Belt and Road Initiative in Africa: The Impact

of Standard Gauge Railway in Kenya

Nancy Muthoni Githaiga

College of Public Administration
Huazhong University of Science and Technology
Wuhan, China
gnancym@gmail.com

Wang Bing
College of Public Administration
Huazhong University of Science and Technology
Wuhan, China
15327259146@126.com

China’s Belt and Road has been billed as the single most significant undertaking by the country on the
international stage. In Africa, Kenya is a core part of both the Maritime Silk Road and the Belt. The
authors have examined the flagship project of this initiative in Kenya, the Standard Gauge Railway
(SGR) from the port of Mombasa to Nairobi, with a view to analyse the impact so far. Issues of employ-
ment, debt sustainability, neocolonialism and specific aspects of the project were looked at. Although our
findings indicate that the SGR so far has both positive aspects as well as challenges, for the project to be
successful both China and Kenya need to create a synergy towards solving concerns that have arisen from
the completion of phase 1 of the project.

Keywords: Belt and Road Initiative, Kenya, Standard Gauge Railway, Impacts,
Concerns, External Debt

Introduction

The foreign policy buzzword within China’s academic, diplomatic, economic, financial
and development circles since 2013 has been yi dai, yi lu (One Belt One Road [OBOR]).
China’s engagement with her immediate neighbours in Asia as well as in Africa and

CHINA REPORT 55 : 3 (2019): 219–240

Sage Publications Los Angeles/London/New Delhi/Singapore/Washington DC/
Melbourne
DOI: 10.1177/0009445519853697
220 Nancy Muthoni Githaiga and Wang Bing

Europe has centred on OBOR, officially known as the Belt and Road Initiative (BRI).
This project has evidently become an important economic and foreign policy hallmark
for the government of President Xi Jinping, gaining support and criticism in equal
measure—both locally and around the world.
Internationally, a lot has been said about the project and its significance to the
players. To some, the project is meant to challenge the current global world order
that is considered to be West-centric and replace it with a Sinocentric one (White
2017). To others, the project presents massive openings for integration and economic
development for the players.
Basically, the Belt consists of countries located on the original Silk Road via
Central Asia, West Asia, the Middle East and Europe, while the Maritime Silk Road
runs from China’s coast to Europe through the Suez Canal, South East Asia and East
Africa (Fallon 2015). Thus, it connects Asia, Europe and Africa through infrastructure,
trade, investment, education, tourism and culture, among other ways of cooperation.
Former Ethiopian Prime Minister, Haile Mariam Desalegn, in the May 2017 Belt
and Road Forum for International Cooperation (BRFIC) hailed the project as ‘the
largest and non-conflicting economic cooperation of the 21st century’ (Alpha 2017).
It is important to note that so far there has been limited discussion and scholarly work
on the significance and impact of this project on Africa. As the debate on the impact
of the BRI heightens, this article takes a closer look at its operation in Kenya, with a
special focus on the impact of the 500 km-long Standard Gauge Railway (SGR) line
from the port city of Mombasa to the capital Nairobi. The project is still ongoing
and some would argue that it might be too early to assess its impact. However, there
are obvious immediate visible effects so far that will inform and give direction to the
future long-term impact. While most articles focus on the Chinese views on the BRI
or Western perceptions of it, the authors aim to add a Kenya-centric view to the dis-
cussion by using Kenya’s SGR as a case study to analyse the impact of BRI.
The central question this article poses is that why is the Kenyan government still
pursuing phase 2A (the SGR line that seeks to connect Nairobi to Naivasha) of the
SGR project when the completion of phase 1 of SGR is facing mounting criticism
from economists, both internationally and locally.
While the main objective is to highlight the economic impact of the SGR line in
Kenya, our specific objectives are as follows:

1. To analyse both the positive and negative effects of SGR in Kenya

2. To highlight role of the players involved in financing the SGR
3. To explore linkages between SGR financing and the rise in external debt in
Kenya

This study involves assessment and critical analysis of existing literature on the SGR
impact in Kenya. The research uses a descriptive and mixed method (qualitative and

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 Belt and Road Initiative in Africa 221

quantitative) design using data from United Nations (UN) Comtrade, Kenya National
Bureau of Statistics and media sources.
Since the SGR project is in implementation phase, there is a lack of comprehensive
statistics pertaining to financial aspects. However, the available information is sufficient
to address our research concerns.

