upepo
Elder Lister
France topples China on loans as President Ruto looks West
Thursday, May 23, 2024 - 6 min read
France and Germany have toppled China in rich country borrowing budgets for the new year from July, underscoring President William Ruto’s realignment with the West in a foreign policy shift from that of his two predecessors. The Ministry of Finance has listed France in the budget books as the largest bilateral financier of projects in the Ruto government’s spending plan for the financial year starting July, followed by Germany. Europe’s third-largest economy will finance projects worth Sh26.49 billion, or 30.45 percent of the Sh86.99 billion the Treasury expects to receive from rich countries in the form of loans and grants, according to budget estimates submitted to Parliament for approval. Germany has committed Sh16.71 billion through KfW – the state investment and development provider.
China, which has been Kenya’s largest bilateral lender since 2015 after inking a lucrative deal to build the Standard Gauge Railway (SGR), has committed to providing Kenya with Sh7.25 billion in new loans. That is a sharp decline from a peak of Sh140.03 billion in the 2025/2016 financial year. Projected financing from China for the new financial year is half of the Sh14.39 billion expected from Japan. Beijing has taken a cautious approach to lending to Kenya and other African countries in recent years, amid warnings that major economies were struggling to meet their debt obligations in the wake of global economic turmoil.The increased funding expected from France and Germany, amid a sharp decline from China, comes at a time when political analysts say Ruto leans more towards the West (the US and its allies in Europe) than towards the East (particularly China). Some of them have labeled the Kenyan leader as ‘the blue-eyed boy of the West in Africa’.
The analysts point out that Ruto has not only made several visits to Europe and the US, but also managed to successfully invite German Chancellor Olaf Scholz and King Charles of Britain in May and October last year. King Charles’ four-day visit was the first in Africa as monarch. “There is certainly a move to realign Kenya with its traditional partners in the West. President Ruto has made four visits to the US, three to France, two to Germany and the United Kingdom. By comparison, President Ruto has made only one visit to China so far,” David Monda, a Kenyan international relations scholar who teaches political science at the City University of New York, said via email. “In addition, the Ruto government has taken positions on the Russia-Ukraine war and the Israel-Hamas conflict that are at odds with the West’s rival, China. Again, these are positions aligned with Kenya’s traditional Western allies, the US and Britain.”
And in a major development in strengthening trade and investment ties with the West, Ruto will make a state visit to Washington this week, the first by an African leader in 18 years since former Liberian President Ellen Johnson Sirleaf. The Joe Biden administration, through the ongoing US-Kenya Strategic Trade and Investment Partnership (STIP) negotiations, has pledged to improve Kenya’s investment climate to a level that will serve as a model for other African countries. “President Biden and his entire administration are deeply committed to a partnership with Africa, which has the fastest growing population, the largest free trade area and a diverse ecosystem,” U.S. Secretary of Commerce Gina Raimondo said April 24 in Nairobi. “We see Kenya as a leader in these efforts: a leader in business, technology, digitalization, policy innovation and a model for engagement across sub-Saharan Africa.” Kenya’s preference for financing to the West has led it to divert billions of dollars in additional financing from Western-linked multilateral lenders – the International Monetary Fund (IMF) and the World Bank Group – for direct budget support.
The government of President Mwai Kibaki, largely seen as Kenya’s most successful president, had turned away from seeking funds from the World Bank and IMF and towards budget support, with the bulk of loans coming in the form of direct project support . Such loans come with difficult economic policy conditions, including stricter tax measures. “Our deliberate, consistent and sustained efforts, here and abroad, have enabled us to normalize our relationships with the International Monetary Fund, the World Bank, the African Development Bank and various development partners to the extent that they are now working with us to deliver the Bottom -Up Economic Transformation Agenda,” said Ruto in his State of the Nation address last November.
The IMF’s support was crucial in boosting the confidence of international investors to lend Kenya $1.5 billion on February 13. The money helped Kenya repay most of its US$2 billion ($1.44 billion) Eurobond maturing in June. The successful issue helped allay fears of state bankruptcy. Financing from the Bretton Woods institutions has produced largely unrealistic tax targets for Kenya. These include the 16 percent VAT on fuel imposed by Ruto has enforced in the first full financial year of his term. His predecessor, Uhuru Kenyatta, had failed to fully implement IMF-backed reform during his decade-long rule. “The West tends to tie its loans to numerous conditions, including a country’s commitment to human rights, democracy, free press and transparency,” said Prof. Monda. “By comparison, China tends not to want to interfere in the internal affairs of the countries it does business with. This has led to critics of China accusing Beijing of engaging in debt diplomacy, saddling African countries with huge debts that Beijing knows they cannot possibly pay.”
A study by AidData, a research lab at the College of William & Mary in the US, found that the terms of Beijing’s loan agreements with developing countries were mostly secretive and required borrowing countries such as Kenya to prioritize repayment to Chinese state lenders. from other creditors. The dataset, based on an analysis of loan agreements between 2000 and 2019, suggested that the Chinese deals included clauses for “more extensive repayment guarantees” than their “peers in the official credit market”. The conditions further “give Chinese lenders an advantage over other creditors.”For example, Chinese banks rejected Kenya’s request to extend debt repayments at the height of the Covid-19 shocks to the economy for another six months through December 2021, prompting the ministry to request the “mutual benefit’.
