Weeks before the President departed for China, the media had told Kenyans that the President was going to discuss the acquisition of a Kshs 368 billion loan from the Chinese to extend the SGR beyond Naivasha to Kisumu.
Note: this article was written and published on 29th April 2019.
There are conflicting reports about what the Kenyan president went to do in China.
Weeks before the President departed for China, the media had told Kenyans that the President was going to discuss the acquisition of a Kshs 368 billion loan from the Chinese to extend the SGR beyond Naivasha to Kisumu.
The president was also attending the second Chinese Belt and Road Initiative summit.
The President’s trip generated widespread excitement across the country for several reasons, particularly those related to consumer interests. Kenyans are 100 percent consumers when they get free monetary windfalls. Ask the land sellers of the SGR section from Mombasa to Nairobi.
But today, many are cursing the SGR money for the misery it has caused them.
With the Chinese loan for the section from Naivasha to Kisumu, money from the land sale was coming, and with it, many opportunities. On the family front, the polygamous sections in the Kenyan Constitution were to be utilised to the maximum: second wives, third wives, fourth wives, plus “mpango ya kando baes”, etc. This money would have spelled the end of singlehood for many Kenyans.
Also, second-hand vehicle yards were to be emptied. Every person with SGR money would have bought one or many brand-new vehicles. Demand for alcohol was likely to make the beer manufacturers operate twenty-four hours a day. Celebration time!
Of course, a few people would have engaged in constructive activities. Some of the productive endeavors include educating their children, starting businesses, and developing the part of the land not taken by SGR.
But alas! After the president returned home, the media changed the story. Now, they are discussing the president’s success in signing avocado market deals. The way the media is talking about the avocado market deal is like it is the worst thing that the President could have gotten for Kenya.
Some people are still living in the 1960s, 1970s, 1980s, and 1990s. Avocados were given out for free at most homesteads. So what is the big deal with the president signing an avocado market deal? There goes the generosity of most Kenyan homesteads.
What the media is not telling us is that the avocado market deal is far better than a Chinese loan. We can sell the avocados, which will help us build the SGR, pay off our debts, and become loan-free.
If the Chinese have refused to give us their money, we have learned lessons. After all, it is their money, and it is not free. If the Chinese want to buy our avocados, it would be beneficial, but there are lessons to learn. Look, the Chinese must ensure that we are working hard to repay our loans.
The Chinese Loans
The Chinese have refused to give us a loan. Perhaps they are uncertain about our ability to repay the loans. Instead of pushing us further into debt, they have chosen to demonstrate how to escape the loan trap.
Economic activities such as avocado farming may be our best bet. They will buy the avocados from us. After we pay the loans, we will still have the avocado trees. Meanwhile, we will need to work very hard. A fishing rod is better than a fish!
A while back, in one of the many articles that I read, someone said that the Africans, Kenyans included, have been behaving like an alcoholic as far as the Chinese money is concerned.
The African has an elephant-sized appetite for the money from the West and East. Can’t blame them. The writer forgot to explain further and inform us that, though any owner of alcohol is eager to sell, payment is paramount.
No business transaction is complete unless payment is collected. And every good salesperson (for goods, services, digital downloads, or software) will tell you that every sale must be evaluated against the possibility of non-payment. Any possibility of nonpayment is disastrous for the buyer and the seller.
We have Chinese Loans
A loan is a “thing that is borrowed,” such as a pen, food, “jembe”, money, etc. For money, there is a cost called interest, which can range from zero (0%) to a specific amount, depending on the agreement in place.
This is because of the time value of money. By giving out the money, they are losing the value. The borrower must assure the owner that the money will be repaid. The owner must be convinced without any doubt.
Often, the owners of the money monitor how the loan recipients use the money. When the borrower needs more cash, stricter terms and conditions are imposed. Money owners love their money too.
Kenya, like many African states, is a recipient of Chinese money. The Chinese have been accused of being overgenerous with their cash. Perhaps the goal is to entrap African countries in debt.
Hence, our use of the loan is equivalent to alcoholism. Perhaps this is not entirely accurate regarding the Chinese loans. Maybe!
