Strategic Analysis: Chinese Business Activity in Kenya (Abstract)

Kenya diversified economy is less reliant than other countries in the region on its natural resources as a driver for growth, employment and other measures of economic performance and prosperity. Although oil discoveries over the past few years have the potential to make Kenya a more significant exporter of energy, thus far, Chinas massive investments in the country have been driven by other priorities.

Kenya has the highest GDP in Central and East Africa and the eighth highest on the continent (without the benefit of the energy exports of higher performing countries, like Angola, Sudan and Nigeria). As such, it provides a market for Chinese goods and an economic partnership of consequence.

Among the factors driving Chinas positioning in the country is the growing number of Chinese citizens (both visiting and working) in Kenya, with 40,000 tourists visiting in 2015 and an anticipated 100,000 visiting in 2016. This dimension, together with the significant economic and financial investments being made by China in the region and other factors, has moved Beijing to forward deploy more competently in the region, as evidenced, for example, in its decision to construct an overseas base in Djibouti.

In August 2013, the China-Kenya relationship was bolstered with the signing of deals valued at $5 billion that have been taking shape ever since. Foremost among these is the strategically significant standard gauge rail project that will link Kenyas port city of Mombasa to Malaba, located along the countrys border with Uganda (where China has significant investment and substantial oil assets).

Ultimately, the strategic value of the country for Beijing appears to lie primarily in its geographic positioning and the following advantages:

1) Kenya has valuable existing and prospective port facilities that facilitate trade andinvestment flows with East and Central African states, which are important to China, such as Uganda, the DRC and South Sudan.

2) The country is situated along Chinas Maritime Silk Road initiative (i.e., the One Road portion of Chinas One Belt, One Road), envisioned to be a pathway for trade, investment and strategic positioning that is bookended by the Chinese and European markets.

3) Kenya is also integrated into Chinas socalled String of Pearls strategy of making dualuse investments in port facilities and harbors along the Indian Ocean that canserve as military transit points.

4) Kenya is located within close proximity of the important shipping lanes coming out of the Middle East and just south of the troublesome Somali coast and Horn of Africa, where three Chinese military ships have been carrying out a unilateral antipiracy mission since 2009.

As also shown in nearby Zambia, Chinese business in Kenya has been orchestrated by a state-led Chinese effort to make the right introductions and facilitate the necessary government relationships for successful negotiations and investments.


Excerpted Deals and Transactions:

  • China has provided a $1.2 billion loan from the Industrial Commercial Bank of China to help construct a 1,000 MW coal-fired power plant and the China Export-Import Bank has supported a 50 MW solar facility in the city of Garissa. Chinas recent financing of Kenyan power projects is more than six times that of the U.S.-led Power Africa initiative, with deals set to deliver 250% the electricity of the U.S.-backed projects.
  • Chinas Huawei has designated Kenya as one of its six African telecom hubs (along with South Africa, Nigeria, Egypt, Tunisia and Angola). Huawei and ZTE have helped to develop sections of the countrys national terrestrial fiber optic backbone. Both have worked closely with, and supplied equipment and technical assistance to, Kenyas former monopoly fixed-line provider, Telekom Kenya (who counts Huawei as a strategic partner),and Kenyas Safaricom operates largely through the use of Huawei equipment.
  • In March 2015, a report published by Kenya’s Ethics and Anti-Corruption Commission included corruption allegations against 175 government officials involved in Chinese infrastructure projects. The projects referenced included the tender for a $3.5 billion standard gauge railway (reportedly awarded irregularly) and officials attempts to influence the award of a $500 million pipeline to Sinopec Corp. (though the project was awarded to Lebanons Zakhem, the decision was contested by several of the other bidders). In September 2015, two senior CRBC managers were arrested for bribery.
  • LAPSSET, short for Lamu Port South Sudan, Ethiopia Transport Corridor), which will tie together Kenya, Ethiopia, South Sudan and Uganda, is a massive transportation infrastructure project valued at anywhere between $15 billion to $30 billion. The project includes contracts doled out to a number of Chinese companies that are known PLA contractors, including: CATIC, AVIC and CCCC (along with its subsidiary, CRBC). The Lamu port (along with several other ongoing Chinese projects in Kenya) will make up part of the transportation corridor, although as of January 2016, China Communication Construction Company (CCCC) had yet to begin work on the port itself.
  • In April 2015, AVIC invested $70 million in Centum Investment Corporations Two Rivers Development project, constituting one of the largest Chinese investments in a private Kenyan firm. The deal gave AVIC a 38.9% stake. The plan is to build on a 102-acre site a mall, hotel, apartment complex and offices in Nairobis Runda district. AVIC is also the main contractor.