Perspectives on Belt and Road Initiative in Africa

At the beginning of each year, China sends its foreign minister to Africa, in a practice
maintained for the past 28 years symbolising its commitment to building a partnership
with African countries based on mutual trust, cooperation and shared interests with
‘no political strings attached’ (Yu 2018). This is in line with the Beijing Consensus of
2004 wherein China maintains a principle of non-interference and of not placing condi-
tions on its relations with its partners as long as they adhere to ‘One-China Principle’.
During his January 2018 visit to six African countries, China’s Foreign Minister Wang
Yi remarked that ‘China and Africa will certainly become closer cooperative partners
through cooperation in the Belt and Road initiative’.
China’s approach to Africa has been described as one that has been premised more
on development partnership, in contrast to the Western powers’ official development
aid (ODA) model (Bolorunduro 2017). Furthermore, it has been noted that develop-
ment and implementation of infrastructure projects and industry transfer in Africa
has been the main strategy followed by China for more than a decade, long before the
BRI was launched. Tazara railway connecting the landlocked Zambia with Tanzania
is a case in point. Mutual development for both Africa and China has been the stated
aim of this partnership. It is expected that Africa will benefit greatly from BRI in
infrastructure, creation of jobs and improvement of the economic well-being of its
people, as well as promotion of industrialisation. At the same time, the development
of Africa’s infrastructure will aid in boosting China’s exports as well as making use of
the excess labour force in China’s construction companies (Wissenbach and Wang
2017). China aims at transferring the labour-intensive industries to Africa, particularly
in manufacturing, so as to ease its overcapacity and serve its economic restructuring.
Whereas the above positive perspective might be largely true, there are other issues
that are not addressed in the vast and complicated relationship between the two
partners, including the nature of the infrastructural investment by China in Africa
and its special interest in the natural resources from the continent. Discussions about
Sino-African relations have often been cast in ways that emphasise China as an aggres-
sive competitor of Europe and the USA for natural resources. Critics have noted that
Chinese government engagement in infrastructural projects in Africa is meant to make
the extraction of minerals easier. Africa is therefore depicted as just a source of cheap

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222 Nancy Muthoni Githaiga and Wang Bing

labour and raw materials, as well as a suitable market for Chinese finished products.
This is seen to undermine Africa’s industrial growth and competitiveness as Africa
too could benefit from her own market rather than having to compete with China
(Alden, Large and Oliveira 2008; Anyu and Ifedi 2008; Eisenman 2012). However, it
is important to note that China’s growing demand for minerals and other extractives
has also increased the prices of such commodities in the international market. This
in turn has boosted African economies through the generation of more revenue from
these resources than before (Nwabia 2018).
Concerns have been raised about China’s relationship with Africa which has been
often described as a ‘colonial’ one in which most of the benefits are far from mutual and
frequently accrue to China (Esposito, Tse and Al-Sayed 2014). In relation to loans from
China, critics argue that with African countries having minimal or no diversification,
the loans may lead to liquidity and debt crises leaving Africa heavily dependent on
China (Khodadadzadeh 2017). Using data from the China Africa Research Initiative,
Kelly (2017) notes that five of China’s top eight debtors in Africa have already signed
up for Resource for Infrastructure (R4I) loans. These include Sudan, Nigeria, Angola,
Democratic Republic of the Congo (DRC) and Ghana (Kelly 2017). In 2004, Angola
signed its first R4I loan with China using its enormous petroleum reserves as security
in exchange for US$2 billion worth of infrastructure investment. Later, Angola was
unable to honour the payments and had to request for an extension and take on a new
loan in 2007 and 2009 so as to gain new credit lines (Konijn 2014). This has been
viewed as negatively affecting Angola’s economic sovereignty, leaving it dependent on
China (Alaco 2018).
Additionally, critics have argued that the economic trap has developed into political
manipulation which has had consequences for some countries’ internal affairs (Kelly
2017). According to BBC News (2017), more than 30 Chinese citizens were arrested
for various unlawful mining practices including unlicensed smelting and child labour
in Zambia. China, which has invested over a billion US$ in the copper-rich country,
protested the move claiming that the evidence presented by the Zambian government
was not significant and made a demand for the release of the Chinese nationals. This
was done within two days followed by their repatriation to China (Matrina 2017).
Optimists feel that ‘critics of China in Africa are recycling Yellow Peril myths’
(Golooba-Mutebi 2018). In his article, Mutebi notes that there are more than 10,000
Chinese firms active in Africa which have led to various socio-economic benefits
including employment for the locals. Thus, arguing that China’s main drive in Africa
is resource procurement, he argues, which is highly simplistic. Mutebi further notes
that in 2014/2015, the biggest investor in mining in Africa was the USA at 66 per cent,
followed by the UK and France at 55 per cent and 47 per cent, respectively. China
comes far behind at 28 per cent. Conversely, China is the leader in infrastructure invest-
ments (in construction) at 27per cent of the total investment in Africa. Additionally,
Kelly (2017) notes that between 2000 and 2010, China pledged an amount of about

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 Belt and Road Initiative in Africa 223

