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Generational Dynamics World View
*** 2-Jun-17 World View -- China-built railway in Kenya raises questions about 'debt trap diplomacy'

This morning's key headlines from GenerationalDynamics.com
  • Kenya launches new China-built railway from Mombasa port to Nairobi
  • China accused of a policy of 'debt trap diplomacy' in infrastructure projects

****
**** Kenya launches new China-built railway from Mombasa port to Nairobi
****


[Image: g170601b.jpg]
Madaraka Express railway launch in Nairobi, Kenya, on Wednesday

Kenya on Wednesday launched a new railway line call he Madaraka
(Freedom) Express, linking Kenya's Port of Mombasa on the India Ocean
to the capital city Nairobi. The word "Madaraka" commemorates the day
that Kenya became independent in 1963.

The new 380-mile Standard Gauge Railway (SGR) line is expected to be
good for business. Cargo charges from the Port of Mombasa to Nairobi
will cost about $500 per container and take 8 hours transit time.
This is a significant saving over transit by road, which costs $900,
and requires 24 hours. The train can carry 1,260 passengers.

The new railway replaces "The Lunatic Express," a rail link built in
the late 1800s by British money and colonists. The Lunatic Express
was increasingly shaky, with old tracks and locomotives that were
increasingly difficult to service.

The new SGR was built with Chinese money and Chinese workers. China's
state-owned Export-Import Bank loaned Kenya $3.6 billion for the
project, which Kenya is expected to repay out of revenues. However,
some analysts are raising concerns that the SGR will be a "white
elephant," leaving Kenya with enormous unpayable debts, as has already
happened in Sri Lanka.

Even worse, the cost to build the Kenya railroad has been extremely
expensive even by regional standards. The cost of the railway was
roughly twice as great as another China-built railway, the
Djibouti-Ethiopia train, suggesting the possibility of corruption.

Perhaps Djibouti and Ethiopia were able to drive a harder bargain with
the Chinese, because China is also building a naval and air base on
the strategic Red Sea port in Djibouti, and the railway connects that
port to Ethiopia's capital city, Addis Ababa. The site of the Chinese
base is about 6 miles from an existing US base in Djibouti. China has
defended the base construction, citing evacuations of Chinese
nationals from nearby Yemen and Libya during recent conflicts.

In launching the new railway, Kenya's president Uhuru Kenyatta said:

> [indent]<QUOTE>"A history that was first started 122 years ago when
> the British, who had colonized this nation, kicked off the train
> to nowhere... it was then dubbed the 'Lunatic Express.' ...
>
> Today 122 years later, despite again a lot of criticism, we now
> celebrate, not the Lunatic Express but the Madaraka Express, that
> will begin to reshape the story of Kenya for the next 100 years.
> I am proud to be associated with this day. ...
>
> The drop in cost of freight and fares will make Kenya a more
> attractive investment destination. More investors will lead to
> more jobs and growth in our economy."<END QUOTE>
[/indent]

Another issue related to the railway is that it crosses Kenya’s
Nairobi National Park. Built by British settlers in 1946, this is a
wild animal park on the fringes of Nairobi, and is a leading tourist
attraction, and is responsible for a significant amount of Nairobi's
income.

However, wild animals occasionally migrate out of the part into nearby
homes and farms. With the SGR right through the middle of the park,
these visits by wild animals have increased. Earlier this year, two
lions escaped from the park and had to be shot, as they were
threatening humans. This has raised an outcry from environmentalists,
who are demanding a number of changes, including raising the railway
above the park, so that animals can move freely. The Shanghaiist and Radio France Internationale and African Business Magazine (5-May) and UPI (18-April) and Huffington Post

****
**** China accused of a policy of 'debt trap diplomacy' in infrastructure projects
****


There is no economic or financial case for the railway, according to a
World Bank report. There's a very realistic fear that the SGR will
generate far less income than is necessary to repay the China's $3.6
billion loan.

We've already seen exactly these problems in Sri Lanka. In 2009,
China invested $1.2 billion in Sri Lanka's Hambantota seaport. Sri
Lanka had expected to repay the debt through profits earned by the
port, but the slowdown in trade throughout the entire region in the
last few years has meant that Sri Lanka has been unable to repay the
debt, and now China has essentially taken over the port in lieu of
repayment of the debt, resulting in violent protests by Sri Lanka's
Buddhist monks and anti-government protesters. China will own a
significant piece of Sri Lankan real estate, and there will be a large
Chinese community that will be in Sri Lanka forever.

Professor Samuel Nyandemo of the University of Nairobi's School of
Economics refers to China's projects as "debt trap diplomacy"

> [indent]<QUOTE>“Extending loans for infrastructure projects is a good
> thing. But look at the projects being funded. Most of them are
> meant to open markets for Chinese goods in strategically-located
> countries and increase their access to natural resources.
>
> If there is one thing China is truly good at, it is using its
> economic assets to advance its geostrategic interests, which has
> left countries snared in a debt trap that makes them vulnerable to
> Chinese influence."<END QUOTE>
[/indent]

In fact, however much revenue the new SGR railway generates, it will
have a significant negative economic impact on Kenya. That's because
there's an existing Nairobi-Mombasa railway run by Rift Valley
Railways (RVR). Amazingly, Kenyan authorities are now requiring that
a minimum of 40% of the cargo travelling between Nairobi and Mombasa
must be taken by the new SGR. This is presumably going to be a
financial disaster for RVR, but it also means that Kenya will have
little or no revenue gain from the new railway, since it will be
taking much of its business from the old railway.

When Kenya's president Uhuru Kenyatta recently visited the One Belt
One Road (OBOR) forum in Beijing, he signed a contract borrowing
another $3.5 billion from China for an extension to the SGR that was
just launched. Critics say that thanks to the president, Kenyans will
have to labor for China for years to come. Kenya Standard Media (28-May) and Times of India and African Business Magazine (23-May)

Related Articles


KEYS: Generational Dynamics, Kenya, Uhuru Kenyatta, Mombasa, Nairobi,
China, Export-Import Bank,
Madaraka Express, Standard Gauge Railway, SGR, Lunatic Express,
Djibouti, Ethiopia, Red Sea, Addis Ababa,
Nairobi National Park, Samuel Nyandemo,
debt trap diplomacy, Sri Lanka, Hambantota seaport,
Rift Valley Railways, RVR, One Belt One Road, OBOR

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