Berliner Boersenzeitung - Kenya, Uganda double down on rail extension burdened by Chinese debt

The Standard Gauge Railway, built from 2013 to 2019, connects the Kenyan port of Mombasa to its capital Nairobi, and on to the lake town of Naivasha, but China refused further lending before it could be extended to Uganda as planned.

Kenya now spends roughly $1 billion a year servicing Chinese debt, most of it borrowed to build the railway.

That is far more than the line generates in revenue -- around $165 million last year -- even if passenger and cargo numbers have been growing strongly over the past year.

A report by Kenya's auditor general last year found more than $260 million had been wasted just on penalties and interest from late debt payments.

Yet despite the controversy over the cost, Kenya has been keen to finish the line.

Kenyan President William Ruto said the rail link will "define generations", speaking at a ceremony in grand pomp and circumstance with his Ugandan counterpart Yoweri Museveni in Kisumu, near the Kenya-Uganda border.

Ruto argued the line would slash logistics costs that "undermine competitiveness" in east Africa.

If the ambitious building schedule is to be believed, the line is due to reach Kisumu by June 2027. The next phase will then take the line to Malaba, a town on the border.

"Cargo takes an average of 80 hours to move from Mombasa to Malaba and more than 100 hours to reach Kampala," the Ugandan capital, Ruto said.

"We cannot build prosperity on inefficiency."

- 'Irrational and wasteful' -

Museveni said the line would reduce the inefficiencies in his own country's infrastructure.

"The railway is part of the rationalisation of our transport system, especially on the Uganda side, which is irrational and wasteful," the veteran leader told the ceremony.

Later, he posted on X that "by shifting bulk cargo from roads to rail and pipelines, we reduce transport costs, protect infrastructure and improve efficiency".

Ruto broke ground on the next phase in Narok County on Thursday, arguing that it will create jobs and reduce road congestion.

"We have thought through this project (and)... its finance," he insisted.

Treasury estimates say the overall cost will be more than 500 billion shillings ($3.9 billion), according to Kenya's Business Daily.

Kenya is not taking more cash from Chinese banks this time -- instead borrowing against future cargo taxes -- though it is partnering with Chinese transport firms to build the new phase.

China lent Kenya $9.7 billion between 2000 and 2019, according to the Chinese Loans to Africa Database by Boston University, with around half of that going to the railway.

It stopped lending from 2020 to 2023 as Kenya struggled to make repayments, at a time when China revised its broader lending strategy in Africa.

Kenya considers the railway extension crucial for strengthening trade through east and central Africa, hoping to reach landlocked countries such as Uganda, Rwanda, South Sudan and the mineral-rich Democratic Republic of Congo.

(Y.Yildiz--BBZ)