Chinese Loans offer the best alternative for Kenya

There’s a raging debate on whether the loans Kenya has secured from China are good for us and whether they are comparatively better than loans secured from the West. On the part of the anti-Chinese loans to Kenya part of the divide, the stratagem seems to be a largely fallacious attempt to paint a good image of lenders from the West.

The propensity to the West has conveniently led to the ignorance of Kenya’s debt history, which was predominantly from the West. History proves that loans from the Bretton Woods Institutions were expensive, ineffective and a tool of political manipulation while facts in the recent past suggest that loans from China; and specifically from the Exim Bank of China are cheaper due to the amicable policies towards Africa by the Chinese government.

Besides creating dependence, most of the Bretton Woods loans are too low to enable any meaningful progress. Many are also mainly destined to non-productive ventures such as democratic governance, policy reforms or humanitarian aid. Indeed, critics have coined the term “humanitarian alibi” to describe how humanitarian assistance is used by Europe and America to appear that they have been doing something when, in actual fact, they have not brought about any meaningful change in economically promising countries like Kenya.

In the book, Confessions of an Economic Hit Man, John Perkins exposes how deceptive foreign development assistance from the West has been. He chronicles how the West deploys experts to convince developing countries to accept loans that do not contribute to development and which they have no capacity to pay. Consequently, such countries are forced to default which places them at the mercy of the lenders. This could be one of the reasons why Kenya had not implemented any large infrastructure project before going East.

The Chinese approach is seen a “win-win principle” in that aid is given only if it contributes to China’s own national interests as well as those of the recipient country. In addition, we cannot begrudge the Chinese for wanting to benefit from the loans they give us. What we need to do is to ensure that we negotiate with them so that they can subcontract our own engineering firms and local road contractors even as we build our own capacity to international standards.

Unlike lenders from the West, the Chinese government has explicitly stated in policy that it does not interfere with the internal affairs of the recipient countries and that it “fully respects their right (of such countries) to independently choose their own paths and models of development.” We need to remember the havoc caused to our economic mainstays after we agreed to adhere to the structural adjustment programmes imposed by the IMF and the World Bank in late 1980s. This must be a constant reminder of Kenya’s debt history and the best alternative offered by the Chinese.

Our debt-GDP ratio is not as bad as we are persuaded to believe. We are at par with our peers in the continent and there’s nothing wrong in surpassing prudential loan limits in the short run; the real danger is when it is breached on a long-term basis. Indeed, even the IMF acknowledges that it is practically difficult to pin-point what constitutes a prudent amount of public debt.

A high Debt-GDP ratio is not necessarily a sign of bad economic management Anis Chowdhury and Iyanatul Islam in Is there an optimal debt-to-GDP ratio?; rubbish the claim that high public debt causes lower growth saying that this is “not grounded in robust empirical evidence.” What is important is to ensure the loans go to fund productive ventures. There’s little doubt, even amongst the naysayers that the development of large infrastructure projects is likely to promote more economic growth.

It is therefore prudent to bear in mind that there are no quick fixes to reduction in debt ratio. Indeed, IMF reports show that bringing debt-GDP ratios to sustainable levels requires unprecedented and long-term measures. It therefore means that for Kenya to reduce its debt burden, then it needs to expand economic growth –which is what the implementation of large infrastructure projects are meant to achieve. 

This Article has also been published on the following platforms

http://www.the-star.co.ke/news/2016/04/19/china-loans-our-best-bet_c1332003

http://www.mediamaxnetwork.co.ke/people-daily/214266/why-chinese-loans-offer-best-alternative-for-kenya/

http://www.capitalfm.co.ke/eblog/2016/04/15/chinese-loans-offer-best-alternative-kenya/

China’s role in South-South cooperation

China is the fastest growing economy in the world by all means at the moment. One positive thing about the Chinese people is the understanding that at one particular point in history, they were not doing well. They experienced challenges and now that they are in a position to help other move up the ladder, they are willing to do it in order to impact positively on the lives of many other people across continents.

While addressing a high level roundtable on South-South Cooperation at UN headquarters in New York, President Xi Jinping announced China’s participation in a massive 600 new projects that are geared to helping the developing countries on trade and poverty reduction. It is in this discussion the Chinese president took the opportunity to stress the commitment of his nation to South-South cooperation. He said that China remained as committed as ever to this cooperation.

