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There’s a Flood of Road Problems in Kenya, but Financing To Fix Them is Drying Up

Matt Mullman | Country Analyst

Farmers face a myriad of problems in growing their crops: floods, droughts, pests, disease, and more. But a farmer’s livelihood can depreciate in value most when crops leave the field and rot on the way to market. For highly perishable crops like tea leaves effective transport networks are vital to the health of the supply chain. A country like Kenya, which accounts for nearly a quarter of the global demand for black tea (a 14 trillion Kenyan shilling business), investment in road networks is a key investment in agricultural supply chains.

Recent announcements from the Kenyan government regarding their priorities pose a risk to supply chains. Just a few weeks ago, President Uhuru Kenyatta announced that the focus of his second term would be on the Big Four initiative: universal healthcare, food security, manufacturing, and affordable housing. He is hoping to fast-track investment in these sectors to spur economic development.

However, groundTruth Global believes that this leaves the focus of his first term, transportation infrastructure development, by the wayside at a critical time. Kenyan transport networks, though possibly the most stable in East Africa, still have major issues. groundTruth Global tracked at least seven different instances of road closures because of damage during this year’s rainy season, and even Nairobi saw newly built roads rupture from rain and flooding. Much-touted new projects from Kenyatta’s first term have had little tangible benefit. The Chinese-built Standard Gauge Railway between Nairobi and Mombasa cost 3.3 billion USD, yet is poorly used and barely making revenue as transporters prefer the two-lane A109 road. The Kenyatta government aims to build a new expressway to connect Nairobi with Mombasa but contract negotiations with the multinational Bechtel have stalled over budget concerns. Mombasa is not only Kenya’s main deep water port but also the premier port in East Africa and the site of one of the world’s largest tea auctions and depots.

In Kenyatta’s first term, Kenya’s public debt rose to nearly 60 percent of GDP to fund these infrastructure projects. If the government now wants to focus its borrowing to fuel the Big Four, it will face reluctant credit markets. Without government support, developers face anemic private lending opportunities within Kenya because interest rate capping on banks put in place since 2016 has crippled lending. Financing options abroad have also dried up. China is now concerned about the debt levels of many of its Belt and Road Initiative partners and is limiting financing options.

The Kenyan government has run out its own credit, kneecapped the ability of its private sector banking to offer credit, and seen the window of opportunity to take advantage of foreign credit closed, all for projects that failed to systematically improve transportation networks. Now Kenyatta’s turn to the Big Four is an attempt to modernize an economy while turning its back on agriculture, where 70% of the workforce still makes its living. While Kenya may have some of the best transport networks in East Africa, Kenya’s preeminent place as the shipping hub could be jeopardized by the government’s shift in priorities and poor credit decisions.