US$67 billion in FDI, loan packages and infrastructure spending. This exceeds what
the World Bank lent during the same time period by US$12 billion.
Manufacturing has been a key sector in China’s economic development path, and
according to a report by Brookings, China has emerged as the world’s largest manu-
facturer in terms of manufacturing output (amounting to US$2010 billion or 20%
of global manufacturing) and also as a percentage of its national output (27%; West
and Lansang 2018). China is thus viewed as leading by action by investing in Africa’s
manufacturing industry. Data shows that China is leading the foreign investment
in manufacturing in Africa with 13 per cent of the total, with France and the USA
investing 10 per cent and 7 per cent, respectively (Golooba-Mutebi 2018).
While the USA is increasingly calling for protectionism, China has maintained its
commitment to globalisation and South–South cooperation for development. However,
will globalisation as envisioned by China change the status quo in China–Africa
trade? China has dominated Africa’s imports, with Africa importing a wide variety
of consumer and capital goods and overwhelmingly exporting primary commodities,
especially oil, minerals and other natural resources (Pigato and Tang 2015). Oil, gas,
metals and minerals often constitute three quarters of African countries’ exports to
China (Esposito et al. 2014). Statistics indicate an imbalance of trade between China
and Africa with a huge deficit to Africa. This has been attributed to high inhibitive
tariff and non-tariff barriers imposed by China on Africa’s products (Pigato and Tang
2015). As remarked by President Kenyatta in an interview with the Financial Times, as
Africa opens to China, China should also open up its markets to Africa for a win–win
cooperation (Pilling and Klasa 2017).
The BRI’s infrastructure development goals complement the African Union’s own
Agenda 2063 which mainly focuses on the continent’s interconnectivity (Yu 2017).
Both focus on the need for all-encompassing and people-centred development. They
are both centred on sustainable industrialisation and industrial diversification, and
generating high-value add and decent employment for all. With Africa having a huge
infrastructure deficit which is hindering its economic development, trade and indus-
trialisation, as pointed in the African Development Bank report (African Development
Bank 2014), the BRI provides an opportunity that Africa could strategically take
advantage of.

Belt and Road Initiative in Kenya: The Standard Gauge

Railway Line

Historically, the most direct link to Africa was forged by China’s fifteenth century
maritime convoys led by Zheng He which reached East Africa’s coast, a region that is
part of present-day Kenya. This could be one reason why Kenya was selected as the

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African centre point for the BRI project. Also, as a relatively large coastal and regional
economy with a port of great importance in Mombasa, Kenya is important for reasons
of economic geography (Johnston, Morgan and Wang 2014).
However, it is also true that Kenya has few direct and noticeable trade, security,
political and economic links with China. Kenya is not rich in natural resources, and
it is not a significant trading partner of Beijing. But its strategic location on the East
African coast has sometimes been deemed to be the reason behind its inclusion in BRI.
Kenya borders South Sudan, a main oil exporter to China. With political instability
and sporadic violence between North and South Sudan, there is need for another route
for Sudanese oil exports to China, and Kenya offers this alternative (London 2009).
The BRI Maritime Silk Road will thus reach Africa at the port of Mombasa which
will be connected by the SGR to Nairobi and other regions.
Kenya is expected to receive significant funding from China for strategic infrastruc-
ture projects, which are important in the BRI. Bilateral relations between Kenya and
China are now strong, with some of the noteworthy joint projects being the SGR and
the first three berths at Lamu Port (Wetangula and Mazurewicz 2017).
Construction of the Mombasa–Nairobi SGR project began in 2013 and was
completed in 2017. The 609 km modern railway line is the largest infrastructure
project in Kenya for cargo and passenger transportation, and extends from Mombasa
(the largest port in East Africa) to the capital city, Nairobi. The Mombasa–Nairobi
phase cost around US$3.8 billion (representing 5% of Kenya’s gross domestic product
[GDP]), with Export–Import Bank of China financing 90 per cent, while 10 per cent
was funded by the Government of Kenya. A subsidiary of China Communications
Construction Company Ltd, China Road and Bridge Corporation (CRBC), was
given the contract for the project construction in accordance with Chinese railway
design standards. SGR is a flagship project for Kenya’s Vision 2030 development
agenda aiming at streamlining transport within and across the borders (Kenya
Railways 2017).
The loan is set to mature in August 2023, having been awarded at a grace period of
10 years and with the repayment period being spread over 40 years (Omondi 2017).
Commercial operations of the SGR freight train service commenced in January 2018
and are expected to ease the movement of goods from Mombasa to Nairobi.
The project is significant in terms of saving valued natural resources and protect-
ing the environment, especially from the challenge of global warming, because it will
reduce the carbon emission (CO2-e) footprint by introducing a modern and more
efficient railway system (Ministry of Transport and Infrastructure [MTI] 2014). It
is one of Kenya’s Vision 2030 flagship projects which will contribute significantly
to different sectors of the economy either directly or indirectly. The project is also
compliant with the Kenya National Transport Policy—‘Moving a Working Nation’
(2009)—whose vision for the railway sector is to provide efficient, reliable, safe
and secure railway transport services that are integrated with national and regional

