Courtesy of The Africa Report, a look at Kenya’s shift towards western investors and governments:

Kenya is increasingly becoming a darling of the West when it comes to trade and investment, a momentous diplomatic deviation from the East, particularly China, which was the previous regime’s lodestar for nearly a decade:

Since the new administration assumed office last September, President William Ruto’s several visits outside Africa have largely been to Western nations, including the US (twice), the UK, France, Belgium, and Germany.

A host of US and EU delegations has also jetted into the East African country on several occasions for bilateral trade talks over the past three months.

On the other hand, Ruto’s visits to the East, save for South Korea, have been far fewer, indicating weakening ties with China. The Asian country has been blamed for Kenya’s burgeoning public debt, currently standing at more than 70% of GDP.

Western support
Ruto’s closeness to the West has started paying off.

In March, Kenya secured €347.6m (nearly $384m) in funding from the European Investment Bank (EIB) for the construction of the electric Nairobi Bus Rapid Transit Line 3 (BRT 3) project, which has dragged on for about three years.

Rehabilitation of Olkaria I and IV power plants, some of the major sources of the country’s hydro-power, will also be funded by the EU, which will provide funding to the tune of KSh6bn (around $44.6m).

The EU further provided an additional €13m (approximately $14.4m) this month as part of its continued support towards drought-hit areas in Kenya through the National Drought Management Authority (NDMA). The US has also extended a $5.1m grant to seven local agricultural firms.

“We attribute much of this progress to a policy shift which informed the establishment of the NDMA as a dedicated and specialised institution to coordinate drought risk management,” says Prime Cabinet Secretary Musalia Mudavadi.

The World Bank is also helping Kenya, alongside other nations in the Horn of Africa with drought mitigation initiatives.

Kenya, currently battling a worst-ever cash crunch, is eyeing a $1bn World Bank loan next month. The IMF, meanwhile, has temporarily overhauled its lending terms, allowing an increase of the country’s lending quota, which has yet to be approved in the upcoming fifth review.

Beating off competition from China?
Although the EU and US have been Kenya’s key and consistent partners for years, the recent developments, according to experts, are seen as an opportunity for the West to cement its position and influence in Africa, which has been on the brink of being shaken off by China.

“They (Western countries) have always remained partners of Kenya,” says Javas Bigambo, Nairobi-based lawyer and governance expert.

“So far, we have seen little, if any, deliberate stretching of the arm by the president to engage the East compared to the former president [Uhuru Kenyatta]. Ruto seems to be at ease with the West, far more than China or Russia.”

Kenya is expected to ratify both the Economic Partnership Agreement (EPA) with the EU and the Strategic Trade and Investment Partnership (STIP) with the US in the course of this year to rekindle their relations.

“I think progress is really being made. It [STIP] is not as complex as the free trade agreement so it probably allows a quicker adaptation for both sides, and we are encouraged by the progress,” says Scott Eisner, President US-Africa Business Centre. “But definitely what we are looking for is the market access provisions to be brought back into the conversation.”

Clearing trade barriers, especially on tax policies is among the thorny issues that Kenya must address to make any notable progress in attracting foreign investment and trade with the West.

But Kenya’s international trade partnership is still dominated by China, which accounted for 20.5% (or Ksh441.4bn) of the country’s cumulative imports in 2021, followed by the EU, India, the UAE, and the US.

Lending policy overhaul
China and the West use different approaches to exert influence in Africa through financing, with the latter always accompanying its support with certain conditions touching on domestic policies, human rights concerns, and constitutionalism.

However, Ruto’s political camp has heavily criticised the ex-president’s preference to tap costly concessional loans from China, something that seemingly created a connection between the current president and the US-led West.

One month after Ruto’s swearing-in, Chinese Ambassador to Kenya Zhou Pingjiang hurriedly announced a change of lending policy to the country and Africa at large, in an attempt to ditch the “debt-trap” tag.

The ambassador says China, going forward, evaluate each borrowing request based on specific programmes and the ability to pay off debt.

The West, in response, has also changed its lending strategies to support Ruto’s economic priorities, such as small business, the private sector, renewable energy, and agriculture while pressuring the government to raise extra revenue to ensure debt repayments.

“We have an exceptionally great working relationship with the Kenyan government, and we are continuing to work with them on the next steps for additional future [debt] payment,” US Exim Bank President Reta Jo Lewis tells The Africa Report when asked about the possibility of restructuring some of the country’s maturing debt.

“We are excited to be on the ground with ambassador Meg Whitman and her team because of the strong relationship of the US ambassador who is very commercial focused, and is here to assist us with all types of working in the country, the government, private sector, and small businesses,” she says.

Questionable tax waivers to Chinese firms
The Kenyan government is currently investigating Chinese companies over huge tax waivers for various projects during the previous regime.

Parliamentary Finance Committee Chair Kuria Kimani tells The Africa Report that the tax waivers remain questionable since their intended purposes have never been disclosed.

Among the companies on the radar of the committee and Kenya Revenue Authority (KRA) are the China Road and Bridge Corporation (CRBC) and its subsidiary Moja Expressway, which according to Kimani received a tax reprieve of about KSh9.7bn (nearly $72.2m) for the 27km Nairobi Expressway project.

The project’s cost surged 33% by the time it was completed in May 2023, making it the most expensive road in the country. “There are a host of Chinese companies which received huge tax waivers that we are working collaboratively with KRA to establish the intention. The waivers were given to these firms at the expense of local companies,” says Kimani.

Huawei, another Chinese operator, also enjoyed KSh7.8bn in tax waivers for an unknown project. Kenya’s government often offers tax reliefs to strategic companies to encourage a particular economic activity. Taxes account for the highest cost component for most businesses and projects in Kenya.

Existing contractual agreements between Kenya and Chinese firms are, however, unlikely to be amended, as this could lead to a downgrade to the country’s credit rating.

This means Kenya will have to continue to meet its debt obligations, unless China shows some empathy like in August 2022, when it extended debt relief to some 17 African states. Kenya was not part of the beneficiaries.

“It (debt waivers) might not necessarily be dependent on Kenya’s new inclination to the West but the extent to which Kenya avails itself for cooperation and diplomatic strengthening,” says Bigambo. “I think China is at liberty to review its relations and extend its leniency to Kenya.”