The buckle on the Middle Kingdom’s Belt and Road in Africa strained this week by worsening China-U.S. trade woes. Marking a 10-year low on the Nairobi Securities Exchange on Wednesday, risk averse investors rattled by the trade fight between the two superpowers have contributed to a months-long drop. The fall comes at a time when Kenya is softly reassessing debt trap worries and waning infrastructure projects with its economic partners in Beijing.
Wednesday’s 10-year low at the Nairobi Securities Exchange 20-Share Index closed at 2,545.28 points, a fall from 2,552.19 the previous day, a sharp drop in a near year-long trend.
“In the global market is the issue of China-US, and all markets have been heading south on the same. It’s only fair that we would be affected,” Eric Malachi, head of equities at Genghis Capital, told Reuters.The sectors hurt most in the drop – which began in October – have been insurance, construction, and power companies, in particular Bamburi Concrete, which has faced oversupply problems in the past.
The U.S.-China trade spat puts more pressure on the China-Kenya economic relationship. On the August 7, the think tank Kenya Business Guide’s Oscar Otele, as reported in The Star, raised concerns over the merits of Kenya’s growing relations with China.
“The negotiation tactics the Kenyan government deployed to ensure that Kenya got a fair share of trade benefits are still not clear,” Otele said at the Kenya-China relations working series brief release.
Kenya has seen its trade deficit with China increase over the years; imports from China were found to be 370.83 billion Kenyan shillings ($3.5 billion) in 2018 compared to exports of 11.13 billion according to the 2019 Economic Survey.
The “debt trap” of Chinese infrastructure investment has been well noted along China’s Belt and Road Initiative (BRI). While the downturn in recent months has been attributed to foreign investor outflows, Kenya finds itself in a unique position as one of China’s largest trade partners on the continent. With China holding over 20 percent of foreign loans and an external debt of 2.61 trillion Kenyan shillings, caution is warranted.
The BRI, often pitched as China’s answer to U.S. isolationism, is a loosely defined Chinese infrastructure and investment track across 152 countries, and along the way China has sparked comments that its loans and projects would put some nations in a debt trap – concerns Kenya has seen previewed in other African countries.
China holds a third of the Republic of Congo’s debt and recently restructured its borrowings by adding another 15 years to the repayment period, Zambia is trying to adjust its loan repayments for infrastructure projects, and Kenya’s neighbor to the north Ethiopia had to have part of its Chinese debt written off for a railway.
Kenya has already had its own railroad woes with China. In what has been called China’s “Railroad to Nowhere” the first half of the Kenya-Uganda railway was financed easily but remains unfinished. Currently stopping just outside of the capital, Beijing is not releasing the $4.9 billion remaining needed to take the project to the border and Tororo. For casual travelers the rail has been seen as a boon, and will likely be more so when the rail finally makes its way to the popular tourist attraction of Naivasha, but, designed mainly for freight, worries remain that the route will continue to lose money.
Still, China’s involvement in successful Kenya infrastructure projects remains high, and the Middle Kingdom continues to make token efforts to show that it does not have interests in debt trap diplomacy. Charges of China using debt to further its geopolitical ambitions have been met with the familiar CCP line on “foreign forces” and Western media.
“Some outside forces have tried to vilify and undermine China-Africa cooperation by cooking up [accusations of] so-called neo-colonialism and debt traps, which are totally groundless and are not accepted by African people,” Chinese state councilor Wang Yi said in June.
From Xinjiang to Hong Kong, the blaming of “foreign forces” is a seemingly ubiquitous catch-all conspiracy for any PRC PR problems; Hong Kong’s business leaders, however, are hoping to ride China’s coattails into Kenya despite the recent unrest. Multi-billion-dollar company representatives from Hong Kong found themselves in Kenya this week hoping to earn some of the investment success found by the mainland in places like Kenya and Djibouti.
The long-term drop in the NSE-20 – due at least in part to the U.S.-China trade disputes – is overshadowed in this instance by a plunge in big domestic players, namely Bamburi Concrete’s precipitous loss of value over the year as well as significant drops from Kenya Electricity Generating Company and Kenya Power. Risk-averse investors are turning to easier Treasury bonds. The previous low for the Kenya index was March 12, 2009, when it closed at 2,453.36.