Ambitious Railway Project: Kenya, China, and the Railway to Nowhere

The first section of the Kenyan railway built by China was opened with great excitement in 2017, but two years later, the project came to a halt in the middle of the country, and the grand plan to connect it with landlocked countries in East Africa appears to be in disarray.

This means that the project is not generating as much revenue as expected at this time, while Kenya remains burdened with a total debt of $4.7 billion, mostly borrowed from Chinese banks.

However, it’s hard to believe that the Kenya Standard Gauge Railway (SGR) project has failed when passengers disembark from a nearly 12-carriage train at the Syokimau railway station in the capital, Nairobi, which is the last service for the day.

They have traveled non-stop from the coastal city of Mombasa, a distance of 470 kilometers (290 miles) on the Indian Ocean.

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“It’s good,” said 53-year-old passenger Pauline Echesa. She told me that the four-and-a-half-hour journey comes with the bonus of observing wildlife along the way as the train passes through national parks.

A 30-year-old passenger said the journey was more tiring, with uncomfortable seats, but it saved him money compared to other means of travel from the coast.

Undoubtedly, the passenger side of the business is doing well and is self-sustaining, but it cannot pay off the debt by itself – nor was it intended to do so.

The burden falls on the cargo business, bringing in containers bound for the port of Mombasa, which was intended to reach Uganda, Rwanda, and the Democratic Republic of the Congo.

The problem is that they can only go as far as Naivasha in Kenya – 120 kilometers from Nairobi but still far from the Uganda border – on the SGR. Many cargo trains then return to Mombasa empty, resulting in significant revenue loss.

“It would be more productive for us to continue with the project,” Kenya’s Transport Minister Kipchumba Murkomen told the BBC. “But the financing is our challenge.”

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He says the government will be exploring ways to finance the completion of the railway during the upcoming Belt and Road Initiative meeting in China.

Launched in 2013, China’s massive Belt and Road Initiative (BRI) has extended its reach globally and significantly transformed the infrastructure landscape in Africa.

But its future is now a subject of debate as China continues to reduce its financing, and African countries face the reality of rising debts that, in some cases, threaten to disrupt their economies.

The US Council on Foreign Relations notes that some BRI investments have involved opaque bidding processes and a requirement for the use of Chinese companies, leading to escalating costs that, in some cases, have resulted in the cancellation of projects and political opposition.

Domestic issues affecting China’s economy have also led to a decrease in financing, says former Deputy Governor of the Central Bank of Nigeria, Kingsley Moghalu.

“Levels of financing in the past few years have not been more than $2 billion across the continent,” he says, down, he estimates, from between $10 billion and $20 billion a decade ago.

Kenya’s SGR is one of those affected.

But Murkomen says Kenya has options: “We have private sector players in China who have indicated they are willing to put their resources into the project, and we can have discussions on how they will recover their funds.”

One option may be a grace period for countries to first repay the loans taken to fund completed sections of the railway, he explains.

The admission that the government is seeking additional financing may not sit well with many in the country who have already been shaken by the increase in taxes introduced by President William Ruto since he took office a year ago.

Kenyans are concerned that debt repayment is putting significant pressure on the country’s economy. Government figures from the end of June 2022 showed that China was Kenya’s third largest external lender, accounting for 19.4% of the country’s debt.

“For now, the state of national debt is too large,” says Kenyan economist Ken Gichinga, explaining that Kenya will have to pay $2 billion in Eurobond by next June.

“And there is a feeling that not all of that money was used to build the railway,” says Gichinga.

The lack of transparency in agreements that countries like Kenya have signed with China is a concern for their citizens and foreign critics.

The Council on Foreign Relations assessment notes that the loan terms are not disclosed and “because China has refused to join the official Paris Club of major creditors,” Chinese banks are not under pressure to reduce lending rates or participate in disclosure.

This means a risk for the US and recipient countries “outweighs its benefits.”

“Uganda also needs to be in,” says Gichinga.

But that hope appears to be wavering.

The original East African Transport Master Plan, proposed by the East African Community nearly two decades ago, called for two routes from the coast in landlocked countries – one from Kenya, known as the northern route, and the other from Tanzania, named the central route. At the time, it had connections to South Sudan and the DR Congo.

However, Uganda may decide to push its trade towards Tanzania. Its railway project has cost less and provides higher speeds, as the line is electrified.

Former Tanzanian President John Magufuli canceled agreements signed by his predecessor and China to build the railway and instead opted for financing from Turkey and Portugal for the first phase of the project.

Tanzania is also seen as a potential route to connect with Rwanda, Burundi, and the DR Congo, with China entering the final sections.

Moghalu argues that, like Tanzania, countries on the continent “should be drivers of their destiny.”

“African countries need a mental reorientation and not feel like abused partners and that they should be grateful to China because their former partners in the West did not treat them well.”

Western countries have recently tried to counter BRI, including US President Joe Biden’s Build Back Better World Initiative, launched in 2021 in collaboration with the G7 economy. But there is a general agreement that China can still offer more in terms of long-term development.

For passengers traveling from Nairobi to Mombasa, such an investment in the country’s future is beneficial.

“Let’s sacrifice to pay off the debt and gain more projects like this,” Echesa told the BBC.

The Kenyan government will be hoping