US Think Tanks Sounds Warning to Kenya over Chinese Loans

A US Defence Department think tank has sounded a warning to Kenya and other African countries over Chinese funded projects.

Washington-based Africa Centre for Strategic Studies (ACSS) says African countries must adopt effective oversight and accountability mechanisms if they are to reap benefits from Chinese investments.

ACSS says African countries should be aware that Chinese investment in the continent is a way of extending Beijing's political influence and military reach.

The Africa Centre observes that China's $900 billion One Belt, One Road (OBOR) Initiative “is first and foremost a Chinese geopolitical project designed to advance China's grand strategy."

OBOR helps finance 1,700 infrastructure projects in more than 60 countries.

In an analysis, Africa Centre research associate Paul Nantulya says the infrastructure loans aim at exerting China's military and economic influence in the next three decades.

“The challenge for Africa is in establishing where its interests converge with China’s, where they diverge, and how areas of convergence can be shaped to advance African development priorities,” the study suggests.

"The Sh320 billion Mombasa-Nairobi standard gauge railway, financed by Chinese lenders, serves as a “flagship OBOR project” in East Africa and ranks as the biggest investment in Kenya since independence," the think tank notes.

A study by the United Nations Economic Commission for Africa shows the railway could increase Kenya's annual exports by $192 million.

"But the standard gauge railway is producing economic deficits for Kenya as well as potential benefits," the Pentagon think tank points out.

The think tank cites a report by World Bank, which established that Kenya's economic competitiveness is shrinking due to a large volume of Chinese exports to neighboring Tanzania and Uganda.

"This sharp increase in exports of Chinese materials can be seen as an “offloading of Chinese excess capacity in Africa,” Nantulya states.

“In the past decade, Tanzania and Uganda’s imports from China increased by as much as 60 percent, while those from Kenya grew by 4 and 6 percent, respectively, over the same time period.”

“Kenyan manufacturers have blamed their country’s declining market share of industrial products on Chinese firms, which they also accuse of importing raw materials from China and hiring Chinese labor,” adds Nantulya.

The study further suggests that what happened in Sri Lanka and Pakistan could also occur in Kenya if the East African is unable to service Chinese loans.

“Beijing appears in some cases to have attached more importance to acquiring strategic assets than debt repayment from its partners,” the US think tank says.

“In 2017, Sri Lanka handed over Hambantota port to Chinese state-owned companies on a 99-year lease after defaulting on an infrastructure loan. Pakistan handed over Gwadar port on a 40-year lease in an arrangement where the Chinese partner also retained 90 percent of its revenues.”

“The opaque nature of many OBOR negotiations prevents public and private sector scrutiny. Beijing is sensitive to how host nations perceive it. When the public is aware, vigilant and active, OBOR negotiators can become more responsive to local demands. The lessons of Hambantota and Gwadar suggest that when accountability and oversight are absent, the risks of unfavorable agreements, and ultimately default, increase," the study says.