MOMBASA, Kenya (Reuters) – Kenya’s new Chinese-built railway should have been a boon for business. The $3.3 billion line sliced hours off the journey from the port city of Mombasa to the capital, Nairobi.
A Standard Gauge Railway (SGR) cargo train transferring containers leaves the port of Mombasa, Kenya October 23, 2019. REUTERS/Baz Ratner
But some importers said their transport costs shot up by nearly 50% when they used the rail due to extra fees, more time spent clearing goods at the congested Nairobi train depot and the need to send a truck to collect the goods from there.
These importers used to truck their goods in from the coast. But port authorities now say businesses based in Nairobi and upcountry must use the new line because the Mombasa port is contracted to supply it with a minimum amount of cargo.
“KPA has an obligation to feed the railway … we were the guarantors of the rail,” said Daniel Manduku, head of the state-run Kenya Ports Authority.
The railway’s problems are a cautionary tale, both for developing nations loading themselves with Chinese debt, and for China as it seeks to expand global trade links and project soft power through its massive Belt and Road initiative.
“The vast majority of its (China’s) overseas spending has no detectable effect on economic growth,” said Bradley Sparks, executive director of AidData, a research facility that tracks development finance at William and Mary university in Virginia.
China has sought to allay fears that its infrastructure projects overload some countries with debt. [nL3N22909E]
Last year, it agreed to restructure more than $12 billion in repayments owed by Ethiopia, whose Chinese-funded railway is also struggling. [nL5N22Y26W]
Now some Kenyan politicians are asking whether their railway was worth the cost.
Hundreds of people – residents, business owners and local leaders – hold weekly demonstrations in Mombasa against the mandatory movement of cargo by rail.
“This is a revolution,” lawmaker Mohammed Ali said earlier this month as demonstrators carried a mock coffin branded “RIP China Colonisation” in blood-red letters.
BUSINESSES UNDER PRESSURE
The contract between China’s Exim Bank, the Kenya Ports Authority (KPA) and Kenya Railways requires KPA to provide 1 million tonnes of cargo to the railway per year, rising to 6 million by 2024.
KPA says rail cargo is expected to hit 5 million tonnes this year, after more than 4 million last year.
Mombasa is projected to handle 34 million tonnes of cargo this year; most does not go by rail. Cargo destined for Mombasa, or countries other than Kenya, can still go by road.
But Kenyan importers in and around Nairobi say they have been forced to use the line since October last year. The port confirmed the policy in August, but rescinded the order in October after protests. Businesses say little has changed and they are still required to use the more expensive railway.
Port authorities are diverting shipments to the new railway, said a Nairobi-based customs clearance agent. “You are made to pay for it whether you like it or not.”
Moving a 40-foot container to Nairobi by rail costs 80,000 shillings ($800) – roughly the same as a truck, said Mercy Ireri, chief operations officer for the Kenya Transporters Association.
But importers must also pay at least 25,000 shillings for a truck to collect the goods from the Nairobi depot and 15,000 shillings in depot fees, said three businessmen who asked not to be named.
Manduku, also a board member of Kenya Railways, said the higher charges are necessary to meet loan repayments.
Kenya owes Exim Bank of China 660 billion shillings for the railway and other projects, about a tenth of its total national debt. The bank did not immedately respond to a request for comment.
Kenya Railways did not respond to requests for comment. The China Road and Bridge Corporation, which built the railway and now runs it through its Kenya subsidiary Africa Star Operations, said it did not set policy on cargo.
The exact terms of the agreement are not public.
The new line opened in 2017. Running alongside a dilapidated track British colonialists built a century ago, it cut the Nairobi-Mombasa journey to four hours from 12 for passengers and to eight hours from 24 for cargo.
China supported the directive requiring importers to use the railway, said Wu Peng, Beijing’s ambassador in Nairobi.
“That is a responsible and smart move by the Kenyan government,” Wu told Reuters.
After the directive was lifted, the embassy said the line “has revolutionized cargo and passenger movement”.
Parliament summoned the transport minister to answer questions about the cargo policy in November but he did not appear. Esther Koimett, principal secretary at the department of transport, told Reuters the government was no longer making importers use rail.
But Daniel Nzeki, chairman of the Container Freight Stations Association of Kenya, and Ireri of the Kenya Transporters Association, said port security in Mombasa was still preventing trucks from picking up some cargo.
“It is a circus,” Nzeki said.
Editing by Katharine Houreld, Alexandra Zavis and Giles Elgood