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railway, road, water, pipeline and air transport services for the transportation of goods
and passengers on a sustainable and competitive basis. The SGR also serves the goal
of the Railways Master Plan (2009) of East Africa, which is to revive the railways in
Tanzania, Uganda, Kenya and extending them to the larger Eastern Africa and beyond.
It is expected to play a significant role in reinforcing cooperation among East African
Community (EAC) member states and stimulate economic development nationally
and regionally. Additionally, SGR is a part of the Northern Corridor Infrastructure
Master Plan, developed for the five member countries of the Northern Corridor Transit
Agreement (NCTA): Kenya, Uganda, Rwanda, Burundi and the DRC. In addition, the
SGR project is expected to significantly reduce congestion and enhance the volumes
that will be handled at the port of Mombasa (National Environment Management
Authority [NEMA] 2016).
While phase 1A was from Mombasa to Nairobi, phase 2A, which will cover from
Nairobi to Naivasha, was launched in late 2016. The project is set to be completed
in 36 months, funded by a loan from the government of China at a cost of US$1.5
billion and constructed by CRBC. The line will eventually extend to Malaba on the
Uganda border as per a separate agreement (Railway Gazette 2016). Research shows
that transport expenditure in Kenya is around 45 per cent of the total cost of goods,
making commodities very uncompetitive; by reducing this, SGR will help to boost
Kenya’s business environment (The Infrastructure Sector in Kenya 2017).
Some researchers have argued that the choice to extend phase 2A of the railway
construction was based on local political considerations. Wissenbach and Wang
point out that the Kikuyu and Kalenjin ethnic groups were at the centre of the
considerations on which route the line should adopt (Wissenbach and Wang 2017).
However, a look at the Environmental and Social Impact Assessment (ESIA) report
prepared independently by consultants shows that various options for the route to
be taken were considered. These included the Nairobi–Naivasha–Narok–Kisumu–
Malaba option (south route option), the Nairobi–Nakuru–Kisumu–Malaba option
(middle route option) and the Nairobi–Nakuru–Eldoret–Malaba option (north
route). The ESIA report recommended the south route option based on compre-
hensive route analysis in terms of economic investment, construction challenges
and engineering considerations, and expanded urban and regional connectivity
among other factors. Hence, the decision was taken to extend phase 2A to Naivasha
(NEMA 2016).
With increased trade between the East African bloc and China, especially with
respect to Chinese imports into the region, SGR plays a key role in facilitating trade.
Additionally, there has been the discovery of gas and oil deposits on the coast of East
Africa, and the BRI project will facilitate their extraction. Important to note also is
that these kind of infrastructural projects are a major component of international
business opportunities for Chinese firms and state-owned enterprises that currently
have an oversupply in their domestic market.

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226 Nancy Muthoni Githaiga and Wang Bing

Impacts of the SGR

Creation of Employment

Kenya is a developing country which is struggling with unemployment, especially

among the youth. The railway has provided some employment to the local people.
According to Shawiza, at least 60 new jobs were created for every kilometre con-
structed, while individuals and small and medium enterprises continuously sup-
plied building materials such as steel, cement and cables (Shawiza 2016). Overall,
the project has led to the creation of more than 46,000 jobs for local people, with
the number of local workers who received training reaching 45,000 (Ruibo 2017).
This is partially credited to the government policy that stipulates that 40 per cent
of the labour and commodities used in the SGR construction come from Kenya.
Other than the direct jobs in the construction sector, the project has in addition led
to heightened economic activities in the service sector, including markets, hotels,
entertainment, etc., along the region around it, according to the Kenya National
Bureau of Statistics.
Data shows that the formal employment in the construction sector grew by 11.4
per cent, standing at 148,000 in 2015, up from 132,900 in 2014 (Kenya National
Bureau of Statistics 2016). In 2016, the construction industry, with a share of 8.5
per cent in wage employment, recorded a growth of 10.6 per cent, with a total gain
of 163,000 jobs (Kenya National Bureau of Statistics 2017b). The continued sig-
nificant growth in the industry in terms of employment for the period from 2014 to
2016 was attributed to continued government support in implementation of public
infrastructural projects like the SGR (Kenya National Bureau of Statistics 2017b).
In addition, wages of employees in enterprises engaged in construction activities
more than doubled in the period from 2015 to 2016 too (Kenya National Bureau
of Statistics 2017a)
However, critics have pointed out that the majority of the workers engaged in
the project are semi-skilled or unskilled. Criticisms have also been levelled against
the influx of Chinese workers, both semi-skilled and unskilled, who end up tak-
ing jobs that local workers can perform (Lang’at 2018). In other cases, the skills
transfer that was incorporated into the project is reported to have not taken place,
and the local people trained to do the jobs are not actively occupied as Chinese
workers do most of the work. As noted by Wafula (2018), while 38 Kenyans were
trained in China to be locomotive drivers for the project, 50 Chinese workers have
since been hired. Some of these Chinese workers are inducted for one week at a
time to do the same jobs and at higher salaries than the local people who had been
trained for three years.
While the government came to the defence of the SGR staffing, pointing out that
Kenya will take control after 10 years as per the contract, critics argue that this period
is too long and gives advantages to China at the expense of Kenya.