If the Chinese have refused to give us a loan to extend the SGR to Kisumu, there are only two things to read from their actions: a) they are not sure of our capacity to repay the loans based on what we are doing with the money, or b) it is a continuation of their “alcoholism” entrapment maneuvers.
Imagine the desperation of an alcoholic who is refused a bottle of beer until they provide evidence that they can pay for what they have already consumed on loan. Could our country be going through similar desperation?
Chinese money is not free money – there are no “free lunches”. The money comes with interest costs, which, unfortunately, are most often dollar-denominated. This is disastrous for our country. This increases the possibility of devaluing the Kenyan shilling.
To get more SGR loans, Kenya must provide evidence that the SGR investment is viable. There is enough business for the SGR to be operated profitably with adequate profits to repay the loans. This is like asking a drunk to stand on one leg.
Already, the completed section of SGR from Mombasa to Nairobi, which is the busiest, is not economically viable (this is 2019). But why ask now? What did the feasibility studies tell? Those studies you relied on to give the first loan? Maybe it is not a bad demand.
If the mainstream media reports are anything to go by, Kenya has to pay Kshs 1 billion every month for the SGR’s operations. Yet, it is not the country that operates the rail. Simply put, SGR expenses exceed the income generated by SGR every month.
Comparatively, there is little business from Nairobi towards and from the western part of the country. This does not include the import and export cargo from and to Uganda, Rwanda, and the eastern part of the Democratic Republic of Congo (DRC).
However, this may change with the extension of the SGR to Naivasha and the construction of the dry inland depot. The investment in the SGR to Kisumu will then become a workable development.
Use of the Loans
Although the country did not secure the loan for the rail extension, there is still hope. How much of the loan money was going towards the actual rail construction?
If we go by the figure used to pay off landowners in the Mombasa-Nairobi phase, it was approximately Kshs 33 billion. This is 10% of the Kshs 327 billion construction cost, which was used for land compensation.
For the section between Naivasha and Kisumu, the land compensation figure was likely to be higher than ten percent (10%). This section has fertile agricultural land, unlike most of the first-phase section, which was mainly through the game parks, which are owned by and occupy government land.
The second reason is that the current owners of the land on the SGR route from Naivasha to Kisumu, which was intended for the extension, are likely to be land brokers who bought land for speculative purposes.
This means that a large percentage of the loan money was to be used to pay off the land brokers at inflated prices along the SGR route.
The third reason is the possibility of political incitement. In the SGR section between Nairobi and Naivasha, some landowners were initially opposed to the project. This is because of concerns over land prices and payment for the land.
There were also concerns regarding potential employment opportunities. There were also threats to the Chinese workers. This resulted in delays in the section’s construction.
Delays in any project are expensive because of cost overruns. Besides, the Chinese must also have noted the threat to their citizens. Therefore, though we are disappointed because of the lack of money to take the SGR to Kisumu, all is not lost.
Avocado Marketing Deal
The media have reported that the President has inked an avocado marketing deal. This is good enough. As of Friday, April 2019, based on the United Nations’ estimates, China’s population was 1,419,147,756 people, equivalent to approximately 18.41% of the world’s population.
The President signed the trade agreement for Kenyan farmers to supply avocados to the people of China. Imagine this market: the lower, middle, and upper class strata. Mexico, the largest exporter of avocados to the USA, exports 454 million kilograms of avocados every year.
The country also exports many avocados to China. Other Central American countries are also currently exporting approximately 3.178 million kilograms of avocados to China.
Internet sources suggest a dollar price for an avocado would send the fruit flying off the shelves. How much can we earn as a country? This is evidence of the significant current and future potential of Kenyan avocados in China.
Currently, Kenya exports avocados worth more than Kshs 1 billion per year. The opening of the Chinese market will increase this export volume if farmers work harder with government support.
Kenya’s target should be to have every Chinese consumer consume at least ten avocados from the country in a year. This will make Kenya a powerful trading partner with China and ease Chinese debt repayment.
Jobs will be created in the various economic sectors. This includes commerce (marketing jobs), the agricultural sector (farms, agrarian inputs), the manufacturing sector (packaging materials), transport, and other related industries.
