China is Kenya’s third largest lender

China has leaped to the position of Kenya’s third largest lender after Japan and France, underlining the growing influence of the world’s second largest economy on the country’s economy.

New statistics by Treasury shows China received Sh1.05 billion from the Treasury last year in interest and principal loan repayments to make it the third biggest recipient.

Kenya’s biggest lender, Japan, received Sh6.44 billion while France came second with Sh2.59 billion, according to the recently released Quarterly Economic and Budgetary Review by the Treasury.

In 2011, China overtook Japan to become the world’s second largest economy after that of the United States.  

The rise in the past decade has left it with surplus cash reserves, which it has used to exert influence on developing countries, including Kenya.

 “As the donor economies become big, it means they can afford to lend more to Kenya. This has happened with China whose economy is now much bigger than it was years back. China is now among the richest nations and is in the G-20,” said Henry Rotich, deputy director of economic affairs at the Treasury.

China’s quick rise on the lenders ladder is underscored because two years ago it did not feature among the top creditors to Kenya.

In the financial year 2009/10, China was classified among Kenya’s ‘other lenders’ by the Treasury.

The Saudi Fund (the sovereign wealth fund) is also listed among the top 7 lenders in 2011/12 financial year, having first appeared on the list in the 2010/11 financial year.

President Kibaki went to Saudi Arabia in early 2007 to seek Saudi aid and woo investors to Kenya, highlighting incentives that have been put in place to improve the business climate.

In the financial year ended 2010/11, Belgium was the third largest donor to Kenya receiving repayments amounting to Sh932 million while the Chinese came fourth getting Sh798 million, according to the data from the Treasury.

China is also now among the top sources of Kenya’s imports followed by other Asian countries such as India and Saudi Arabia and United Arab Emirates.

Analysts and policy makers say that the terms and conditions for loans from Asian countries have generally been more favorable compared to the stringent economic and political conditions imposed by western countries.

Mr Rotich pointed the growth of Saudi Arabia has benefited from high global oil prices enabling it to build a substantial sovereign wealth fund that it can lend to other countries.

“Even Kenya could become a lender if the oil discoveries turn out to be in commercial quantities, “ said Mr Rotich.

John Mutua, a budget programmes officer at the Institute of Economic Affairs; said Kenya had found that diversifying its sources of funds also improved predictability in national budgeting.

“The Chinese and Saudis have a lot of money to lend. For the Chinese, you can see there is a correlation between the amount of money being lent and the kind of projects they are involved in here in Kenya such as infrastructure,” said Mr Mutua.

He noted that problems in Europe in the past three years or so had caused diversification of sources of revenue critical in order to implement budgeted projects and programmes.

“The types of terms and conditions that our traditional lenders put on aid have been more stringent than those from the Chinese and other from Asia. It seems they are more willing to negotiate,” said Mr Mutua.

Source: Business Daily by Geoffrey Irungu