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Debt trap: Kenya risks losing port to China Updated for 2021

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Updated: February 27, 2021


Days after the U.S. National Security Advisor, John Bolton, warned that Chinese loans to African nations may become a nightmare with many national assets being taken over by Beijing, revelations have emerged that Kenya may lose the port of Mombasa to China’s Exim Bank should the government default on paying loans.

A letter by Auditor General to Kenya Ports Authority has revealed that port assets were charged as collateral to secure the loans from China, but port officials failed to disclose the guarantee in the financial statements.

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Under clause 17.5 of the loan agreement, KPA or Kenya Ports Authority, is referred to as the lender. The clause says any proceedings against its assets by the lender would not be protected by sovereign immunity.

“The agreement is biased since any non-performance or dispute with the China Exim bank would be referred to arbitration in China, whose fairness in resolving the disagreement may not be guaranteed,” reads the auditor’s letter signed by F.T Kimani for the Auditor General.

“KPA did not disclose these guarantee in the financial statements,” says the letter.

A debt trap is a situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments on the principal of a loan. These traps are usually caused by high-interest rates and short terms.

China tightened its grip on Kenya’s economy, extending about Sh165 billion in loans last year, latest data shows, according to Kenyan newspaper, Standards Media.

The medium said the world’s second-largest economy now controls 66 per cent of Kenya’s total bilateral debt, which stood at Sh722.6 billion as at June 2017.

This rivals multinational institutions such as the World Bank and United Nations, whose combined debt stock stood at Sh526.6 billion last year.

“China’s debt stock is almost certain to increase further this year as construction of the Standard Gauge Railway (SGR) enters its second phase, with Kenya said to have borrowed a further Sh165 billion for the extension of the railway line from Nairobi to Naivasha,” the medium said.

It added: “Kenya, which spent over Sh440 billion on SGR from Mombasa to Nairobi, is expected to pump a total of Sh1 trillion into the railway by the time it terminates at the border town of Malaba.

“In bilateral debt category, the stock of debt from the People’s Republic of China grew by 52.8 per cent to Sh478.6 billion, accounting for 12.1 per cent of the total national government’s debt position,” says the Kenya National Bureau of Statistics in its 2018 Economic Survey.

“China’s s debt to Kenya has increased more than seven times from Sh63 billion in 2013, overtaking Japan as the country’s leading bilateral lender to Kenya. 

“By 2010, China had lent Kenya Sh14 billion, trailing Japan (Sh62 billion), France (Sh28 billion), and Germany (Sh16 billion). Japan would continue holding the pole position until 2013, when China deposed it.

“The change was largely driven by China’s increased interest in the development of Kenya’s infrastructure, with the game changer being the construction of the SGR.

“The new railway’s financing pushed up China’s debt stock from Sh252 billion in 2015 to Sh465 billion in 2016”.

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