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 Belt and Road Initiative in Africa 227

Accelerated Growth in the Building and Construction Sector

The ongoing infrastructural projects which include the SGR have led to significant
growth in the building and construction sector. According to Economic Survey of
Kenya (2016), the construction sector continued to grow and posted a growth rate of
13.6 per cent in 2015. This growth was to a great extent sustained by the development
of transport infrastructure such as the continued implementation of the first phase of
the SGR, the development of the road network and so on (Kenya National Bureau
of Statistics 2016). The growth rate however decreased in 2016 to 9.2 per cent which
could be attributed to the reduced construction activity as the first phase of the SGR
approached completion, as well as reduced imports of key construction materials such
as iron and non-ferrous metals (Kenya National Bureau of Statistics 2017b).
The growth in the building and construction sector was evident from the increased
cement consumption. Local cement producers were charged with the responsibility of
supplying cement in the construction of SGR (Dyer & Blair Investment Bank 2017).
Cement production went up by 8 per cent from 5.88 million tonnes in 2014 to 6.35
million tonnes in 2015. Cement consumption and stocks rose to 5.71million tonnes
in 2015 from 5.20million tonnes in 2014, a growth of 9.9per cent (Kenya National
Bureau of Statistics, 2017a) and to 6.3 million tonnes in 2016 marking a growth of
10.4per cent (Kenya National Bureau of Statistics, 2017b). This continued increase
in consumption was a result of increased demand in the construction sector. Port, rail
and housing projects have also been driving the overall construction sector growth.

Trade

Trade is an important aspect of the Kenya–China partnership. There has been a steady
increase of trade in terms of imports from China since 2014, when the SGR project
construction started. China overtook India in 2014 to become Kenya’s leading source
of imports (see Figure 1).
According to the Kenya National Bureau of Statistics, as of 2017, China was the
leading source of Kenya’s imports, with a value of US$3.37 billion against Kenya’s
exports worth US$ 100 million. China’s low costs of production and better position-
ing in global production and value chains have helped it become the top source of
imports for Kenya (see Figure 2).
Data from UN Comtrade shows that the import of manufactured goods, especially
machinery and transport equipment, has significantly increased over the years as the
implementation of major infrastructural projects like the SGR took place. There was
a significant increase in imports of transport and machinery equipment, from US$936
million in 2013 to US$1.54 billion in 2014, as well as of manufactured goods, chiefly
material and miscellaneous manufactured articles. This growth remained steady, but
in 2016 there was a slight decrease as the SGR neared completion (see Figure 3).

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228 Nancy Muthoni Githaiga and Wang Bing

Since the implementation of SGR kicked off in 2014, much of this sudden increase
in imports can reasonably be attributed to this project.
Kenya’s exports to China however have remained significantly low though they have
been on a steady rise since 2014 (see Figure 4). This has led to a continued increase
in the imbalance of trade in favour of China. As of 2017, Chinese imports stood at
US$3.374 billion against Kenya’s exports of US$ 100 million.
Kenya exports very few products to China since it is an oil importer, not exporter,
and comparatively resource-scarce. Additionally, Kenya has not been able to take

Figure 1
Kenya’s Top Import Partners

7
Billions US$

5
Imports from
4 China
Imports from
3 India
Imports from
Japan
2

0
2013 2015 2017

Source: Computed by the authors from UN Comtrade (2018).

Figure 2
Kenya Imports from China (2012– 2016)

7
Billions US$

6
5
4
3
2
1
0
2012 2013 2014 2015 2016

Source: Computed by the authors from UN Comtrade (2018).

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 Belt and Road Initiative in Africa 229

Figure 3
Kenya’s Import of Manufactured Goods from China (2012– 2016)

2.5
Billions US$

2 Manufactured goods
classified chiefly by material
1.5 Machinery and transport
equipment
1
Chemicals
0.5
Miscellaneous Manufac
0 Articles
2012 2013 2014 2015 2016

Source: Computed by the authors from UN Comtrade (2018).

Figure 4
Kenya’s Exports to China (2012– 2016)

100
Millions US$

80

60

40

20

0
2012 2013 2014 2015 2016

Source: Computed by the authors from UN Comtrade (2018).

advantage of the commodity boom from China’s growth due to its scarce natural
resources (Zafar 2007).

Environmental Impact

As noted by Mungai (2016), China’s operations in Africa have often been marred with
accusations of violation of environmental standards. During the first phase of SGR
construction, 10 elephants died during construction when they crashed into trains,
according to Save the Elephants, a non-governmental group (Freytas-Tamura 2017),

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230 Nancy Muthoni Githaiga and Wang Bing

while lions were reportedly driven out from Nairobi National Park as bridge construc-
tion across the park was going on (Elle 2017). An increase in elephant poaching and
ivory smuggling has been linked to the influx of Chinese workers according to the
Kenya Wildlife Service (Elephant Action League 2016). What was more, the second
phase of the SGR from Nairobi to Naivasha was stopped by the Kenya’s National
Environment Tribunal until a proper environmental impact assessment on the project
was done (Ochieng 2016).
Tourism is a very vital sector for Kenya as it is a major source of revenue generation,
and thus negative effects on wildlife tourism negatively affects the economy as a whole.
Though no large scale infrastructural projects leave nature untouched, the balance
between economic development and wildlife and environmental conservation will be
an important factor to be considered as Kenya pursues infrastructural development.
Loss of habitat and wildlife displacement will lead to a reduction in the population
and extinction of important species, which no economic gain can replace.

