A 21-gun salute at Kenya’s State House welcomed the 500-strong Chinese delegation in mid-May, and over the next three days, a record 15 agreements were signed between Nairobi and Beijing.
Various sectors attracted China’s attention, including aviation, agriculture, energy, manufacturing, technology and wildlife, but it was infrastructure that was most keenly watched. China’s Prime Minister Li Keqiang did not disappoint. He and Kenya’s President Uhuru Kenyatta signed two infrastructure related deals worth a combined $4.5bn.
The first was a $3.8bn (KSh 332.5bn) financing for the standard-gauge railway that will connect Kenya’s port city of Mombasa to Burundi’s capital Bujumbura through Kampala, Kigali and Juba, the ground breaking for which took place in November. The second financed the $743m (estimate from 2008–2012 Strategic Plan for Tana and Athi River Development Authority) Grand Falls Multipurpose Dam Project in Mwingi in Eastern Kenya.
China has acted quickly to finance two multibillion-dollar tenders in Kenya and construction of a multitude of others. While this has angered other international and local investors, they have been slow to put their money where their mouths are.
Both projects will help to revive the failing fortunes of the multibillion-dollar Lapsset (Lamu Port, South Sudan and Ethiopia Transport) corridor, but the deals are overshadowed by concerns about China’s monopolistic control over Kenya’s mega projects.
The need for African economies to prioritise infrastructure was emphasized by Head of the IMF, Christine Lagarde, in June when she urged Africa to spend $93bn a year to bring its economies up to speed.
Lapsset is one of the key infrastructure projects in Kenya’s development blueprint Vision 2030. It includes a port at Manda Bay in Lamu; a 1,500km standard-gauge railway line to the Ethiopian and South Sudanese capitals; a road network and oil pipeline connecting Lamu with Southern Sudan and Ethiopia (and now Uganda); an oil refinery in Baragoni; and airports and resort cities in Lamu, Isiolo and Lake Turkana.
It will be the country’s second transport and economic corridor, and will facilitate an equatorial land bridge connecting the Indian Ocean to the Atlantic.
The project is also hoped to revive the country’s growth, which stood at 4.7% in 2013 according to the 2014 Economic Survey, falling short of a 5.5% prediction.
The Lapsset Corridor Development Authority (LCDA) suggests it will contribute between 8% to 10% of GDP once investors come on board, especially since projects in poorly developed areas yield higher growth figures.
Ground breaking on stage one – the initial three berths of the planned 32 berths at Manda Bay – took place in March 2012 but a long silence followed, with the finger of blame pointed at the messy land ownership situation in Lamu, the 2013 national elections and fighting in Isiolo. Critics have, however, questioned whether the project stalled because of a funding shortfall.
At the time of its launch, Lapsset was costed at $30bn – equivalent to nearly half the country’s 2012 GDP. The government undertook to fund 25%, and has since allocated $48m to the roads, railway and first three berths at the port in the hope that it will attract private sector participation in the remaining components.
According to LCDA CEO, Silvester Kasuku, the port building and police station in Lamu are 95% complete.
Locally based NGO, Save Lamu, confirms that offices for power generation company KenGen, and an access road from Lamu’s main road to the port site at Kililana have also been completed.
Other Lapsset roads have reached a completion rate of between 7% and 43%, according to LCDA. The power connection for the port has also been completed. Lengthening of the Lamu-Manda Island Airport runway is finished, and the Isiolo Airport will be operationalised in mid-2014. Dredging for the first three berths in Lamu is expected to begin in June.
The high level of government activity has excited commercial banks and in the last year Equity, DTB, ABC and Gulf opened branches on Lamu island and the mainland.
The Lapsset financing agreements with China have been sealed in an era when they are aggressively chasing deals across the country.
Three Lapsset projects are being handled by Chinese companies: construction of the first three berths by a consortium associated with the China Road and Bridge Corporation at a cost of $484m; the standard-gauge railway by China Communications and Construction; and the Grand Falls Multipurpose Dam project by China State Construction Engineering Corporation.
The Greenfields terminal at Jomo Kenyatta International Airport is also being handled by a Chinese firm, Anhui Construction.
According to State House Kenya, about 50 Chinese companies have been contracted for 80 projects with a value of $2bn in sectors including transport, housing, water processing, power upgrading, energy, and ports and airports.
Auditing firm Deloitte estimates that China funds 17% of East Africa’s construction and that they build 19% of it.
The trend is replicated across the continent, and in 2013, Sino-African trade stood at $210bn, according to Beijing, with this figure projected to rise to $400bn by 2020.
China’s project management strategy has, however, come under scrutiny because of a heavy reliance on Chinese labour and reluctance to transfer technological knowledge to the locals. This prompted an outcry during the construction of the Thika superhighway, and China Wu Yi was forced to bring in some Kenyan manual workers.
The building of Nairobi’s tallest office block, the 40-storey Hazina Trade Centre Towers, also attracted media attention after China Jiangxi International contested the award of the tender to a local developer. The disagreement highlighted growing antagonism between local and Chinese developers, and came just months after Kenyan traders took to the streets to protest the influx of Chinese hawkers peddling cheap wares.
Such discontent in the face of growing immigrant communities is not unique to Kenya but it sours the high-level agreements being signed between Nairobi and Beijing.
For a while it seemed as if Western countries were locked out of the Lapsset project, even though the World Bank, African Development Bank and European Union funded the roads linking Kenya with South Sudan and Ethiopia. Before the end of his term, former President Mwai Kibaki was prompted by the Japanese to introduce the Lapsset project to investors from other countries, and he also wooed investments by South Korea and Brazil.
In mid 2013, three South African banks expressed an interest in funding Lapsset, according to LCDA CEO Kasuku, and in the same year, Japanese trading company Toyota Tsusho tendered for construction of the oil depot and pipeline. The LCDA has also alluded to talks with the government of Spain to set up a desalination plant.
In 2014 there has been a similar pattern of interest from foreign investors. In March, Chinese news network Xinhua reported that President Kenyatta had met the Aeolus Kenya and Manda Bay Consortium to discuss a $3.29bn investment in building three berths at Lamu, an 850 megawatt gas-fired power plant, Lamu International Airport, Lamu-Isiolo highway and a water desalination plant.
The consortium is a group of Kenyans with backing from Nairobi’s US embassy, US conglomerate General Electric, Spanish energy firm Iberdrola, Norwegian gas company Hoegh LNG, AKL Wind Energy, transport solutions provider Indra Systems and independent power producer Aeolus Kenya.
And a month later, during his visit to Qatar, President Kenyatta mentioned how Qatari money was already plugged into Lapsset.
But despite the interest expressed by foreign investors, no deals seem to have been finalized. While there is much promise that other governments will eventually weigh in on the Lapsset corridor, for the moment it continues to be an all-China affair.