“We are going to get financing from UK Export Finance, and we hope to start construction soon after we have done the evaluation of the bid, possibly in September,” Kajuna told a technical meeting in Kampala late last month of officials from Uganda, Kenya, Rwanda and South Sudan.

Kenyan roads and transport minister Kipchumba Murkomen said a feasibility study for the Naivasha-Malaba line will be ready for Chinese lenders by July 1, as his country continues with attempts to persuade China to fund the section.

Kenya will seek better loan terms including concessional funding, grants and extended repayment periods this time, he said. By seeking favourable terms, Kenya is trying to avoid problems that characterised the first phase of the SGR.

Kenyan defence minister Aden Duale’s recently released book For the Record claims that the cost of building the railway was inflated compared to similar projects in neighbouring Ethiopia and Tanzania.

Kajuna: SGR now has been constructed from the port of Mombasa up to Naivasha in Kenya. Preparations are in high gear for the construction from Naivasha - Kisumu - Malaba. Preparations are in high gear for the construction of Malaba - Kampala #SGRProgress pic.twitter.com/k8NPKSI27v

Uganda’s plans make a strong case for the SGR’s commercial viability, and could make it attractive for China to fund the remaining section in Kenya, observers said.

Mark Bohlund, a senior credit research analyst at REDD Intelligence, said Turkish financing of the Ugandan leg of the SGR increased the likelihood that China would provide additional financing for the Naivasha to Malaba section, as freighting goods into Uganda should significantly increase revenue.

“Repayments of loans to China Exim Bank and China Development Bank have reduced China’s overall exposure to Kenya over the past two years and this should facilitate the signing of new loans,” Bohlund said.

Tim Zajontz, research fellow at the Centre for International and Comparative Politics in Stellenbosch, South Africa, said Chinese financing for large-scale African infrastructure projects was now much more targeted.

“Not only is the economic viability of projects taken much more seriously by Chinese banks nowadays, infrastructure finance is also being realigned with Chinese geostrategic interests in the light of intensifying competition with Western actors,” he said.
Zajontz, who is also a lecturer in global political economy at the Dresden University of Technology, said Uganda’s agreement with Yapi Merkezi had changed the economic parameters of the SGR.

“Should the deal actually materialise, this would mean that the SGR can better capture the Ugandan and regional cargo markets which would also increase the rates of return of Kenya’s SGR,” he said.

Considering Kenya’s rather dire fiscal situation, “a possible finance agreement for the Naivasha-Malaba section would probably entail an operational concession for a Chinese firm to ensure returns on the investment”, he added.

But, according to Aly-Khan Satchu, a sub-Saharan Africa geoeconomic analyst, “the days of freewheeling, big ticket [Chinese] financing without a robust and bankable return on investment are behind us”.

While China remains the most important creditor and lender to sub-Saharan Africa, “I believe it will be far more careful in how it deploys its loan book on the continent and will also factor in a geoeconomic and geopolitical strategy into its decisions”, Satchu said.

“Therefore, I do not expect China to play a further financing role for the Kenya section. I believe China remains keen to manage its overall Kenya Inc exposure lower but [also] that the West will continue to lean in, especially in the context of the G7 being relatively friendless on the African continent.”

Nevertheless, Satchu said he did not believe China was wedded to any belt and road project and would “be happy for others to do the heavy lifting of making the railway viable, which in my opinion only happens when it finally becomes regional and reaches the [Democratic Republic of] Congo”.

Bohlund said the belt and road, China’s multibillion-dollar global infrastructure development strategy, was always a rather loose-fitting cover for lending that in many cases was more driven by the earlier “go-out policy” aimed at giving Chinese companies a global edge in their industries.

“While new [belt and road] loan announcements have fallen significantly, disbursements to projects in Cameroon, Kenya and other places are likely to be maintained, as the most significant bilateral infrastructure plans for Africa in the near term,” Bohlund said.

Zajontz said the Kenyan SGR was no longer the poster child for gainful cooperation under the belt and road plan. He said political controversies over Kenya’s railway debt, court rulings over procurement irregularities and popular resentment against policies passed by Nairobi to boost traffic on the SGR had inflicted reputational damage on the Chinese initiative.

“The Chinese government is of course interested in damage control. Extending the SGR to the Ugandan border would mute spiteful remarks about Kenya’s railway to nowhere,” Zajontz said.

However, he said economic considerations would ultimately determine the Chinese decision, even if that means what started as a flagship belt and road project is brought to completion by non-Chinese financiers.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.