Kenya’s Railway Falls Far Short of Expectations; Drives Mounting Debt

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The Chinese-built Standard Gauge Railway in Kenya was supposed to be profitable by transporting cargo from Mombasa to the Democratic Republic of the Congo, Rwanda and Uganda, then bringing goods from those countries back to Kenya.

A Chinese feasibility study that underpinned the project claimed the railway, also known as the SGR, would move 22 million tons of freight a year, or 20 trains a day. According to some estimates, the railway handles only about a quarter of that much freight.

Critics of the project abound due to its shortcomings, the opaque nature of its deal, and the debt it drives.

“They said this train was progress, but whose progress is it?” Daniel Tipape, a motorcycle taxi driver who works near the rail’s finish line, told The New York Times. “Sometimes we just build things for the sake of it.”

Construction of the $4.7 billion project began in 2014. It stopped far short of Uganda when repayment concerns caused Chinese lenders to throttle the financing.

The railway now ends more than 300 kilometers from the Ugandan border. Uganda pulled out of the project — part of China’s Belt and Road Initiative (BRI) — opting instead to use a Turkish company to develop its end of the rail line.

“The S.G.R. is an economic, social and fiscal disrupter,” Kenyan economist Tony Watima told The New York Times. “The disruption it has created in the Kenyan economy will be felt for years.”

The railway’s future is uncertain as China continues to scale down funding and Kenya continues to service loans of almost $5 billion taken from Chinese banks.

Many of China’s loans to Kenya and other African countries are “nonconcession” loans through institutions such as the China ExIm Bank. Because of this, they can’t be forgiven. Rather, the loans often are renegotiated in a way that extends their terms and payments well beyond their original deadlines.

Kenyan economist Victor Kimosop argued that the project could have been done differently.

“I wish those responsible for SGR would’ve looked at the repayment,” Kimosop told Voice of America. “It’s a massive investment project … to have repayment being done in 20, 30 years. That was quite ambitious. … The other thing is also our model of development, on compensation. It makes development very expensive … and it also opens up room for corruption.”

The Council on Foreign Relations, a United States think tank, said that many BRI deals require the use of Chinese companies, leading to inflated costs.

Kingsley Moghalu, Nigeria’s former deputy Central Bank governor, said internal issues affecting the Chinese economy have led to drastically diminished funding for BRI projects.

“The funding levels in the past couple of years have not been more than $2 billion across the continent,” Moghalu told the BBC. That is down an estimated $10 billion to $20 billion from a decade ago, he added.

But Beijing’s interest in African BRI projects has not waned.

China in early February announced a plan to spend more than $1 billion to refurbish a railway connecting Zambia’s copper belt with the Indian Ocean port of Dar es Salaam in Tanzania, Bloomberg reported. China built and financed the 1,860-kilometer railway known as Tazara in the 1970s, but it has fallen into disrepair and now operates at a fraction of its capacity.

Tanzania and Zambia have agreed to hand a concession for the railway to a Chinese state-owned company, the China Civil Engineering Construction Corp., The Maritime Executive reported.