France and Germany have overtaken China in budgeted loans from rich countries for the new year that begins in July, highlighting President William Ruto's realignment with the West in a foreign policy shift from that of his predecessors.
In its budget books, the Treasury listed France as the largest bilateral financier of projects in the Ruto administration's Sh3.9 trillion spending plan for the financial year starting in 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 that the Treasury expects to receive from rich countries in the form of loans and grants, according to budget estimates presented to Parliament for approval. Germany has committed Sh16.71 billion through KfW – the state-owned investment and development bank.
China, which since 2015 has become Kenya's largest bilateral lender after it struck a lucrative deal to build the standard gauge railway (SGR), has committed to lending Kenya Sh7.25 billion in new loans. This is a sharp decline from the peak of Sh140.03 billion in the 2016/2025 financial year.
The funding expected from China for the new fiscal year is half of the Sh14.39 billion expected from Japan.
In recent years, Beijing has adopted a cautious approach to lending to Kenya and other African countries amid warnings that major economies face multiple debt spirals in the wake of global economic turmoil and may default on payments.
The expected funding increase from France and Germany amid the sharp decline from China has come at a time when political analysts say Dr. Ruto is leaning more towards the West (the United States and its allies in Europe) than the East (especially China). Some of them described the Kenyan leader as “the West's blue-eyed boy in Africa.”
Analysts point out that Dr. Ruto not only made several visits to Europe and the United States, but also succeeded in inviting German Chancellor Olaf Scholz and King Charles of the United Kingdom in May and October of last year, respectively. King Charles' four-day visit was his first in Africa as king.
“There is definitely a move to realign Kenya with its traditional partners in the West. President Ruto has made four visits to the United States, three to France, and two to Germany and the United Kingdom. He has made four visits to the United States, three to France, and two to Germany and the United Kingdom,” said David Munda, a Kenyan international relations scholar who teaches political science at the City University of New York. “In comparison, President Ruto has only made one visit to China so far,” via email.
In addition, the Ruto administration has taken positions on the war between Russia and Ukraine and the conflict between Israel and Hamas that conflict with China, an adversary of the West. Again, these are positions that are in line with Kenya's traditional Western allies, the United States and the United Kingdom.
In an important development to strengthen trade and investment relations with the West, Dr. Ruto this week made a state visit to Washington, the first visit by an African leader in 18 years since former Liberian President Ellen Johnson Sirleaf.
Through the ongoing US-Kenya Strategic Trade and Investment Partnership (STIP) negotiations, the Joe Biden administration has pledged to improve Kenya's investment climate to levels that will serve as a model for other African countries.
“President Biden and his entire administration are deeply committed to partnering with Africa, which has the fastest growing population, largest free trade area and diverse ecosystem,” US Commerce Secretary Gina Raimondo said in Nairobi on April 24.
“We see Kenya as a leader in these efforts: a leader in business, technology, digitalization and policy innovation and a model for engagement across sub-Saharan Africa.”
Kenya's tilt towards the West for financing has resulted in it receiving billions of dollars in additional financing from Western-affiliated multilateral lenders – the International Monetary Fund and the World Bank Group – for direct budget support.
The administration of President Mwai Kibaki, widely viewed as Kenya's most successful president, has moved away from seeking money from the World Bank and International Monetary Fund to support the budget, with the bulk of the loans coming in the form of direct project support.
Such loans come with difficult economic policy conditions, including tightening tax procedures.
“Our deliberate, consistent and sustained efforts, here and abroad, have enabled us to normalize our relations with the IMF, World Bank, African Development Bank and various development partners to the extent that they are now working with us to implement the Bottom-up Economic Transformation Agenda,” said Dr. Ruto. In his State of the Nation Address last November.
Indeed, IMF support was key in boosting confidence in international investors to lend Kenya $1.5 billion on February 13, money that helped Kenya repay the bulk ($1.44 billion) of the $2 billion Eurobond due in June. June. The successful issuance helped allay fears of sovereign debt default.
Financing from the Bretton Woods institutions was largely accompanied by unrealistic tax targets for Kenya.
These include the 16% value-added tax on fuel which was imposed by Dr Ruto's administration in its first full financial year in power. His predecessor, Uhuru Kenyatta, failed to fully implement this IMF-backed reform during his decade-long rule.
“The West tends to condition its loans on numerous conditions, including the country’s commitment to human rights, democracy, freedom of the press and transparency,” Professor Munda said.
“In comparison, China tends to be unwilling to interfere in the internal affairs of the countries it does business with. This has led China’s critics to accuse Beijing of engaging in debt diplomacy, saddled African countries with massive debts that Beijing knows they cannot repay.”
A study by AidData, a research lab at the College of William and Mary in the US, found that the terms of Beijing's loan deals with developing countries were typically secret and required borrowing countries like Kenya to prioritize repaying state-owned Chinese lenders in advance. From other creditors.
The data set, based on analysis of loan agreements between 2000 and 2019, suggests that Chinese deals contain clauses for “more detailed repayment guarantees” than their “formal credit market counterparts.”
The terms also give “Chinese lenders an advantage over other creditors.”
For example, Chinese banks rejected Kenya's request to extend a debt moratorium at the height of the Covid-19 shocks to the economy for another six months until December 2021, prompting the Treasury to withdraw the “mutually beneficial” request.