Kenya now owes more to East than West

By GITAHI NGUNYI

The People in Main story February 22, 2014

For every thousand shillings Kenya is getting in foreign loans, a hundred shillings is coming from China, making the Eastern country Kenya’s largest single lender in history. The amount loaned by the Chinese is also the largest to any sub-Sahara African country by a single donor country. Effectively, China is loaning Kenya a tenth of it’s about trillion shilling external loan portfolio. Government documents seen by The People indicate that China is now far ahead of the first big two traditional bilateral lenders, Japan and France.
China has been propelled to No 1 position by the standard gauge railway line project commissioned towards end of last year, for which Chinese government is lending Kenya Sh327 billion. Kenya’s second largest lender is Japan at a Sh91.6 billion mark, just Sh8 billion short of the Chinese. France which has consistently held the second position in Kenya’s public debt registers third at 7.4 per cent of the country external debt stock. Germany comes in fourth with lending portfolio of 2.9 per cent of Kenya’s external debt.

The rest of the Western countries including, US, UK, Scandinavia and the Balkans are lumped as others with total lending standing at 9.6 per cent of external loans. However, the bigger pie of the Kenya government borrowing is in the hands of the multilateral lenders, including the World Bank, African Development Bank (ADB), European Economic Commission (EEC), and the European Investment Bank (EIB). By the end of June, Kenya’s borrowing from these institutions will be 61.3 per cent of the external debt stock.
The World Bank, through International Development Association (IDA) is the biggest lender at 39.5 per cent. The African Development Bank (ADB) comes second with its lending taking up 11.6 percent of the external debt or a total value of Sh115.5 billion. Essentially, this means that with the exception of the World Bank, Kenya’s largest bilateral and multi-lateral donors are the Chinese, the Japanese and the African Development Bank.
The European Union through European Economic Commission/European Investment Bank comes last at 1.3 percent or 12.94 billion. In real money terms, China’s lending to Kenya has tripled in the past one year. Documents at the National Treasury indicate that China’s lending to Kenya has been expanding by over 100 per cent every year since mid last decade when the former President Kibaki administration unofficially adopted a “Look-East” policy.
But while Eastern countries have displaced the West as the top lenders to Kenya, the scenario is different in the country’s private sector. Since 2008, the West has concentrated their lending efforts to spur the recovery of the private sector from the decline occasioned by the post-election violence. In the last six years, institutions indirectly funded by Western governments have been aggressive in lending to local banks, deposit taking micro-finance institutions, and co-operative societies.
Today, the top 10 Kenyan banks are drawing loans from lending institutions owned by Western countries. Among the countries that have been lending to Kenya’s banks and other financial institutions are France, Germany, Sweden, Finland and Norway. But China is also catching up on private sector lending. For example, in 2010, China Development Bank extended a Sh4 billion credit facility for onward lending to small businesses.
This was the first facility of its kind in Kenya from China and still holds the record as the biggest funding to any local bank by an external source. Then there is the mega-deal sealed by Industrial and Commercial Bank of China (ICRC) and CfC Stanbic bank through parent company, Standard Bank Group of South Africa, in 2008. In it, the Chinese availed US$5.5 billion for Standard Bank expansion programme in Africa, with Kenya as the key focus.
It is out of this deal that CfC Stanbic Bank lent Triumph Kenya, a new entrant in electricity production, Sh9.6 billion for the construction of a power plant that will generate 83 megawatts using diesel. However, the national government is worried that Kenya’s total debt portfolio (external and internal) is rising faster than the growth of the economy and is putting in place measures to reduce it to manageable proportions. The debt ratio is expected to balloon to 53.3 per cent of the gross domestic product (GDP) by end of government financial year in June. Treasury says the external debt will shoot to Sh995.8 billion by end of June, of which the Chinese will be owed Sh97.58 billion.