Kenya’s $3.8 Billion Chinese-Built Railway Shows Why Belt and Road Is Being Reworked

Summary

The Standard Gauge Railway (SGR) in Kenya, financed largely by a $3.6 billion loan from China's Exim Bank, aimed to streamline transport between Nairobi and Mombasa. Despite its completion in 2017, the railway has struggled to achieve profitability, with significant cargo movement targets unmet and financial losses mounting. This case reflects broader concerns regarding China’s Belt and Road Initiative, which is now undergoing reassessment as policymakers focus on more sustainable and manageable projects. As Kenya's plans for further railway expansion face uncertainty, the shift towards smaller infrastructure projects and digital investments suggests a new direction in international development.

Takeaways

• 🚆 The Standard Gauge Railway (SGR) in Kenya was built by Chinese developers and financed primarily through Chinese loans, amounting to $3.6 billion.
• 💡 The goal of the SGR was to create a faster and cheaper transport link between Nairobi and Mombasa, intended to be self-sustaining through revenue generated from cargo.
• 📉 Despite its completion in 2017, the SGR has struggled with profitability, losing approximately $200 million by 2020.
• 🔍 Kenyan officials questioned the value for money due to the lack of competitive bidding for the construction contract awarded to China Road and Bridge Corporation (CRBC).
• 📊 A 2013 World Bank study indicated there was no strong economic case for the railway, estimating it needed to move 20-55 million tons of cargo annually to break even.
• 🚚 The railway's performance was hindered by competing road transport, which still dominates cargo movement in the region.
• ⚖️ Kenya's Port Authority previously mandated that cargo be transported via the SGR to boost its use, but this led to local protests.
• 🔄 President William Ruto has reversed this mandate, potentially leading to even lower cargo transport via the railway.
• 💰 As of June 2021, Kenya owed $3.3 billion of the original loan to China, contributing to a broader debt issue linked to underutilized infrastructure projects.
• 🌍 Chinese policymakers are reassessing Belt and Road Initiative projects, aiming for a more sustainable approach with better risk assessments and reduced financial exposure.

Q & A

What is the significance of the Standard Gauge Railway (SGR) in Kenya?

The SGR was intended to create a faster and cheaper transport connection between Nairobi and Mombasa, promoting economic growth and connectivity to landlocked neighboring countries like Uganda and Rwanda.

How was the SGR funded?

The SGR was primarily financed through a $3.6 billion loan from China's Exim Bank, with Kenya's government committing to repay this loan using revenue generated from the railway.

Why has the SGR struggled to be profitable since its opening?

Since its opening, the SGR has struggled to generate enough cargo traffic to cover operational costs, losing around $200 million by 2020. This is due in part to competition from road transport and insufficient cargo movement.

What role did the World Bank play in the assessment of the SGR?

The World Bank conducted a study in 2013 that found no economic or financial justification for building the SGR, highlighting concerns about its viability and potential profitability.

What actions did Kenya's Port Authority take to boost cargo on the SGR?

To increase cargo movement to the SGR, Kenya's Port Authority mandated that cargo bound for Nairobi and beyond be transported exclusively via the railway. However, this led to protests from local truck drivers and did not significantly improve profitability.

What changes has President William Ruto implemented regarding the SGR?

President William Ruto reversed the mandate that required cargo to be transported via the SGR, which may further decrease the amount of cargo moving on the railway and raise doubts about its economic sustainability.

How much debt does Kenya still owe for the SGR as of June 2021?

As of June 2021, Kenya owed approximately $3.3 billion of the initial $3.6 billion borrowed for the SGR.

What is China reconsidering in light of the SGR's struggles?

In response to the challenges faced by the SGR and other Belt and Road projects, Chinese policymakers are reassessing their approach, focusing on more sustainable financing practices and potentially smaller projects.

What changes are anticipated under the rebranded Belt and Road 2.0 initiative?

Belt and Road 2.0 is expected to involve less investment, better risk assessment, and improved feasibility studies, marking a shift towards more sustainable and manageable projects.

What types of projects might China focus on instead of large transportation infrastructure?

Experts suggest that China may pivot towards smaller, more agile projects, such as digital infrastructure like 5G networks or green energy projects like hydropower plants.