Category Archives: China

Funding the SGR

Excerpts from the Public Investments Committee special report on the procurement and financing of the construction of Standard Gauge Railway (SGR) from Mombasa to Nairobi (phase I) (April 2014)

  • The Ministry of Finance on 4th January 2010 wrote to the Government of China requesting for a concessional loan for the construction of a new Standard Gauge Railway at a cost of USD 2.5 Billion. The funding of the project is not a grant to Kenya but rather a loan that the people of Kenya are going to pay.
  • In the Budget Statement for Fiscal Year 2013/14 delivered on 13th June, 2013 the Cabinet Secretary for the National Treasury proposed an amendment to the Customs and Excise Act, Cap 472, Laws of Kenya, so as to introduce a Railway Development Levy of 1.5 % of the customs value of all imported goods. The loan will cost USD 3.23 Billion from EXIM Bank of China comprised of a concessional loan of USD 1.6 billion and a commercial loan of USD 1.63 billion. The concessional loan is for 20 years and has a grace period of 7 years and an interest rate of 2% per annum while the commercial loan is for 10 years and grace period of 5 years and insurance cover of 6.93% of the commercial loan and interest of six months LIBOR + 360 basis point. The loan has a grant element of 35%. The insurance component is always available for any commercial loan. For China, the insurance cover has to be done by a Chinese firm, SinoSure. The insurance cover is to take care of nonpayment.
  • The major financial implications of the project will be Kshs. 349.44 billion relating to: – EPC contract for USD 3.8 billion covering USD 2.657 billion for civil works, and USD 1.146 billion for facilities, locomotives and rolling stock; Kshs. 8.04 billion for compulsory acquisition of 2,253 hectares of land for the railway corridor; Kshs. 10.6 billion for Embakasi Inland Container Depot (ICD) expansion programme, facility development and container handling equipment; Kshs. 1 billion for land acquisition for the Embakasi inland depot; and Kshs. 3 billion for project supervision.
  • The Government of Kenya has met all the requirements of the EXIM Bank of China which include; an Assurance that the Government will guarantee minimum freight demand for the SGR through execution of take or pay agreement between KRC and the Kenya Ports Authority and confirmation that Railway Development Fund will be used to repay the loan. EXIM Bank of China is currently going through its internal credit approval process following which it will submit to GoK, through the National Treasury the Financing Agreements. The financing agreement has not yet been signed (at the time of the report).
  • There is no financing agreement yet signed between the Government of Kenya and EXIM Bank in China. There is no sovereign guarantee by the Government of Kenya on the commercial and concessional loan from the Government of China (at the time of the report).
  • The National Treasury has undertaken a debt sustainability analysis and to ensure that the SGR loan does not compromise the debt policy parameters spelt out in the debt sustainability strategy paper and is sustainable.
  • In the unlikely event that the revenues from railway operations are inadequate, the proceeds from the Railway Development Fund will be used to repay the loan.

$1 = ~Kshs 103

JW Marriott to open hotel in Nairobi with AVIC

Today, Marriott International and AVIC International signed a partnership agreement which will see Marriott operate a 365-room, 5-star J.W Marriott luxury hotel for AVIC in their Africa headquarters and office complex, in Westlands Nairobi.

AVIC representatives said the company had been in Kenya for the 20 years, engaging in four areas; aviation (built the new JKIA airport terminal, and supplied Y12 aircraft), education (equipment and training for NYS projects), real estate (in which they hope to create 15,000 jobs), and CSR (sponsoring Kenyans to get educated in China). AVIC is a China state-owned company with 60 global offices.

Avic Marriott Nairobi signing

A VP from Marriott said that while the have 110 properties (with 13,000 rooms) in Africa, this was the first J.W Marriott in East Africa and they planned to expand in 5 more countries by 2020 including Rwanda and Zambia. Also that they have 19 global brands, and may open under a different chain in Mombasa, Kenya). He said they have many Kenyans managing and working at their properties in the Middle East, and who were ready to come back home to work. He said that they choose owners and investors carefully to partner with in China and Africa.

Nairobi County Governor Evans Kidero, who was hailed as a supporter of the project, said that the $400 million AVIC complex with JW Marriott hotel represents 6% of Nairobi’s annual new building space and 8% of the annual build cost. He also said that with 5,000 hotel beds, the city is strained when hosting large summits like the upcoming UNCTAD and TICAD 6, which will both be in Nairobi later in 2016.

Construction of the AVIC complex started in August 2015. It will have 6 towers, with the tallest being 42 storeys. Building works are ongoing, next to the Villa Rosa Kempinski Hotel that has established itself over the last two years and who challenged the construction of the AVIC complex.

5 Intra-African Travel Barriers

There’s a lot of talk about removing intra-African trade barriers. But how about barriers for Africans traveling within Africa? If it’s easier to travel, it will be easier for people to cross borders, see & seek opportunities and build trade & business networks. But what stops more of this from happening? Here are 5 angles.