Thursday, May 23, 2024 - 6 min read
France and Germany have toppled China in rich country borrowing budgets for the new year from July, underscoring President William Ruto’s realignment with the West in a foreign policy shift from that of his two predecessors. The Ministry of Finance has listed France in the budget books as the largest bilateral financier of projects in the Ruto government’s spending plan for the financial year starting July, followed by Germany. Europe’s third-largest economy will finance projects worth Sh26.49 billion, or 30.45 percent of the Sh86.99 billion the Treasury expects to receive from rich countries in the form of loans and grants, according to budget estimates submitted to Parliament for approval. Germany has committed Sh16.71 billion through KfW – the state investment and development provider.
China, which has been Kenya’s largest bilateral lender since 2015 after inking a lucrative deal to build the Standard Gauge Railway (SGR), has committed to providing Kenya with Sh7.25 billion in new loans. That is a sharp decline from a peak of Sh140.03 billion in the 2025/2016 financial year. Projected financing from China for the new financial year is half of the Sh14.39 billion expected from Japan. Beijing has taken a cautious approach to lending to Kenya and other African countries in recent years, amid warnings that major economies were struggling to meet their debt obligations in the wake of global economic turmoil.The increased funding expected from France and Germany, amid a sharp decline from China, comes at a time when political analysts say Ruto leans more towards the West (the US and its allies in Europe) than towards the East (particularly China). Some of them have labeled the Kenyan leader as ‘the blue-eyed boy of the West in Africa’.
The analysts point out that Ruto has not only made several visits to Europe and the US, but also managed to successfully invite German Chancellor Olaf Scholz and King Charles of Britain in May and October last year. King Charles’ four-day visit was the first in Africa as monarch. “There is certainly a move to realign Kenya with its traditional partners in the West. President Ruto has made four visits to the US, three to France, two to Germany and the United Kingdom. By comparison, President Ruto has made only one visit to China so far,” David Monda, a Kenyan international relations scholar who teaches political science at the City University of New York, said via email. “In addition, the Ruto government has taken positions on the Russia-Ukraine war and the Israel-Hamas conflict that are at odds with the West’s rival, China. Again, these are positions aligned with Kenya’s traditional Western allies, the US and Britain.”
And in a major development in strengthening trade and investment ties with the West, Ruto will make a state visit to Washington this week, the first by an African leader in 18 years since former Liberian President Ellen Johnson Sirleaf. The Joe Biden administration, through the ongoing US-Kenya Strategic Trade and Investment Partnership (STIP) negotiations, has pledged to improve Kenya’s investment climate to a level that will serve as a model for other African countries. “President Biden and his entire administration are deeply committed to a partnership with Africa, which has the fastest growing population, the largest free trade area and a diverse ecosystem,” U.S. Secretary of Commerce Gina Raimondo said April 24 in Nairobi. “We see Kenya as a leader in these efforts: a leader in business, technology, digitalization, policy innovation and a model for engagement across sub-Saharan Africa.” Kenya’s preference for financing to the West has led it to divert billions of dollars in additional financing from Western-linked multilateral lenders – the International Monetary Fund (IMF) and the World Bank Group – for direct budget support.
The government of President Mwai Kibaki, largely seen as Kenya’s most successful president, had turned away from seeking funds from the World Bank and IMF and towards budget support, with the bulk of loans coming in the form of direct project support . Such loans come with difficult economic policy conditions, including stricter tax measures. “Our deliberate, consistent and sustained efforts, here and abroad, have enabled us to normalize our relationships with the International Monetary Fund, the World Bank, the African Development Bank and various development partners to the extent that they are now working with us to deliver the Bottom -Up Economic Transformation Agenda,” said Ruto in his State of the Nation address last November.
The IMF’s support was crucial in boosting the confidence of international investors to lend Kenya $1.5 billion on February 13. The money helped Kenya repay most of its US$2 billion ($1.44 billion) Eurobond maturing in June. The successful issue helped allay fears of state bankruptcy. Financing from the Bretton Woods institutions has produced largely unrealistic tax targets for Kenya. These include the 16 percent VAT on fuel imposed by Ruto has enforced in the first full financial year of his term. His predecessor, Uhuru Kenyatta, had failed to fully implement IMF-backed reform during his decade-long rule. “The West tends to tie its loans to numerous conditions, including a country’s commitment to human rights, democracy, free press and transparency,” said Prof. Monda. “By comparison, China tends not to want to interfere in the internal affairs of the countries it does business with. This has led to critics of China accusing Beijing of engaging in debt diplomacy, saddling African countries with huge debts that Beijing knows they cannot possibly pay.”
A study by AidData, a research lab at the College of William & Mary in the US, found that the terms of Beijing’s loan agreements with developing countries were mostly secretive and required borrowing countries such as Kenya to prioritize repayment to Chinese state lenders. from other creditors. The dataset, based on an analysis of loan agreements between 2000 and 2019, suggested that the Chinese deals included clauses for “more extensive repayment guarantees” than their “peers in the official credit market”. The conditions further “give Chinese lenders an advantage over other creditors.”For example, Chinese banks rejected Kenya’s request to extend debt repayments at the height of the Covid-19 shocks to the economy for another six months through December 2021, prompting the ministry to request the “mutual benefit’.