Major Concerns with Respect to SGR Implementation

SGR Line: Between a Public Good and Self-sustenance

The biggest dilemma facing developing countries is on how to invest the little capital
they possess. Should this be invested in projects that are economically viable or should
public good be the overriding factor even where these projects are of no immediate
verifiable economic benefit? This same conundrum has affected the BRI projects, and
specifically the railway line in Kenya. Considering the amounts invested, are the returns
expected justified in economic terms? Should intangible benefits be given more weight
in looking at the viability of the project?
According to economist David Ndii, the SGR is not financially self-sustaining (Ndii
and Warah 2018). According to him, phase 1 of the SGR cost US$3 billion, equivalent
to 5.4 per cent of the GDP of Kenya and 11 per cent of government revenues; this is
expected to go up to US$8 billion, which is 15 per cent of Kenya’s GDP and 73 per
cent of the government revenues.
Since financing was not done using bonds, which have lower interest, the loans
taken from China, which carry a higher interest, will mean a greater burden for Kenya.
They further argue that while 22 million tonnes per year were projected to be car-
ried as freight on the railway line, the government has now revised that figure to 8.76
million tonnes a year, which is roughly a third of the initial estimates. With interest
alone of US$200 million per year on the loan, the railway will require government
subsidy to stay afloat as it cannot pay for itself. A World Bank study done in 2013
inferred that the SGR investment seemed ‘only to be justified if the new infrastructure
could attract additional rail freight in the order of 20–55 million tons per year’ (The
World Bank: Africa Transport Unit 2013). The SGR transported 25,000 twenty-foot

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 Belt and Road Initiative in Africa 231

equivalent units (TEU) of freight in half a year and made a loss of US$100 million
in the financial year 2017–8, which was its first year of operation, according to the
Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works
(Mwiti 2018). It is important to note that globally, studies on railway operations show
that freight drives profits more than passenger services. There are only a few exceptions,
as in China where the Beijing and Shanghai high speed train reported net profits of
6.58 billion yuan (US$982 million) in 2015, making it the most profitable railway
in the world (Varma 2016), while the Beijing–Guangzhou passenger line is also said
to be highly profitable (Mitchell and Liu 2018).
However, the financial side aside, the railway line has produced other intangible
benefits. It has had considerable social and economic impact, which include fast and
efficient movement of people and goods from the port city to the capital. Provision
of a fast, efficient, safe and reliable mode of transport in Kenya was one of the main
objectives of the SGR. Since the SGR started operations in June 2017, the cost of
travelling from Mombasa to Nairobi has reduced both in terms of money and time,
as well as in terms of reduced traffic, accidents, pollution and congestion along the
Mombasa road. It now takes 4 hours at a price of US$7 using the SGR as opposed to
10–15 hours at US$12–17 using the public transport services (Kenya News 2017).
According to the Ministry of Transport, Infrastructure, Housing, Urban Development
and Public Works, in just one year, SGR’s passenger service transported 1.3 million
passengers (4,000 passengers per day) between Mombasa and Nairobi, equivalent
to over 60 passenger bus loads per day. Its freight trains transported 25,000 TEU of
freight in six months since the launch of the service in January 2018. This amounted
to displacing around 140 trucks with a capacity of one 20-ft container, according to
the Ministry of Transport, Infrastructure, Housing, Urban Development and Public
Works. This is very important in terms of environmental protection through the
reduction of gas emissions, as well as in terms of safety through reduced accidents
and congestion on the roads. This is expected to be an economic game changer in
improving the business environment in Kenya.
As seen above, viewed purely as a public good, the investment in the railway line
makes sense. In a capitalist market-oriented economy, the private sector tends not to
invest in such projects as they will not make a profit. This therefore leaves the govern-
ment with no option but to invest in order to make life better for citizens.

The Rise of External Debt in Kenya

Public debt refers to the overall financial obligations incurred by government indi-
cating how much government spending is financed through borrowing instead of
taxation (Matiti 2013). It can be domestic (though treasury bills, bonds and com-
mercial banks) or external, through multilateral lending agencies, concessional and
syndicated loans.

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232 Nancy Muthoni Githaiga and Wang Bing

