council on Foreign Relations. [Photo: REUTERS/Baz Ratner]