In a well-orchestrated plan spread out over a period of five years, in its effort to reduce poverty, China would initiate 100 new projects that would tackle this cancer. To promote agriculture China would initiate 100 projects. A further 100 projects will be established to promote trade. China is committed to preservation and conservation of the environment in order to tackle the glaring problems occasioned by climatic change. As such another 100 projects dealing with ecological preservation and climatic change will be set up. On health development, China will initiate projects that will see construction and development of 100 new hospitals and clinics. To promote education and intellectual development, 100 schools and vocational training centers will also be set up.

To show its commitment to South –South Cooperation, China will also set up a South –South Cooperation and Development Academy to aid in training half a million technical personnel from developing countries. In addition to this, it will offer $2 million in assistance to World Health Organization.

Xi added that there will be more deliberate communication and exchanges with developed countries and a greater participation of businesses and the private sector to build multi-tiered partnerships and help in creating a community of shared interests among various stakeholders.

The President emphasized on the need of the South-South Cooperation to deliver practical results and take the approach of result orientation rather than just empty talk. He pointed out that projects should yield tangible results that create better, economic, social and environmental impacts for the benefit of the general public.

UN Secretary –General Ban Ki-moon, a co-host of the roundtable with China took his time to sincerely thank China for its support and commitment to nations of the global south. He said, “All this Support will go a long way to address the needs of the poor and the most vulnerable and contribute political momentum for the success of the climatic negotiations in Paris in December. “He further added that as the UN tried to implement the 2030 sustainable-development agenda, it would be paramount to widely share the effective policies and practices that China and other fast-growing economies in the global south are employing.

In terms of contributions, China contributes more than $4 Billion of aid towards South- South Cooperation on a yearly basis.Erstwhile to the high level roundtable Gyan Chandra Acharya, undersecretary-general at the UN and a representative of the least developed countries confirmed that China is an example of a developing country that was able to transform its economy and lift millions of its people out of poverty thus setting a mark for many other nations. Gyan further stated that it was possible to change the narrative of the world that focuses on the myriad of challenges and the big issues facing a certain country. To him you should look at the possibilities. People can achieve success if there is global collaboration and cooperation. To Gyan China had demonstrated this aspect.

 

Xi said that China as a developing country is aiming at enhancing solidarity and cooperation with other developing countries in order to create an unshakable foundation of China’s foreign relations. He added that the country would share with developing countries more development opportunities.

“The profound friendship between the Chinese people and people of other developing countries are our most valuable asset. We will as always promote our development along with the common development of all developing countries, align our efforts to realize the Chinese dream with the endeavors by other developing countries to attain their dreams for a better life for their people and pursue common progress of all developing countries. China will never waver on this commitment, not under any circumstance.” Xi said.

Extracts from Chinese president Xi Jinping’s speech at the Ninth G20 Leaders' Summit held in Brisbane, Australia.

President Xi Jinping attended the Summit and delivered an important speech entitled “Promoting Innovative Development and Realizing Overall Economic Growth”, advocating for becoming development partners jointly promoting economic reforms and implementing the overall growth strategy, so as to push forward the transformation of world economy from cyclical recovery to sustainable growth. Xi Jinping stressed that China will maintain its momentum of economic growth and make greater contributions to promoting the world economic growth.

Xi Jinping pointed out in his speech that over the past few years, the world economy has gradually climbed out of the trough and constantly developed toward the good direction. Meanwhile, economic recovery is not robust; risks remain in the financial market; and international trade is still staggering at a low level. He said “Our first and foremost task at present is to coordinate macroeconomic policies, jointly overcome development difficulties, decrease economic risks and realize economic prosperity, financial stability, trade development, as well as improvement in employment and people’s livelihood”.

Xi Jinping pointed out that not long ago; the Asia-Pacific Economic Cooperation (APEC) made plans for promoting growth of the Asia-Pacific region. The G20 has also been making efforts and formulated a comprehensive growth strategy. To implement this strategy, it is important to explore and cultivate the impetus for sustained growth to form a new situation featuring development innovation, convergence of interests and overall growth.

