REVIEWING SGR, SINO-KENYAN TIES

Make public all agreements with China

It is critical to ascertain the viability of the SGR project since our competition is external rather than internal.

In Summary

• Kenya needs to ask itself whether it is wise to co-own its critical infrastructure with another country, especially after China took over the port of Sri Lanka as collateral.

• We must always ask ourselves, what is in it for us, or will we finance a project that ends up benefiting the Chinese more as they commit us to debt, deprivation of our natural resources, and killing of our local industries.

President Uhuru Kenya and President Xi Jinping of China during bilateral talks in Shanghai on November 4, 2018
President Uhuru Kenya and President Xi Jinping of China during bilateral talks in Shanghai on November 4, 2018
Image: PSCU

If there is a single infrastructure project that clearly defines our relationship with China, it’s certainly the Standard Gauge Railway project.

Covering 462km, the railway connects Nairobi with the port city of Mombasa. It has two sections, mainly commuter and cargo services. The real mainstay of this project is cargo, since the commuter section cannot possibly sustain the viability of the infrastructure. Built at a cost of $3.2 billion, the project is the single most investment by the Chinese in Africa, especially in the year 2017-18, whereby their investment totaled $12 billion.

It is, however, critical to ascertain the viability of this project since our competition is external rather than internal.

 

To begin with, the railway has revolutionised rail transport in Kenya. It now takes four and half hours to reach Mombasa, a journey that would previously take nine to 12 hours. Also, hotels are now fuller than before due to holidaymakers who travel on a Friday and return on Monday or Tuesday.

However, the real business is cargo and currently, the SGR is doing nine to 10 trains a day. This is commendable, noting that the break-even projection was at six and a half trains a day. To transport a 20-foot container from the port of Mombasa to Nairobi costs $930 as compared to the road which costs $850 door to door.

The Internal container depot is now getting cargo straight from the source to the site. This has advantages in that it helps in terms of safety and to avoid dumping of goods meant for other markets within the local market as has been the case.

There have been arguments about the loss of jobs in Mombasa as a result of the shift in clearance to Nairobi. This is true in that the privatisation of the ICDs due to limited port clearance capacity meant that it took much longer for a container to be cleared and to be transported to Nairobi or the last destination.

The monies withheld by private clearing and forwarding agents are now being collected directly by KRA and KPA. In addition, there were 27 government agencies that lay claim to cargo clearance. They have now been reduced to four.

It could take 21 days to clear goods. This has been reduced to just four days with a turn-around time of four to six hours per container. Further, there is a differentiation of containers, with those meant for Nairobi and its environs ending up in Embakasi, while the ones meant for other countries ending up in Naivasha’s ICD.

INFRASTRUCTURE NEEDED

 

However, a lot remains to be done with regards to road infrastructure from the ICD port, if efficiency is to be fully achieved. Further, most containers are returning empty. In 2018, for example, over 199,000 containers were shipped back empty. This means Kenya is a net importer of goods, especially from China. Moreover, the breaking even narrative needs to be further interrogated in regards to the value of goods china is selling to us versus our capacity to repay the SGR debt, especially due to the fact that the cost of the project was highly inflated.

It is also true this partnership was funded by commercial loans after Kenya’s economy was rebased by 25 per cent from a Least Developed to a Lower Middle-income Country. Kenya owes China more than Sh1.3 trillion, in commercial loans at very high-interest rates of between 9 to 17 per cent.

Further, the country wants to co-own the third leg of the railway from Naivasha to Kisumu due to the fact that it will be even more expensive to construct it. However, this will need an amendment of the Railways Act of 1948 and further, Kenya needs to ask itself whether it is wise to co-own its critical infrastructure with another country, especially after China took over the port of Sri Lanka as collateral.

In addition, debt servicing is a critical aspect on two fronts. One, Kenya is on the verge of defaulting its commercial loans, hence the recent lifting of its debt ceiling. On the other hand, Chinese investors are worried about the safety of their money. Ultimately, China’s mission is to create a corridor to the minerals rich Congo, for their industries. We must always ask ourselves, what is in it for us, or will we finance a project that ends up benefiting the Chinese more as they commit us to debt, deprivation of our natural resources, and killing of our local industries.

Any agreements between us and them should be made public, including local content shareholding, the number of Chinese working in the project, technology transfer timelines and volumes, and conditions to boost local manufacturing and assembling of products. Further, the cost of transportation needs to go below that of the road to make sense since the optimal SGR capacity is 35 per cent of all the cargo from Mombasa to the hinterland.