Thailand Overseas Investment Center

China agrees to boost infrastructure investment in Kenya

The agreement came as China’s foreign minister Wang Yi visited Kenya’s capital Nairobi as part of a tour of African nations aimed at bolstering commercial ties with the region.

A statement released by the office of Kenyan president, Uhuru Kenyatta, Wang said his mission was “to strengthen the existing bilateral co-operations between Kenya and China and chart new areas that the two countries can partner in”.

Kenyatta also called on China to support efforts to open the East African region. “We need you to work with us to link the Eastern Africa region by extending the railway to our neighbouring countries including Uganda, South Sudan, Rwanda, Burundi and even the Democratic Republic of Congo to open up the regional economy,” Kenyatta said.

According to Wang, agricultural modernisation and infrastructure development will be among key areas for partnership, Wang said. “The two countries will also partner in mineral exploitation and environmental conservation.”

“Industrial relocation was how China took off and Kenya can benefit from it,” Wang said. “China stands ready to share its experiences on industrial zoning and special economic zones and we are ready for more cooperation in these fields.”

Infrastructure investment expert Akshai Fofaria of Pinsent Masons, the law firm behind Out-Law.com, said: “This is yet another savvy example of China getting in at ground level in the industrialisation of Africa. However, the jury is still out on whether the Chinese model of special economic zones (SEZs) will work in Africa.”

Fofaria said: “If such SEZs are to make a lasting impact, they need to draw a critical mass of both Chinese and domestic investors, allow for linkages with the domestic economy and stimulate activities higher up the value chain. This means that the companies operating in the zone cannot be largely subsidiaries of the developers. Ancillary services also need to be sourced locally rather than from abroad and big ticket investments with an enduring technological element need to be encouraged.”

Last August, the China Communications Construction Company Ltd signed a $480 million agreement to build the first three berths of Kenya’s Lamu Port to handle general, bulk and container cargo under the Lamu Port-South Sudan-Ethiopia Transport Corridor Project.

Also last year, Chinese premier Li Keqiang met with East African leaders in Nairobi to sign an agreement for a multi-billion dollar railway project. Li also signed a separate $13bn coastal railway project deal with Nigeria, which will connect 10 coastal states of the western African country.

According to the African Development Bank’s Country Strategy Paper (CSP) for Kenya for 2014-18 (53-page / 1.14 MB PDF), foreign direct investment (FDI) in the country remains behind its neighbours. However, investment levels have increased from $605 million in 2009 to an estimated $994m in FY 2012-13. According to the CSP, FDI is projected to increase to more than $1.2bn in FY 2013/14, mainly due to investment from the five BRICS major emerging national economies (Brazil, Russia, India, China and South Africa) – especially India and China in emerging extractive industries.

CR:http://www.out-law.com/en/articles/2015/january/china-agrees-to-boost-infrastructure-investment-in-kenya/