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Enter the Chinese dragon puffing a fire of billions and corruption

BUSINESS
By Dominic Omondi | Mar 26th 2022 | 9 min read
By Dominic Omondi | March 26th 2022
BUSINESS

In this second part of the series on the assessment of President Uhuru Kenyatta and Deputy President William Ruto administration, writer Dominic Omondi looks in to Kenya's debt burden, and how the amount of loans grew after the dalliance with China started. 

In April 2019, a year after President Uhuru Kenyatta and former Prime Minister Raila Odinga made a truce with the famous handshake, the two travelled to Beijing, China and there were great expectations.

They were not as enthusiastic when they made return trip.

Although the Kenyan delegation had left with pomp and even secured a number of deals in China, they sneaked back into the country a few days later a crestfallen lot.

They had missed out of on the main prize. They did not see this coming. 

It was during the tenure of retired President Mwai Kibaki that the Chinese dragon landed in Kenya, puffing a flame of billions of shillings which fired up a group of mega infrastructural projects starting with the Thika Super Highway.

But the Chinese billions also come with a fair share of problems, especially during President Kenyatta’s first term when even more loans flowed in from Beijing.

Suddenly, Kenya was grappling with a heavy debt burden, a deluge of cheap imports that enfeebled local manufacturing firms, corruption and, in some instances, cases of discrimination that whipped up xenophobic feelings against the Chinese.

Finally, Beijing realised that there was another side to the billions it had disbursed to Kenya, and Africa generally with Ethiopia at some point teetering on the verge of default.

There had been reports that when the Kenyan delegation left for the Infrastructure Summit in Beijing, they were to sign a Sh368 billion financing for the extension of the Standard Gauge Railway (SGR) from Naivasha to Kisumu.

But the Chinese government refused to loosen the purse strings, pointing to a major shift in relations between Beijing and Nairobi.

It was the Transport Cabinet Secretary James Macharia who, in a press conference in Beijing, gave the clearest hint that suddenly it was not business as usual for China.

“All documents are ready,” Macharia told reporters about the contract, adding that after engaging the Chinese Government, it was agreed that a feasibility study of the SGR be done first.

“Not just for the Naivasha to Kisumu but also all the way from Mombasa to Kisumu so that we can establish its commercial viability,” said Macharia.

Of all President Kenyatta’s flagship projects, it is the SGR that will define his legacy.

Not only because it was the largest, but also because it was the most controversial.

The SGR has also become a punching bag for Jubilee Party’s critics who reckon that it is neither financially nor economically viable, a situation that will only see Kenyans dig deeper into their pockets to repay the loans borrowed to construct it.

True, the Sh600 billion loan that had been borrowed from the Exim Bank of China for the construction of the two phases of the SGR (Mombasa-to-Nairobi and Nairobi-to-Naivasha) have only added to the burden of debt that would weigh heavily on Kenyans.

Almost a third of the loans, Sh99.3 billion, that the National Treasury is expected to pay in the fiscal year ending June will go to China.

This is enough to fund budget for the county government of Nairobi for four years. The repayment includes the first installment  that was used to build the second leg of the SGR from Nairobi to Naivasha.

By June 2014, when the biggest Chinese project was the Thika Super-Highway, Kenya only paid Sh1.9 billion to Beijing, or less than five per cent of the total external debt service.

However, its proponents insist that the SGR is a viable investment and that the Chinese Government might have been put off by the bad publicity from the press, especially Western media.

Government officials have insisted that it is just a matter of time before Kenyans begin enjoying the fruits of this project in terms of faster and safer movement of goods and passengers.

The use of the SGR, they argued, would also herald an era of less pollution and congestion on the Kenyan roads.

Generally, relations between the two countries have largely been warm with China rising to become, not only Kenya’s largest bilateral lender but also its main trading partner.

Official data shows that Kenya imports goods valued at over Sh400 billion in a year, a more than two-fold increase compared to Sh182 billion in 2013.

And while increased access to cheap Chinese goods has improved the standard of living, they have also led to the destruction of many jobs with companies such as tyre manufacturer Sameer Africa, battery manufacturer Eveready, East African Cables among others, with many more being forced to scale down and cut jobs.

But it is in infrastructure projects that China has left a strong impression. China has always dismissed allegations that it is saddling African nations with expensive loans.

Nonetheless, there have been fears that often times African governments did not understand, or did not care, what they were signing up for.

Most African governments felt that after years of being lectured for small loans that came with strings attached loans from the West, the unconditional Chinese loans were God-send. Particularly so for corrupt regimes.

Unfortunately, some of the Chinese contracts, including the SGR contract, are opaque. The terms and conditions for the SGR, for example, are only known to two parties- the Chinese and the Kenyan governments.

Attempts by the public, including one by a journalist in a televised interview with President Kenyatta, to get hold of the SGR contract, did not yield anything.

“Upon receipt of the request for information from the petitioners (Ms Wanjiru Gikonyo and Khelef Khalifa) Kenya Railways Corporation responded and explained that the contracts of the projects to which information is being requested are between the governments of the People’s Republic of China and the Government of Kenya,” said Transport Principal Secretary Dr Joseph Njoroge in a court document.

But this opacity has only helped keep the rumour mills rolling. Was Kenya going to lose its port of Mombasa should it fail to repay its Chinese loan?

Was the cost of the SGR inflated to reward wheeler dealers who seem to have been emboldened by the new Jubilee administration?

