President Ruto looks East to get Kenya affordable project financing

Kenya’s President William Ruto doesn’t like debt. He just wants the government to have enough money.

Earlier in November 11, he told a stakeholder’s workshop on pensions in Nairobi that the government will not be borrowing any money at a rate of more than 10 percent from local markets. This drew sharp criticism from money market players who trade in treasury Bonds, who alleged that the government was discouraging lending. Governments borrow locally through treasury Bonds.

“I promise you I will not be the president that will continue the journey of taking our country into debt,” President Ruto said.

“It is a difficult choice but I don’t see an option out. We are going to rationalise the budget and look at what else we can do,” he added.

Hardly a week later, President Ruto this week travelled on an official three-day visit to South Korea, where he agreed with Seoul to have the latter take on a $1 billion financing of projects including the planned tech city at Konza, 60km southeast of Nairobi. He also Kenya as being ready for investment in trade and green energy.

Increase farm productivity

“We are committed to implementing strategies to increase farm productivity and seek your government’s support for agricultural mechanisation as well as cooperation in research and technological innovation,” Ruto said at a meeting with his hosts.

So how do such project financing agreements play into his foreign policy? Political watchers however say, Ruto is simply looking elsewhere for money that help him fulfil promises he made on the campaign trail.

Ngovi Kitau, a former Kenyan ambassador to South Korea suggested Ruto may still need to borrow, given the insufficiency of government revenue collection, but will look for credit arrangements that are not burdensome. South Korea, he argued, is a member of the Organisation for Economic Co-operation and Development (OECD, a 38-member group of countries which has rules on multilateral engagements including on debt.

“For example, they have a ceiling on interest rates for their concessionary economic development loans. They are far cheaper than Chinese and other commercial lenders,” he told The EastAfrican.

‘Look East Policy’

“So we’re back to Mwai Kibaki’s “Look East Policy” and cheaper concessionary loans,” he argued, before suggesting that Ruto may not necessarily be fetching loans from just anyone.

“The Republic of Korea has always followed a neo-mercantile development model, and if that is what Ruto has in mind, it will be a big plus for Kenya’s economic development.

“This means that we will have a government and entrepreneurial synergy leading to alignment of our foreign policy and trade policy,” said Mr Kitau.

In Kenya’s history, only President Ruto’s predecessor, Uhuru Kenyatta, documented a foreign policy. The 2014 document lists five pillars of the policy including economic, peace, cultural, environmental and diaspora diplomacy. Ruto has so far taken on the peace side of it, continuing policies of his predecessors such as avoiding quarrels with neighbours, mediating in regional conflicts and sending troops to peacekeeping missions.

External debt

But the economy, is the elephant in the room.

The country’s $38 billion external debt has largely been caused by extensive infrastructure boom including the standard gauge railway and roads and a new port in Lamu. This October, Kenya defaulted on timely payments to China, earning a fine. It has since paid up the fine.

Last week, however, the Chinese signaled intent to continue doing business with Kenya, ramping up discussions on the expansion of the Jomo Kenyatta International Airport.

“We look forward to continued collaboration in infrastructure development and attracting more investment into the sector,” said Kipchumba Murkomen, Kenya’ Cabinet Secretary for Transport after meeting with Chinese ambassador Zhou Pingjian.

“We consider China a close friend and a great partner owing to their active involvement in the transformation of Kenya’s infrastructure landscape over the past 20 years resulting in cheaper, faster and a more efficient movement of people and goods between cities and towns.”

“The initial indications of the new administration are that it appears to lean more West than East. It’s however too early to conclude that the policy is Western oriented,” said Dr Hassan Khannenje, director of the Horn Institute for Strategic Studies in Nairobi.

Delicate balance

“Because of the existing engagement with the East and the reality of economics, we are likely to see a delicate balance between the two blocs. If the early engagements are anything to go by however, it is plausible to say that the West is having a head start is its efforts to embrace the new administration.”

China, however, will remain a key trading and economic partner, he said, because it has become central piece of world economy and politics.

As soon as he came to power, President Ruto reversed some of the policies seen as targeting the Chinese co-operation with Kenya. He for example, allowed Kenyan and regional importers to choose their preferred mode of transporting cargo from the port of Mombasa, away from the compulsory use of the SGR. Cargo volumes over the SGR had been seen as one way of ensuring the railway remains viable to pay for its debt. The government had also promised to release details of the financing contract for the SGR. However, when it did, it redacted crucial details, signalling adherence to confidentiality clauses.

Nairobi has since signed a deal with the United Kingdom to build a dam in Kenya, worth about $4.2 billion, potentially one of largest infrastructure projects.

On November 8, the International Monetary Fund reached staff-level agreement on economic policies to conclude the fourth reviews of the 38-month financing arrangements worth $2.34 billion meant. The money is meant to, among others, “cover external financing needs resulting from drought and challenging global financing conditions.” Kenya will have access to about $433 million in financing once the review is formally completed by the IMF Executive Board.

IMF conditions

However, Nairobi has had to put up with conditions from the IMF, including abolishing subsidy on fuel and the staple maize flour, promised to cut costs on spending and work on debt management.

“There has been good progress on fiscal adjustment needed to address debt vulnerabilities though pressures remain elevated,” the IMF said in its review.

Coming in at a time of a strained economy caused by challenges beyond Kenya, Kenyan legislators say the president should engage with external entities if it helps solve local problems.

“The effectiveness of any government policy is rated majorly on its responsiveness to contextual needs of society and its progressiveness and adaptation to changing circumstances,” said Nelson Koech, MP and chairperson of the National Assembly Defence, Intelligence and Foreign Relations Committee.

Promote fair trade

And according to Mr Koech, Kenyan legislators will urge the president to promote fair trade and “equitable” bilateral and multilateral engagements.

“We do have a strong foreign policy but I think in the coming days we may need to strengthen the economic diplomacy pillar, as a strategic incentive to secure Kenya’s place as the investment destination of choice in the region as we strive to expand access to our traditional markets and explore new destinations for our exports,” Mr Koech told The EastAfrican.

“The Kenya Kwanza government has taken up the country’s leadership in the middle of a global technological transformation which will naturally affect trade and diplomatic relations across the world. We need to be alert as a committee to ensure our foreign policy is adaptive to the changing times,” he argued.