Are Kenya's Ports Threatened by a Potential Default on Chinese Loans?

 The China Africa Research Institute (CARI) at Johns Hopkins University published in April 2022 a working paper titled "How Africa Borrows from China: And Why Mombasa Port Is Not Collateral for Kenya's Standard Gauge Railway" by Deborah Brautigam, Vijay Bhalaki, Laure Deron, and Yinxuan Wang. 

In 2018, Kenya's auditor general warned that Kenya Ports Authority's assets--of which Mombasa Port is the most valuable--risked being taken over by China Eximbank if Kenya defaulted on loans for Kenya's Chinese-built standard gauge railway.

CARI assembled a scholar-practitioner team, which concluded after an extensive study that China is not going to seize Mombasa port or any port. 

Comment:  A response from Kenya's auditor general or some appropriate Kenyan authority would constitute a useful contribution at this point.    

China's Belt and Road Financing: Implications for Africa

 AidData, a research lab at William and Mary, published in September 2021 a massive study titled "Banking on the Belt and Road: Insights from a New Global Dataset of 13,427 Chinese Development Projects."

The study captures 13,427 projects worth $843 billion in 165 countries from 2000-2017, a period that began before the announcement of the Belt and Road Initiative (BRI).  

Five key conclusions result from the study:

1.  There was an extraordinary expansion in China's overseas development finance program during the first two decades of the 21st century, most of which was other official financing (OOF) and not overseas development assistance (ODA).  OOF consisted almost entirely of loans and export credits priced at or near market rates.  

2.  China's state-owned commercial banks have assumed an increasingly important role during the BRI.

3.  An increasing level of credit risk have created pressure for stronger repayment safeguards.  Collateralization has become the linchpin of China's implementation of a high-risk, high-reward credit allocation strategy.

4.  The implementation of the BRI has marked an important transition in how China bankrolls infrastructure projects.

5.  Some 35 percent of the BRI infrastructure project portfolio has encountered major implementation problems such as corruption scandals, labor violations, environmental hazards, and public protests.

Africa accounted for 25 percent of the US dollar value of global Chinese official finance from 2000-2017.  Africa received 42 percent of the ODA and 20 percent of the OOF.  The highest African recipients of ODA were Ethiopia ($6.57 billion), Republic of Congo ($4.24 billion), Sudan ($2.57 billion), Ghana ($2.22 billion), Zambia ($2.10 billion), Kenya ($2.03 billion), Cameroon ($1.46 billion), Mozambique ($1.40 billion), Senegal ($1.27 billion), Mali ($1.06 billion), and Cote d'Ivoire ($0.92 billion).  The highest African recipients of OOF were Angola ($40.65 billion), Ethiopia ($8.90 billion), Sudan ($7.85 billion), Kenya ($7.02 billion), and Nigeria ($6.82 billion).   

How China Lends to Foreign Governments

 AIDDATA, a research lab at William and Mary, published in March 2021 a detailed study titled "How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments" by Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, and Christoph Trebesch.

The study provides a systematic analysis of the legal terms of China's foreign lending.  It analyzes 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries.  Government borrowers in Africa account for 47 percent of the 100 Chinese government contracts.

The major findings are:

1.  Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt.

2.  Chinese lenders use formal and informal collateral arrangements to maximize their repayment prospects.

3.  Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep debt out of collective restructuring ("no Paris Club" clauses).

4.  Cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors' domestic and foreign policies.  

The authors conclude the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially-savvy lender to the developing world.