Japan overtakes China in new loan race in Kenya

By CONSTANT MUNDA

China has cut its financial commitment to Kenya’s development projects nearly four times in seven years, falling behind Japan on the list of top bilateral lenders to the East African nation for the second consecutive year. .

The Treasury has in budget estimates for the fiscal year beginning in July listed Japan as the largest source of bilateral loans and grants, ahead of China which has been the largest donor for nearly a decade.

Beijing is expected to lend Kenya Ksh29.46 billion ($254.9 million) for the 2022/23 financial year, a steep cut from Ksh140.03 billion ($1.2 billion) in the budget 2015/16.

This is the second year in a row that China will follow Japan in bilateral lending, having committed Ksh21.25 billion ($183.9 million) in the current year ending June against 36 .49 billion Ksh in Tokyo ($315.7 million), according to Treasury budget books. .

China, however, remains by far the largest bilateral creditor due to the important agreements it has signed with Kenya over the past decade to finance and build mega infrastructure projects such as roads and a railroad. modern iron.

Kenya, for example, owed $6.95 billion to China last December, compared to $1.42 billion to Japan, according to the latest Treasury data.

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It comes after President Xi Jinping revealed at the eighth Forum on China-Africa Cooperation (FOCAC) ministerial conference last November that China would cut its investment in Africa by a third in three years.

Xi has committed $40 billion to Africa, a 33.3 percent drop from $60 billion at the last two FOCAC summits, which are held every three years.

“I think China’s debt has reached or is close to the point of diminishing returns if you are to believe the large public spending in Kenya, for example,” said Churchill Ogutu, an economist at IC Asset Managers, an African-owned bank. targeted investment.

“As such, I see China being selective in terms of the projects it funds in the future.”

Treasury budget estimates show that just over half of China’s planned lending – 15.62 billion Ksh ($135.1 million) – over the coming year will be injected into projects , mainly electricity transmission infrastructure, under the Ministry of Energy.

Other beneficiaries are the Department of Infrastructure – mainly roads – which will receive Ksh 5.73 billion ($49.5 million), while the Ministries of ICT and Water and Sanitation will be funded up to 4.02 billion Ksh (34.7 million dollars) and 4 Ksh. 10 billion ($35.4 million), respectively.

Japan’s funding is, on the other hand, earmarked for projects under the Department of Infrastructure (Ksh17.66 billion/$152.8 million), Ministry of Energy (Ksh9.17 billion/ 79.3 million dollars) and from the Treasury (2 billion Ksh/ 17.3 million dollars). among others.

Overall, Treasury Cabinet Secretary Ukur Yatani is targeting Ksh 120.44 billion ($1.04 billion) from rich countries in the year starting in July.

Five countries—Japan (Ksh31.11 billion/$269.2 million), China (Ksh29.46 billion/$254.9 million), France (Ksh23.36 billion/$202.1 million) USD), Germany (Ksh 14.42 billion/ USD 124.7 million) and Italy (Ksh 6 billion). $0.07 billion/$52.5 million)—represents 81.66% of projected bilateral lending.

Mr Yatani, in his April 7 budget speech, pledged to cut costly short-term commercial borrowing – largely syndicated loans from a group of international commercial banks and capital markets (Eurobond) – in favor of multilateral and bilateral concessional loans in the years to come.

Debt containment measures aim to ease the debt payment burden on taxpayers, as the government has in recent years used around half of tax revenues to pay creditors.

“These measures include the cancellation of some external loans in disbursement, the reorganization of syndicated external loans and the increase in the issuance of treasury bills to lengthen the maturity structure and improve debt sustainability indicators” , said Mr. Yatani.

“Preferred debt financings are highly concessional loans offered at below-market interest rates with long repayment periods.”

The Treasury is projecting Ksh 205.63 billion ($1.7 billion) from multilateral lenders in the 2022/23 financial year.

Major sources of multilateral funding will include the World Bank and International Monetary Fund (Kshs. 113.88 billion/$985.5 million), African Development Bank (Kshs. ) and the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria (Kshs. 11.27 billion/$97.5 million).

President Uhuru Kenyatta’s administration took extensive concessional and semi-concessional loans from China during his first term until 2017 to build the Standard Gauge Railway (SGR), roads and bridges.

China’s influence on Kenya’s mega-infrastructure development began to gain momentum with the construction of the Thika Highway between January 2009 and November 2012 at a cost of almost Ksh 32 billion (276. $9 million) during President Mwai Kibaki’s last term.

China Road and Bridge Corporation (CRBC), a subsidiary of China Communications Construction Company, has since won the lion’s share of Kenya’s mega infrastructure – at least two railways, two ports and 23 road projects.

They include the $3.5 billion SGR, a $398 million oil terminal in Kenya’s main seaport, Mombasa, and key road projects such as the southern and eastern bypasses in the capital, Nairobi.

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