Kenya’s overall public debt increased from 44 per cent of GDP in 2013 to 57.1 per
cent by the end of 2017 (International Monetary Fund [IMF] 2016). Most of these
public debts are concessional loans to finance infrastructural development. However,
recently, the government has engaged in commercial borrowing which entails signifi-
cant repayment demands that began in 2017 (as a result of a 2015 syndicated loan),
and are due in 2019 and in 2024 when the 2014 sovereign bond issue will mature,
according to the IMF (2016). This has caused a lot of anxiety within government circles
and amongst the public that this debt is unsustainable. The SGR, being the signature
infrastructural project financed from external borrowing, has come under particular
scrutiny. Questions arise as to the ability of the railway to self-finance loan repayments,
and as to whether the investment is worth the cost to the economy in terms of rise in
public debt, and if the country would be able to repay the loans.
Critics have pointed out, with some basis, that the appetite for mega infrastructural
projects by poor countries through external debt is ill-advised. Sri Lanka handed over
its port, the Hambantota Port Development Project, to the Chinese for a period of 99
years after failing to make loan repayments in December 2017 (Abi-Habib 2018). With
reports regarding takeover of key national assets in other cases of loan defaults involving
China, there are genuine fears that Kenya may end up losing its assets too if it defaults.
The takeover in Sri Lanka has armed critics of China’s BRI as a debt trap geared towards
ensnaring susceptible countries. More so, according to Kenya’s Ministry of Transport and
Infrastructure, the SGR has suffered a loss of US$100 million in its first year of operation
until June 2018. The magnitude of losses raises anxiety about its viability. (For graphical
presentation of Kenya’s public debt from 2010 to 2018, see Figure 5).
In 2010, Kenya’s total public debt was US$11.062 billion, rising to US$14.96
billion in 2012. This comprised less than 45 per cent of its GDP. However, with the
government undertaking the SGR project and signing the related financial agreements
with China EXIM bank, the public debt rose sharply in two years to US$24.98 bil-
lion, which is more than double the entire public debt in 2010 and equal to 52 per
cent of the GDP of the country. While it cannot be said that the SGR financing alone
contributed to this, it comprised a huge proportion of the debt acquired. With the debt
to GDP levels rising to 57 per cent in 2017 and projected to swell even further due to
financing of phase 2 of the SGR from Naivasha to Malaba border, fears of the unsus-
tainability of these debts abound. (For Kenya’s debt to GDP percentage see Figure 6).
It is important to note that the loan agreement for the last phase of the SGR was
not signed during the August 2018 Forum on China–Africa Cooperation (FOCAC)
meeting in Beijing. It remains to be seen why, and if it will proceed as planned and
requested by the Kenyan government.
This new appetite for public debt has raised red flags within the financial sector, with
the IMF warning in February 2018 that the rise in debt to GDP ratio is worrying for
the economy both in the medium and long term (Kisika 2018). These warnings are also
in line with the Central Bank of Kenya and Kenya’s Medium Term Debt Management
Strategy (MDTS) which gave guidelines for making Kenya’s public debt sustainable.

China Report 55, 3 (2019): 219–240

 Belt and Road Initiative in Africa 233

Figure 5
Graphical Presentation of Kenya’s Public Debt (2010– 2018)

Source: Central Bank of Kenya (2018).

Figure 6
Kenya’s Debt to GDP Percentage

Source: https://tradingeconomics.com/kenya/government-debt-to-gdp

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234 Nancy Muthoni Githaiga and Wang Bing

It posited that debt overhang negatively affects economic growth and presents risks
to government social and development programmes, since large amounts of revenue
would go towards servicing debt (Ryan and Maana 2014). In fact, Kenya has since
started borrowing to service other debts in order to prevent default, as witnessed recently
when it borrowed US$750 million to repay other loans (Omondi 2018).
It is clear that Kenya needs to re-look financing models that it employs to be able
to service the facilities it is constructing. Proper management and utilisation of the
borrowed loans is the key to realising the economic value of the large scale invest-
ment projects. There is need to invest in projects that can generate revenue towards
the repayment of loans taken, as well as to avoid commercial loans that come with
expensive terms of payment. Reorienting the country’s trade from an import-oriented
to export-oriented path would go a long way in ensuring the country’s economic stabil-
ity, as could be learnt from China’s development strategy. This is not an easy strategy
to implement but it should be given consideration by the policymakers in Kenya.

Tendering and Procurement

The issue of public tendering has attracted a lot of interest in connection with the
SGR. It is true that in many countries, the process of public tendering is opaque,
captured by insiders and anything but transparent. The construction of the SGR too
was not without criticism, with suits filed in court by bidders to stop the tendering
process in the formative stages. The main contractor, CRBC, had been single sourced
through government-to-government tendering by the government of China and the
government of Kenya. The loan agreement between the two governments required
that the procurement, engineering and construction contract be awarded to a specific
Chinese corporation. This faced tough legal battles from the Law Society of Kenya as
it provided no room for competitive tendering and lacked transparency as required
by the Kenyan laws. Finally, the court ruled that the procurement method was legal,
stating that this type of procurement was exempt from the procurement law, citing
Section 6(1) of the Public Procurement and Asset Disposal Act 2015 that allows
government-to-government agreements (funded through foreign government grants
and concessional loans) to be awarded without competitive bidding (Oluoch 2017).
Additionally, sub-tenders such as design supervision and feasibility study, for which
international best practice requires competitive bidding and the involvement only of
independent consultants not in any way related to the main contractor, was not fol-
lowed (The Star 2016). It resulted in two committees of the Kenyan parliament inves-
tigating the tendering process, and a case filed at the high court in Kenya. In all these
instances, the verdict was that the tender of design supervision, awarded to a consortium
headed by China’s Third Railway Survey and Design Institute Group Corporation,
be cancelled and competitive bidding reopened. The executive disregarded this. This
has raised quality concerns on the project, as the Third Railway Survey and Design

China Report 55, 3 (2019): 219–240

 Belt and Road Initiative in Africa 235

Institute Group Corporation is viewed as having a close relationship with the main
contractor, while the two local firms in the consortium have no experience handling
infrastructure of the magnitude of the railway project according to The Star (2016).