It was Raila, who, in the run up to the 2017 elections, had argued that the price of the SGR had been inflated. He even promised to jail the culprits should he ascend to power.

“The project was inflated and we shall deal with those responsible when we form government," said Raila, noting that in the initial tender, the project was valued at Sh227 billion.

Raila also claimed that the SGR was initially supposed to run from Mombasa to Nairobi, onwards to Kisumu before going to Malaba.

But it was diverted to Naivasha in what the former Prime Minister claims was intended to benefit a powerful family which owned the land on which the inland port was to be constructed.

Many of the Chinese projects were done by China's state-owned enterprises, most of which had been sent out by their government to look for business opportunities beyond their shores.

For example, according to a statement by former Transport Minister Chirau Ali Mwakwere, it was China Roads and Bridge Corporation (CRBC) that approached him with the idea of doing the SGR.

Having been left to go out, the Chinese companies landed on Kenyan shores with a bang. Besides the SGR, CRBC is also doing the Nairobi Expressway.

China Wu Yi, which constructed Thika Super Highway, is also responsible for the construction of so many other State projects. China Wu Yi is also in real estate business.

At some point in 2016, it became apparent that the Chinese firm which had also won the Sh16 billion tender to expand Waiyaki Way-Rironi Road into a six-lane road has already had exceeded the limits of the number of tenders that can go to a single contractor.

Yet some high-ranking government official insisted on the contract of constructing Sh2.7 billion Malindi-Sala Gate road to be awarded to China Wu Yi.

Suddenly, there were feelings that Chinese companies were gobbling up all the projects- and were not transferring the technology to local contractors.

In 2016, two Chinese reporters wrote a story titled Four Chinese Elders Dug Gold in Africa in which they told of four elderly Sichuanese businessmen who came to Kenya to work on a State engineering project in 2007.

"Having realised that there was a great opportunity for profit, these four businessmen quit their jobs and each put up $385,000 (Sh41.5 million by today’s exchange rate) to buy a piece of land and develop it into residential housing. They each ended up making $1.5 million (Sh1.6 billion) from their investment."

Consequently, it is not just that State-owned Chinese companies that landed in Kenya to cut deals, individuals spurred on by the curiosity of a virgin continent teeming with untapped resources, have also made the long trip.

In Nairobi, they have inadvertently turned some parts of Hurlingham and Kilimani into another China town.

It is Hurlingham that used to host Guo Dong, a director and shareholder of Catham Properties Limited.

Those who knew Guo, who is alleged to be in jail in China, remember him as a smooth operator who charmed his way into Kenya's corridors of power even as he marketed himself back in China as the 'strongest bridge' through which billions of renmibi would flow into investment opportunities in East Africa, particularly land.

Guo started out in Uganda in the 1990s before branching out to Kenya in 2013, just around the period when Jubilee came to power and a lot of Chinese billions were flowing into Kenya.

In early 2014, Guo joined Li Wen Jie, another Chinese national, to form Catham Properties, with the intention of buying prime land in Kilimani at a cost of Sh600 million to construct apartments.

Guo was expected to contribute half of the cash, which he told the court that he did.

After the transaction had been completed, Guo, the most influential of the two, invited Charity Ngilu, then the Cabinet Secretary for Lands, for the groundbreaking ceremony of Fountain Gardens Development where 140 apartments were to be built.

What followed is a bruising battle between the two, with each accusing the other of fraud.

But the battle also revealed the extent to which the Chinese billions had compromised the country’s integrity.

The funds that flowed from Beijing to Nairobi through Guo and Li, just as the billions that flowed into Kenya for the construction of the SGR, were always tainted with controversy.

If they were not allegedly stolen in Kenya, they were never invested in Uganda.

Because even as Guo claimed to have paid Sh300 million for the Kilimani property - as well as being listed among investors who planned to build a Sh65 billion project in Athi River - he had a court case in Uganda where he had defaulted on a Sh200 million loan from Barclays Uganda.

He had also defaulted on another Sh3.2 million loan from DFCU Bank that he guaranteed for his company, Guo Star Enterprises Uganda Limited in 1997.

Still in 2014, Guo and Li, through another company known as Multi-Win East Africa, were talking big about setting up a Sh65-billion African Dubai in Machakos County.

Then Director of External Communications at State House Munyori Buku told one of the local dailies that he was aware of the proposed project that would "push the government’s plan to turn around the country’s economic prospects and help achieve Vision 2030."

"Such projects are a clear manifestation of the Jubilee administration’s plan to take Vision 2030 to the next level,” Buku said.

When The Standard contacted him for an article in August 2020,  Buku asked for more time to refresh himself on the project, saying his memory about it was vague. He never responded.

Seven years down the line, the African Dubai in Athi River – a China city of Kenya with stores, factories, residential homes and offices – remains a pipe dream.

A source told The Standard that Guo and Li had established themselves as Chinese brokers, and the project might have been used to siphon off funds from unsuspecting investors back home.

But there were also complaints of the Chinese mistreating Africans. Reports of a hotel that was not serving Africans triggered a storm as well as the video of an African being whipped by a Chinese.

But in the end, the Chinese story that will forever define Uhuru’s legacy is that of SGR.

As the Chinese loans in Africa increase, Beijing finally got a feeling that some of the loans might not have been utilized well. This means there is a possibility to default.

And Ethiopia next door had already shown indications of defaulting.

China was not going to take the risk.

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