Will China seize Mombasa port if Kenya can’t pay back its loans?

02Jan 2019
By Financial Times Reporter
Mombasa
Financial Times
Will China seize Mombasa port if Kenya can’t pay back its loans?

THE prospect that China might at some point be able to seize Kenya’s prized port of Mombasa has caused public confusion and alarm and again raised questions about the risks of participating in China’s “Belt and Road Initiative”.

Kenyan President Uhuru Kenyatta has strongly denied a local media report that the East African nation was at risk of having China seize the strategic port in compensation for unpaid debt related to belt and road infrastructure development projects.

According to online news portal African Stand, Kenya may soon have to hand over control of its largest and most developed port, while other assets related to the inland shipment of goods from Mombasa, on the Indian Ocean coast, may also be affected.

The report cited a recently completed audit by Kenya’s auditor-general which indicated China could seize the port if Kenya was unable to repay its debt.

Kenyatta described the report as “propaganda” at a round table discussion with journalists on Friday, according to Nairobi’s The Star newspaper.

“We are ahead of our payment schedule for the SGR loan and there is no cause for alarm,” he said.

Kenya ranks as Africa’s third most indebted country to China for the period between 2000 to 2017, according to data from the China Africa Research Initiative.

The country’s current debt to China is understood to be about US$9.8 billion, which has funded large chunks of national infrastructure, including a number of highways and the Standard Gauge Railway (SGR) which provides a high-speed connection between Mombasa and Nairobi, the country’s capital, to facilitate the import and export of goods.

According to the African Stand report, “the Exim Bank of China would become a principle in the Kenya Port Authority if Kenya Railways Corporation (KRC) defaults on its obligations and the China Exim Bank exercises its power over the escrow account security”.

As a condition of the initial funding deal, the Kenyan government agreed that the port of Mombasa, the nation’s most promising, would not enjoy state immunity, allowing Chinese lenders to lawfully seize it if the debt was not repaid.

Global ratings agency Moody’s Investor Service warned in November of the risk that countries participating in belt and road would lose control of valuable assets if they could not repay their debts.

“Countries rich in natural resources, like Angola, Zambia, and Republic of the Congo, or with strategically important infrastructure, like ports or railways such as Kenya, are most vulnerable to the risk of losing control over important assets in negotiations with Chinese creditors,” Moody’s said in a report.

Despite public outrage and concerns over the Mombasa port, Kenyatta said his government would continue to borrow to develop the country.

“It is not only China that is lending its money to Kenya but also Japan, France, Germany and America,” he said.

“China is not seeking to colonise us but they understand us and our point of need. But as a matter of fact we are ahead of the payment schedule and so Kenyans must ignore any propaganda being peddled. I will continue to borrow to develop.”

China’s Foreign Ministry did not reply to faxed requests by the South China Morning Post for comment in time for publication.

The “Belt and Road Initiative”, proposed by China in 2013, refers to a range of multibillion-dollar transport and power projects that Beijing has used to assert its influence in Asia, Africa and beyond.

China has funded many infrastructure projects in Africa, including the railway connecting Ethiopia and Djibouti, the Mombasa-Nairobi SGR in Kenya and the Maputo-Katembe cross-sea bridge in Mozambique.

However, despite Chinese President Xi Jinping saying the initiative was “an open and inclusive process, and not about creating exclusive circles or a China club”, the belt and road project has been criticised by many as a tool used by Beijing to encourage dependence on China.

In March, then US secretary of state Rex Tillerson said Beijing “uses opaque contracts, predatory loan practices, and corrupt deals that mire nations in debt and undercut their sovereignty, denying them their long-term, self-sustaining growth.”

In July, 2017 Sri Lanka agreed to lease the Hambantota Port to China Merchant Port Holdings for 99 years for US$1.4 billion to settle unpaid debts to China. The port, which was built with Chinese money borrowed by Sri Lanka, is now in Chinese hands.

- South China Morning Post