There will also be economic development, especially in the infrastructure sector and the rural areas. We are also likely to see reverse migration from urban to rural areas.
The avocado market deal has the potential to repay the current Chinese loans and all other loans. Currently, the Chinese debt repayment stands at Kshs 18.27 billion for the financial year 2019/2020.
With the avocado market deal, Kenya only requires exporting 182,700,000 avocados to China every year. The government can figure out how to go about it with a population of 40million people.
Each Kenyan would be required to produce 4.56 avocados per year.
Alternatively, assuming the total Kenya debt to China is Kshs 800 billion, each of the 40 million Kenyans can contribute 200 avocados to be delivered to China at 1 US dollar each, and our loans will be fully repaid.
This is doable, but the question is, how long will it take? The Kenyan people must work to repay the Chinese loans until they are fully repaid.
The government should seek more market deals for Kenyan produce.
Of Tax, Loans, and the Avocado Market
If Kenya were denied loans for the SGR section from Naivasha to Kisumu, the taxpayers would stand to benefit in the short term, as they would not be overburdened with an additional international debt.
Current national debt repayments are already a problem. There is no money to fulfill all the government’s obligations. The avocado market deal is a great deal that will benefit the taxpayers.
Many sectors of the economy will be positively affected by the newfound market for avocados. For example, more people can now engage in avocado farming and generate income. There will be increased business in the other sectors of the economy that will most likely result in increased taxable income.
The government can tax the income and generate tax revenues to develop the country and pay off some of the Chinese loans.
Rehabilitation of the Metre Gauge Railway
There is talk in town that the government intends to rehabilitate the old rail line referred to as the Metre Gauge Railway, now that there is no money to construct the SGR. There is an African proverb that “a string outside the house takes care as the rope is awaited”. Simply put, “you do with what you have as you make plans for better things”.
The metre gauge railway served the East African community for many years. This railway line was at the heart of effective British colonisation of East Africa. Most of the hinterland developments witnessed today result from the railway line.
Apart from our unique preference for new things, there was absolutely nothing wrong with the Metre Gauge Railway. Old, yes, it was, but most of the railway lines currently being used in Britain and Europe are older than this line.
By the way, did we complete payment of the loan that was used to build this railway?
There are many advantages to rehabilitating this railway. The railway line is still there. The land, too, is in place, though it may have encroached. We still have all the engineers and drivers around. And at the cost of Kshs 40 billion, it is even cheaper.
Given the current economic hardships in the country, it makes financial sense to rehabilitate the railway line. If the government lacks the funds, it can issue an infrastructure bond specifically to rehabilitate the railway line. I bet it will be oversubscribed.
Future of the Naivasha-Kisumu SGR
There is the prestige of the SGR. However, which is more economical in terms of cost and economic impact, a railway line or a road? Considering the dual carriageway from Naivasha to Kisumu and the SGR, which one would have a more positive effect on economic growth?
Before the construction of the Eastern By-pass in Nairobi, the surrounding areas were grasslands. But today, the economic development is astronomical courtesy of the Eastern Bypass.
A closer assessment of the SGR from Mombasa to Nairobi and a dual carriageway covering the same distance, which one would have had more impact? A carriageway any day would have been better. The reason is that all towns along the way would have developed, and others would have come up..
The economic impact would have been felt far and wide. All businesses, including the oldest professions, would have grown.
The denial of the loan for the SGR phase 3 may be a blessing in disguise.
Final Thoughts
No matter what the President got from China, the fact is that he did not come back empty-handed. The Chinese have shown that their money is not free, and it never was. Kenyans, like other Africans, will work hard to repay Chinese loans.
The avocado market deal is preferable to the SGR loan deal because of its broader economic implications. An opportunity has been created for the hard-working Kenyan farmers to benefit at the expense of the lazy land brokers.
However, all is not lost for the land brokers because they can farm avocados on the land they had gained for speculative purposes to sell for SGR. The land brokers will have to work hard, and it will take time for them to earn money.
This is a classic case of getting a fishing rod instead of a fish. The avocado market deal is better any day. Kenyans need more of these market deals.
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