Xi Jinping suggested that the G20 make efforts in the following aspects:

First, make innovation on the development pattern. All countries should make innovation on the development concept, policy and pattern, especially through structural reforms in such fields as fiscal taxation, finance, investment, competition, trade and employment, as well as through the combination of macroeconomic policies and social policies, so as to stimulate vitality in creating wealth and bring the market force into full play. We should attach importance to the pulling effect of infrastructure construction on economy. While hosting the APEC Economic Leaders’ Meeting, China set connectivity as one of the core topics. China supports the G20 in establishing a global infrastructure center, supports the World Bank in establishing a global infrastructure fund, and will make contributions to global infrastructure investment through such approaches as the construction of the Silk Road Economic Belt, the 21st Century Maritime Silk Road, the Asia Infrastructure Investment Bank (AIIB), and the Silk Road Fund.

Second, construct an open world economy. All countries should safeguard the multilateral trade system, build a mutually beneficial and win-win global value chain, cultivate a big global market, oppose trade and investment protectionism, and promote the Doha Round Negotiations.

Third, improve the global economic governance. All countries should be committed to building a fair, just, inclusive and orderly international financial system, enhance the representation and voice of emerging markets and developing countries, and make sure that all countries enjoy equal rights and equal opportunities under equal rules in international economic cooperation.

Xi Jinping stressed that China’s economic growth is an important impetus for the world economic growth. According to the estimate made by international organizations, China is one of the largest contributors to the overall growth strategy of the G20. Such contribution comes from China’s policies and measures to maintain steady growth, adjust the structure, promote reforms and benefit the people’s livelihood. China’s economy will maintain strong, sustainable and balanced growth momentum, with an annual increase equivalent to the economic scale of a moderately developed country. China will provide more demands and create more market opportunities, investment opportunities as well as growth opportunities for the world economy. 

Xi Jinping announced that China will adopt the Special Data Dissemination Standards (SDDS) of the International Monetary Fund (IMF). In the end, Xi Jinping pointed out that the G20 members should establish the awareness of a community of interests as well as a community of destiny, and strive to form a pattern of win-win cooperation in which the growth of each country promotes and complements that of other countries, so that the G20 truly becomes the stabilizer of the worldeconomy, the incubator of the global growth, and the propeller of the global economic governance.

Xi Jinping also attended the informal discussions of the G20 Leaders’ Summit and delivered a speech on the topic of economic reforms. He introduced the goals and measures of China’s comprehensively deepening reforms, and stressed that China’s economy has entered a period of opportunities for transforming the pattern and adjusting the structure, cultivating the momentum of endogenous growth, and improving employment and the people’s livelihood, and that China’s economy has developed into a new and regular pattern, with vigorous growth momentum and bright development prospect. “I hope that all countries take on the political courage of eliminating the old and establishing the new, constantly make innovation on the development pattern, and become development partners jointly promoting economic reforms”. He said.

China’s development assistance to Kenya cannot be downplayed

Whenever a discussion on development and aid in Kenya comes up, it is highly unlikely that China will not feature. Analysts find it important to compare what China has done in relation to what other development partners have to offer. Despite the obvious grounds and motivation for this association, sophists tend to put China’s role and activities under the critical lens; however, in the face of differing views being projected by diverging interests, it is not difficult to weigh up and establish China’s critical role as the evidence is there for everyone to see.

Before China’s engagement with Kenya, traditional donors dispensed aid with political strings attached and conditions. Today, China gives unconditional aid not in form of money, but in form of infrastructural and social development that every Kenyan can see and feel. We are no longer talking about white elephants but grand projects never seen before in the country. This has not shielded Chinese aid from criticism based on historical experiences of aid money.

China gives us cheap and long term loans which reduce the pressure to pay, enabling the country achieve its development objectives. This too is being seen in terms of increasing our debt burden, forgetting that these are the same loans that Kenya and other African countries begged from the Brettonwoods institutions to fund our much needed infrastructural development.

A decade of engagement has helped Africa to develop and grow African economies by 20%, which more than 500 years of trade with the west could not. Kenya’ fast economic growth in recent years has been attributed to improved trade with and infrastructure development with China. China’s charm has been its ability to listen and consult on what is best for Kenya’s self development. During his trip in China, President Kenyatta asked for even greater cooperation with China to drive our most pressing needs. Discussions on new areas of investment mainly in infrastructure, energy and technology transfer were fruitful leading to the signing of agreements worth Sh425 billion with China.

