US pours billions in Kenya to rival China dominance

Kenya Airways flight purser Stella Keru, demonstrates how a Dreamliner boeing 787 seat automation system works to US Under Secretary for Commerce Gilbert Kaplan and CS Tourism Najib Balala. The airline plans to start direct flights to New York in October. [Wilberforce Okwiri, Standard]

The United States faces an uphill task in a fresh bid to reclaim its position as Kenya’s dominant trading partner on the back of growing volatility in the international market.

This comes even as China, currently the leading protagonist in a simmering trade war kicked off by US President Donald Trump, firms its grip on much of Kenya’s revenue basket through more than Sh500 billion in State-guaranteed credit.

Now the US, which dampened its foreign policy stance towards Kenya during former President Mwai Kibaki’s last term in office, is making a comeback angling for a piece of the lucrative action.

Last week’s visit by US Under Secretary Gilbert Kaplan is the strongest sign yet that the US seeks to re-affirm its position and gain a stronger foothold in the East African region via Nairobi.

Under Secretary Kaplan was in the country to attend a trade summit organised by the American Chamber of Commerce in Kenya and was flanked by more than 70 top-ranking business leaders and State officials.

At the end of the summit, more than Sh10 billion in deals were signed across various sectors. The two countries further signed a memorandum to deliver trade and infrastructure investment under the government’s Big Four economic agenda.

Key among them is a project to have the US construct Kenya’s first express highway from Mombasa to Nairobi.

President Uhuru Kenyatta on Friday signed the deal that will see one of America’s leading construction companies Bechtel Corporation, construct the Sh300 billion expressway. The deal now paves the way for construction of the highway to commence despite disquiet across government.

Earlier this year, Parliament’s Transport Committee raised questions over the Sh300 billion price tag and accused Treasury officials of failing to award the tender competitively and without public participation.

Treasury was also accused of flouting the Public Finance Management Act, 2012. MPs questioned the logic of an express highway running parallel to the Mombasa-Nairobi Highway and the Standard Gauge Railway (SGR).

However, these concerns were last week brushed off with the US stating that the deal will bring numerous benefits. “To further boost trade and investment, we are supporting the government in developing enterprise zones along Kenya’s first express highway,” said Under Secretary Kaplan.

This marks a change of tack on part of the US which has in the past set a high threshold for government-guaranteed trade deals America signs with other countries. At the same time the US has consistently warned developing countries from taking on costly and opaque Chinese debt.

Dependency on China

Earlier this year, Washington-based think tank Center for Global Development published a report stating China’s One Belt One Road mega project  - of which Kenya plays a pivotal role through the SGR and the Lapsset project - poses a significant risk of debt distress to Kenya and 68 other low-income countries.

“The primary concern is that an $8 trillion-dollar initiative will leave countries with debt “overhangs” that will impede sound public investment and economic growth more generally,” said the report in part adding that the problems will create an unfavorable degree of dependency on China.

“In Belarus, Bosnia and Herzegovina, Ethiopia, and Kenya, there could be an increase in the risk of debt distress in the short-term due to BRI-related projects,” said the report in part.

Kenya is anticipating direct flights between Kenya and the US giving the country’s national carrier gain a foothold in one of the world’s busiest aviation hubs. “We are happy as a country following successful discussions between the two countries that we hope and trust will culminate in direct flights from Kenya to New York later this year,” said President Uhuru Kenyatta insisting that the country has met all the set conditions. “We have done all that is required.”

In addition to the direct flights, Kenya finally signed a deal with Power Africa, the project kicked off by former President Barrack Obama that seeks to deliver universal electricity access in Africa.

Under the plan, Kenya will be one of nine countries in Africa to benefit from Power Africa’s new five-year plan to develop gas-fired electricity generation.

The deals will be financed directly by the US government with other funds disbursed through other state agencies including the US Trade and Development Agency, the Overseas Private Investment Corporation (OPIC) and the USAid.

US firm General Electric is tipped to bag much of the tenders to supply the technology and expertise that will go into these projects.

Alongside Bechtel Overseas Corporation and IBM, GE was one of the key attendees at the summit with the company represented with five senior executives lead by president and CEO James Ireland who is also Trump’s advisor on African trade.

GE is already a major supplier to the country’s energy sector and in May the company announced Sh50 billion in investment for the consortium Amu Power to develop the Lamu coal-fired plant.

The deal will see GE Power, the firm’s energy subsidiary, supply the Sh200 billion power plant with generation equipment in exchange for a stake in the Chinese-built power plant.

America hopes these deals will be the starting point of closer trade relations with Kenya that can be gradually replicated through the region.

The US will however, find it difficult to supplant Chinese influence that has strengthened on the Kenyan economy in recent years.

Phase 2A

Data from the Kenya National Bureau of Statistics (KNBS) indicates that China last year surpassed Europe and America to become the fastest growing source of foreign direct investment to Kenya.

“FDI inflows from the EU and the Far East accounted for 31.9 per cent and 21.7 per cent respectively in 2014,” said the report in part. “In 2015 this trend as reversed with the share for FDI inflows from the Far East increasing to 43 per cent and that from the EU declining to 25.9 per cent.”

China is further set to begin construction on the Phase 2A of the SGR that will cut through the Nairobi National Park and extend through to Naivasha.

Last year, Kenya signed a Sh370 billion deal for the extension with the Nairobi-Naivasha Phase 2A set to push taxpayers’ total tab on the railway to Sh847 billion.