Protests and Disputes

Chinese companies have often been accused by local workers across Africa of unfair
labour practices. Disputes over wages and working conditions have resulted in protests
in Angola, Cameroon and Kenya among others (Mungai 2016).
Labour relations are a new challenge to most of the Chinese firms. The China
Communication Construction Company was accused of wage discrimination by the
local workers both in the first and second phases of SGR (Mwiti 2018). This led to
labour strikes and protests translating to project delays and unnecessary costs. According
to Business Daily Africa (2011), CRBC brought around 5,000 Chinese workers for the
SGR project and promised over 30,000 jobs to Kenyans. But according to the locals,
these jobs never materialised. This led to local people storming a CRBC construction
site in Narok, attacking Chinese workers with knives (Kuo 2016).
This is not peculiar to Kenya for it is reported that in 2012, miners in Zambia killed
a Chinese supervisor and critically wounded another in a wage dispute at a coal mine.
Additionally, two Chinese supervisors were charged by Zambian police at the same
coal mine with attempted murder two years earlier, after the shooting of 13 miners in
a pay dispute (Fernandez 2017).
Further, more protests were witnessed due to land disputes, as Kiplagat (2018)
reported. Controversy over the compensation of the Naivasha residents who gave up
their land for the second phase of SGR led to brief suspension of the project as the locals
blocked the contractor from accessing the site. This was later resolved. In October 2014,
SGR construction was suspended after a dispute with landowners over compensation,
which delayed the commencement of construction until December (Oirere 2014).
There is a need for Chinese firms to pay attention to the local labour laws as they
implement the BRI project in order to avoid problems that will lead to project delays
and unexpected costs. Project delays can lead to increase in costs and also make it hard
for a contractor to win future contracts. There needs to be a comprehensive assessment
and legal compliance before the project begins.

Conclusion

The BRI is a long-term project aimed at enhancing infrastructural connectivity and

cooperation globally. It is a complex endeavour with a historic challenge of working across
more than 60 countries, ranging from developed to developing and underdeveloped
countries. This calls for strategic plans to manage the complexities that come with it.

China Report 55, 3 (2019): 219–240

236 Nancy Muthoni Githaiga and Wang Bing

In Kenya, the project has kicked off through the construction of the new SGR
which has come with numerous achievements as well as challenges. The accelerated
growth in building and construction as the SGR construction takes place has created
employment opportunities for the local people and Chinese, as well as accelerating
the consumption of locally produced construction materials, particularly cement.
However, for the success stories to shine, both Kenya and China need to address the
challenges being experienced. The debt burden needs to be looked at, for long-term
sustainability of the SGR project and the BRI as a whole in Kenya. Problems related to
staff recruitment and skills transfer need to be given serious consideration so that what
was intended to be gained from the project is realised. Phase 2 offers opportunities for
lessons to be drawn from all the challenges experienced in phase 1, and to build on
knowledge acquired. Allegations of racism and favouritism towards Chinese workers
at the expense of local workers need to be addressed to prevent hostility between local
workers and their Chinese counterparts.
Kenya also needs to improve on her negotiation practices, and get what is best for
her people in order to maximise the BRI benefits. Government officials from Kenya
who are tasked with entering into negotiations need to be empowered with the neces-
sary skills to be able to get the best for the country. Chinese officials also need to keep
in mind that the success of the BRI will cement China’s position as an alternative to
the West, rather than give credence to the ‘China phobia’ or the notion of China as a
predator propagated by the West.
The SGR is financed by the China EXIM bank in part through concessional loan
and in part through commercial loans. This is not good for the country as it leads to
high interest payments, and exposes the country to the shocks of volatile money mar-
kets. Instead, financing ought to be routed through Asian Infrastructure Investment
Bank (AIIB) and the official BRI financing mechanisms for better terms of financing.
The prerequisites for a feasible and practical public–private partnership venture
should be considered in taking decisions related to procurement. The government-to-
government procurement method should not be the only option. Better governance
practices and high standards of transparency are crucial elements if public culture is
to change among China’s bilateral partners.
Finally, the SGR undoubtedly has great potential for the social and economic
development of Kenya. Enhancing the efficiency of freight and passenger services
between Mombasa and Nairobi would positively contribute to Kenya’s development
and transformation agenda. The task for the SGR is to expand its operations to reach
the break-even baseline of passenger and freight volumes.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research,
authorship and/or publication of this article.

China Report 55, 3 (2019): 219–240

 Belt and Road Initiative in Africa 237

Funding

This research is financially supported by the National Science Foundation of China

(71673092) and the Fundamental Research Funds for the Central Universities
(2017WKYXZD002).

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