This is the necessary capital that a country like Kenya needs to spur its economic growth. Just like in business, no country can invest big without sufficient capital and this is the path that developing countries like Kenya have to take. When the Asian giants were poor, they went through the same development path and they are now servicing their debts with ease. Having undergone the same process, China understands this concept hence its willingness to risk giving us such huge amounts of money as investment at very cheap interest rates compared to traditional lenders in the bretton woods institutions.

Meanwhile, the majority of China’s assistance is in government to government model by non-currency delivery. This protects the general populations from graft in government and ensures that the money is used for its intended purpose which is investment in infrastructure and development.  A successful investment ensures the country is able to pay back the loans without having to subject the citizens to higher taxes and a greater tax burden.

The best thing about China is the focus on concrete programs such as infrastructure, livelihood projects, education, healthcare etc, from which the people can see and feel and benefit directly. For instance, the new standard gauge railway linking the port of Mombasa and the border town of Malaba has employed over 25,000 youths from this country that apart from the income they will get, will also benefit a lot from the skills and technological knowhow from their Chinese counterparts.

It is impossible to downplay China’s significant contributions to Kenya’s economic and social development, especially the implementation of Vision 2030.  As for development, China shares much with Kenya in terms of concepts, goals and approaches.  Other development partners perceive Kenya as backward and underdeveloped, opting to instead dump outdated technologies no longer in use in their countries. Kenya Vision 2030 and the Chinese Dream have similarities that will bring both countries together to carry out common development, integrate our shared interests and combine the wishes and aspirations of both peoples. It is the shared tasks of both countries to create a bright future and fulfill common development dreams.

China has become Kenya’s largest source of financing, our largest construction project contractor and second-largest trade partner. Especially under the framework of Vision 2030, China and Kenya are working together closely in many fields, and have built or are building a number of flagship projects. These have greatly improved Kenya’s capacity of self-development and laid a solid foundation for Kenya’s future prosperity.

China is actively involved in the construction of roads, railways, airports and sea ports in the country. The Thika Superhighway is just an example of how much these kinds of infrastructure are critical to Kenya’s development. The road has opened up economic activity and development in areas along the road. Notable ones being Nakumatt Thika Road Mall (TRM), Garden City Mall, Naivas mall among others.

The Mombasa-Nairobi SGR, currently being built by China Road & Bridge, has been the largest infrastructure project since the independence of Kenya. It is expected to create more than 30,000 local jobs and lift Kenya’s GDP growth by 1.5%. When completed, it will have reduced the Mombasa-Nairobi transportation cost by about 40%, and will boost business along the railway and create numerous jobs.

The expansion of Jomo Kenyatta International Airport and the construction of Greenfield Airport will remarkably improve Kenya’s aviation capacity, and further enhance Kenya’s unique position as the transportation hub in East Africa. The Chinese participation in the Mombasa Port and Lamu Port projects will help increase Kenya’s cargo throughput and promote its imports and exports. There are far more model projects like these, which have become success stories in Kenya’s households and the symbols of China-Kenya friendship.

In the field of energy, which is the lifeline for Kenya’s economic take-off and industrialization, China has provided financing assistance and asked Chinese companies to engage in related projects. The Olkaria 140-megawatt geothermal power station, which is the largest of its kind in Africa, has come into operation recently. PetroChina and Sinopec took part in this project, which has improved Kenya’s power generation capacity and reduced local electricity price by around 30%.

It is unimaginable where Kenya would be without Chinese support of the last decade. Kenya was on a steady downward slope in terms of economic development. The country was fraught with high unemployment rates coupled with massive layoffs, essential services were deteriorating at an alarming rate, our roads were impassable and economic activities were chocked with inefficiencies.Just as we were on the brink, came in the Chinese and Kenya witnessed development activities that they had long forgotten about. We began to see infrastructure development on a scale never seen before in this country. We began to see new roads, hospitals, schools, and new communication networks.

Whereas we are not in the business of comparing that has done more to Kenya in terms of development assistance and contribution, we must not downplay China’s critical role in our development and acknowledge that China is among the dominant players in our development quest and avoid being misled by geopolitical interests.