When we talk about African countries, harsh economic conditions have a strong impact on currency and economic situation in countries. If we add Covid-19 to this - then everything gets more difficult.
If we talk about Kenya, the country which has experienced a lot of problems this topic is really important. The currency in the state is very weak and slowly the county’s shipping sector is monopolized.
The country has a very strong connection with China. But there are some details. China may gain control over the assets of the Kenya Port Authority KPA, including the port of Mombasa if the Kenyan state railway corporation KRC does not fulfill its debt obligations to the Export-Import Bank of China SGR.
According to dozens of financial companies, chief among them Axiory and its analytics experts, KPA's assets are at risk, as the administration has committed to loading China’s Mombasa-Nairobi standard gauge (SGR) rail.
China provided loans for the construction of SGR in the amount of about 500 billion Kenyan shillings (about five billion US dollars). The construction of the second phase of the SGR was officially completed in October 2016. Commercial freight operations began in early 2018. Losses of SGR for the first year of operation amounted to 10 billion shillings.
Payments on loans should begin in the middle of next year after a five-year grace period.
The port of Mombasa is the largest transport hub serving the foreign trade of East Africa, including Uganda, northern Tanzania, South Sudan, Burundi, Rwanda and the eastern part of the Democratic Republic of the Congo. According to KPA forecasts in September, the container turnover this year will reach 1.4 million TEU, compared with 1.3 million TEU in 2018. Currently, the port is building a second container terminal, which is financed by a loan provided by the Japanese government.
In December 2017, the Sri Lankan government was forced to transfer the port of Hambantota for debt to China.
In September 2018, Zambia likewise lost control of the capital's international airport.
While many Kenyan citizens trade Forex for a living the overall situation concerning the national currency is still very obscure and hard. People barely make ends meet and the currency is the first to blame for the crisis.
The danger of Chinese debt
The Kenyan government does not give a specific answer to the media on the question of what will happen in the event of default. Government spokesman Eric Kiraithe says the conditions are in line with international standards and Kenya’s treasury has enough funds to pay its debt to China on a loan for the railroad. Chinese Ambassador to Kenya Sun Baohong says there is no Chinese debt trap in Africa, and the continent has been in great debt historically.
Kenya has already held protests that China, using Kenya’s debt to China, may demand an important port in Mombasa as compensation for the country. Similar fears are disproved by the President of Kenya, Uhuru Kenyatta. Nevertheless, the possibility of such a scenario can be read in Kenyan media. According to the African Stand news portal, Kenya may soon be forced to transfer control of its main port of Mombasa to China, as well as, probably, other assets related to the shipment of goods from Mombasa. The media cited the results of an audit conducted by the Kenyan chief auditor, according to which China could seize the port if Kenya could not pay off its debt. However, the Prime Minister of Kenya argues that the schedule for payments on a loan for the railway is carried out ahead of schedule.
Analysts say the Chinese Exim Bank will become one of the main shareholders in the Kenyan port authority if the Kenyan Railway Corporation does not fulfill its obligations. As a condition of the deal to finance China’s construction of the railway, the Kenyan government agreed that the port of Mombasa would not be immune, which would allow the Chinese side to seize it if the debt was not paid off. Kenya's total debt to China is $ 9.8 billion. This is mainly debts for the development of transport infrastructure.