US think tank cautions Africa on increasing Chinese projects

Sunday March 31 2019

Chinese nationals working on the second phase of Kenya’s SGR.

Chinese nationals working on the second phase of Kenya’s SGR. Local manufacturers say projects funded by Chinese loans are increasing imports of Chinese raw materials and labour. PHOTO | AFP 

KEVIN J KELLEY
By KEVIN J KELLEY
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Kenya and other African countries could reap net benefits from Chinese investment, but that favourable outcome hinges on whether host countries adopt effective oversight and accountability mechanisms, according to a US Defence Department think tank.

Borrowers should realise that Chinese infrastructure loans are primarily intended to extend Beijing's political influence and military reach, cautioned the analysis by the Washington-based Africa Centre for Strategic Studies.

China's $900 billion One-Belt One-Road (Obor) initiative, which now helps finance 1,700 infrastructure projects in more than 60 countries, “is first and foremost a Chinese geopolitical project designed to advance China's grand strategy,” the Africa Centre said.

That strategy aims to establish China as a “great power,” militarily as well as economically within the next three decades, adds the analysis prepared by Africa Centre research associate Paul Nantulya.

“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 Ksh320 billion ($3 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 said.

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Along with China-financed projects in neighbouring countries, the Kenya railway could boost the East African Community's annual exports by $192 million, according to a study by the United Nations Economic Commission for Africa.

Offloading excesses

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

It points to a World Bank finding that Kenya's economic competitiveness was waning due to the large volume of Chinese exports to neighbouring Tanzania and Uganda.

This sharp increase in exports of Chinese materials can be seen as an “offloading of Chinese excess capacity in Africa,” said Mr Nantulya's report.

“In the past decade,” his paper notes, “Tanzania and Uganda’s imports from China increased by as much as 60 per cent, while those from Kenya grew by four and six per cent, 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 labour,” adds Mr Nantulya.

Kenya's heavy indebtedness to China for the railway project has prompted speculation that the port of Mombasa could fall to Chinese control as a result of contingency stipulations in the lending agreement, the Africa Centre notes.

What happened in Sri Lanka and Pakistan could also occur in Kenya, the study suggests.

“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 per cent of its revenues.”

Kenya should seek to protect its national interests by making its deals with China more transparent, the study urges.

“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 unfavourable agreements, and ultimately default, increase,” the study says.

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