1. Airline costs: Airline travel is quite expensive, even for very short flights like $350 for the one hour Nairobi-Entebbe flight. This is largely due to national taxes, that form more than 50% of the cost of some tickets.

Costs from Nairobi to various cities, priced by

Costs from Nairobi to various cities, priced by

Kayak nairobi2. Visa restrictions. Nigerian-born Aliko Dangote, who is believed to be the continent’s richest man was recently quoted as saying “I need a visa in almost 38 countries, which means an American has more access into Africa than myself.” Two years ago, tiny Rwanda made a bold move by allowing all African nationals to be issued with visas on arrival in the country, by- passing the embassy application process that is expensive and bureaucratically burdensome to access many countries.

3. Unfriendly Currencies. To travel and trade across Africa, and many parts of the world, the US dollars is crucial, as no African currency gets respect across its borders. You might be able to exchange it in a country that has lower forex restrictions, but at what cost? Looking at the currency spreads in the bank hall today, the differential between buying (Kshs 90) and selling (Kshs 84) the US dollar works out to about 7%, which is also the same for the sterling Pound and the Euro. But for African currencies, such as the  South African Rand (bought at 6.69 and sold at 8.93), it’s a 28% difference, and for the currencies of Tanzania its 54%, Uganda 93%, and Rwanda 96%. Somewhere in-between is Asia, with the UAE Dirham at 17%, Indian Rupee at 15%, and Japanese Yen at 16%.

4. Knowledge Gap: There’s still very little knowledge about the greater Africa beyond their borders by African country nationals. I try to follow at least one current affairs, and preferably business-related, African national on twitter, but there are still many countries that I can’t find people to follow, and learn from. The best news source on Africa I’ve found is AfricaLive, the one-hour daily news nightly programs on China’s CCTV Africa channel.

5. Poor Road networks. If it’s tough to fly, it equally to drive across the continent and cross its many borders with varying degrees of red tape. Today, I saw these quotes by @mmnjug on twitter ” DRC is the world’s eleventh biggest country at over 2.3M sq kMs,and an estimated 73M people, but has only 2,250 kilometres of paved road..,In the past two decades, just two people are recorded to have crossed the DRC over land, their journey took 44 harrowing days in 2008.”

Nairobi’s Future Roads

Last month at the opening of the next phase of the Office Park complex,  Engineer Arasa of the Kenya Ministry of Roads gave a talk on the future of roads in Nairobi  – who’s construction this year will amount to  Kshs. 153 billion (~$1.8 billion) and reach an eventual total spend of Kshs. 2 trillion over the next 15 years. 

Kileleshwa road with a cycle path

The biggest one has been the Nairobi-Thika Highway, financed by the African Development Bank but other roads  are the Eastern bypass (connecting Mombasa Rd to Thika Rd)  and the  Northern bypass (connecting Thika Rd to the Nakuru Highway)  which are being financed by the Chinese Government. There is also the  Southern bypass which is a 28KM dual carriageway road linking Mombasa Road to Kikuyu, that will be constructed at a cost of Kshs. 1.1 billion and is jointly financed by the Kenya and Chinese governments. It will have  3 flyovers (including at community, Thogoto and Dagoretti Roads) and is expected to be complete by July 2015.

There are also the missing link  roads in the west of Nairobi, being financed by the Japanese Government that will connect Ngong Rd to James Gichuru, and Gitanga Rd to Waiyaki Way – both though Kileleshwa –  and both are expected to be completed in March 2013. (Note the bulldozers at the Yaya parking now) 

Others include upgrading  Langata Rd to dual carriageway at Kshs 2.6 billion (with an underpass at Bomas junction) and, and there are also the Upper Hill Roads being done in two phases (Kshs 2 billion, financed by GoK), starting with the widening of Elgon, Kilimanjaro, Upper Hill, and Bunyala Roads to dual carriageway  by May 2014.
Bomas junction in the future

Other planned roads in the future include  converting Adams Arcade – Karen – Ngong – Bomas to four lanes (with flyovers at Dagoretti Corner and Karen shopping centre)  – between 2013 – 2016 to be financed by the Chinese Govt at an estimated cost of Kshs 15 billion. Another will convert Outer Ring Rd to dual carriageway (at a cost of Kshs 6 billion, of which 3.5 billion has been sourced from ADB) .

Some interesting point in the talk were:
  • Though stats show that 47% of Nairobians walk to work, the Roads Ministry hopes the new roads will address several challenges such as unregulated public transportation, encroachment on road reserves, (past) low investment in roads, inefficient junctions and the already present traffic. They also know that more & better roads may result in more traffic e.g. Thika Road which used to handle 70,000 vehicles per day, will have 100,000 per day by the end of the year.
  • Thika Road will be a toll road.
  • Another missing link road may include a fly over at the City Mortuary junction.