African countries hope growth will prevent China repayment problems down the track

African countries are moving full steam ahead to develop their economies through Chinese-funded railway infrastructure, hoping faster growth will forestall concerns about the costs and their ability to pay it back.

  • By GlobalMarkets
  • 15 Oct 2017
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By Jackie Horne, Thierry Ogier and Lucien Chauvin


Njoroge
Njoroge: if growth accelerates debt won’t be a concern
One of the continent’s most contentious projects is a 472km standard gauge railway (SGR) line between the Kenyan port of Mombasa and capital Nairobi, the country’s biggest infrastructure project since independence. China funded 90% of the $3.8bn construction as part of its Belt and Road Initiative. However, a 2013 World Bank study concluded there was “no economic or financial case” for building a new railway and advocated upgrading the existing line. There have also been questions why it allegedly cost four times more than the original estimate and how one Chinese company got the contract without competitive bidding, or public oversight of the procurement process. As a result, government debt to GDP has climbed 16.2 percentage points to 59.7% in five years.


However, Patrick Ngugi Njoroge, governor of the central bank of Kenya, believes that critics have missed the point, citing the problems Winston Churchill had getting the railway line he coined the “Lunatic Express” approved by Britain’s parliament over 120 years ago. “The SGR’s impact on export competitiveness will be huge,” he said. “We have a very dynamic private sector and they’ll grab the opportunity. “All the experts miss the point that if growth picks up, the debt won’t be a concern,” he added. “They also haven’t factored in how much it costs repairing the Mombasa to Nairobi road every two years because of truck damage.”
The SGR’s second section is now being built from Nairobi to the Ethiopian capital of Addis Ababa, which supporters say will also link landlocked neighbouring countries including South Sudan, Uganda and Rwanda to the sea.
China has also funded and built a 750km railway between Addis Ababa to its Djibouti seaport at a cost of $3.4bn. It has cut the journey from days to just 10 hours. Abraham Tekeste, Ethiopia’s minister of finance and economic development, told GlobalMarkets the loans carry concessional and commercial rates, but declined to give a more detailed breakdown.
But he remains confident Ethiopia can afford it. “We’re using the money for bankable projects, which will generate adequate returns to repay our debt,” he said.
Malawi’s finance minister, Goodall Gondwe, puts forward a similar argument for his country, which he hopes will benefit from a $2.3bn Chinese funded railway linking neighbouring Zambia to its border. “We’re now getting quite a lot of Chinese support,” he said. “This is very helpful since we’ve a great deal of demand for infrastructure.”

  • By GlobalMarkets
  • 15 Oct 2017

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