Can Uganda’s Turkish move push China to return to Kenyan leg of major African rail link?

The landlocked country has since contracted Turkish firm Yapi Merkezi to build the 273km (170 miles) standard gauge railway (SGR) section from the Kenyan border town of Malaba to Ugandan capital Kampala.

Funding was expected from British export credit agency UK Export Finance and Standard Chartered Bank, Ugandan officials said.

Kenya, on the other hand, hopes to persuade Beijing to help fund the section from Malaba to Naivasha, about 80km northwest of the capital Nairobi.

Exim Bank’s refusal in 2018 to release advance funds for this section came at a time of increased caution among Chinese policy lenders, amid accusations of the country being engaged in “debt trap diplomacy” in Africa, which Beijing vigorously denies.

Uganda now expects to start building its Malaba-Kampala section by September. Benon Kajuna, transport director at the Ugandan works and transport ministry, said “preparations are in high gear” for the SGR line from Naivasha to Malaba and further west to Kampala. The railway will then be extended to the Rwandan capital Kigali, as well as South Sudan and the Democratic Republic of the Congo.

“We are going to get financing from UK Export Finance, and we hope to start construction soon after we have done the evaluation of the bid, possibly in September,” Kajuna told a technical meeting in Kampala late last month of officials from Uganda, Kenya, Rwanda and South Sudan.

Kenyan roads and transport minister Kipchumba Murkomen said a feasibility study for the Naivasha-Malaba line will be ready for Chinese lenders by July 1, as his country continues with attempts to persuade China to fund the section.

Kenya will seek better loan terms including concessional funding, grants and extended repayment periods this time, he said. By seeking favourable terms, Kenya is trying to avoid problems that characterised the first phase of the SGR.

Kenyan defence minister Aden Duale’s recently released book For the Record claims that the cost of building the railway was inflated compared to similar projects in neighbouring Ethiopia and Tanzania.

Uganda’s plans make a strong case for the SGR’s commercial viability, and could make it attractive for China to fund the remaining section in Kenya, observers said.

Mark Bohlund, a senior credit research analyst at REDD Intelligence, said Turkish financing of the Ugandan leg of the SGR increased the likelihood that China would provide additional financing for the Naivasha to Malaba section, as freighting goods into Uganda should significantly increase revenue.

“Repayments of loans to China Exim Bank and China Development Bank have reduced China’s overall exposure to Kenya over the past two years and this should facilitate the signing of new loans,” Bohlund said.

Tim Zajontz, research fellow at the Centre for International and Comparative Politics in Stellenbosch, South Africa, said Chinese financing for large-scale African infrastructure projects was now much more targeted.

“Not only is the economic viability of projects taken much more seriously by Chinese banks nowadays, infrastructure finance is also being realigned with Chinese geostrategic interests in the light of intensifying competition with Western actors,” he said.

Zajontz, who is also a lecturer in global political economy at the Dresden University of Technology, said Uganda’s agreement with Yapi Merkezi had changed the economic parameters of the SGR.

“Should the deal actually materialise, this would mean that the SGR can better capture the Ugandan and regional cargo markets which would also increase the rates of return of Kenya’s SGR,” he said.

Considering Kenya’s rather dire fiscal situation, “a possible finance agreement for the Naivasha-Malaba section would probably entail an operational concession for a Chinese firm to ensure returns on the investment”, he added.