Tuesday, June 25, 2024

Debt-funded development for a brighter future


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With Kenya’s government debt to GDP in 2018 shadowing the 57% mark and economic forecasts not predicting sunnier days, the benefits of debt-funded infrastructural development have become blurred.

Kenya has in the recent past experienced significant growth in its infrastructure. Starting with the Thika Super-Highway to the Standard Gauge Railway, the basic logic behind all these ‘great’ projects was vaguely spelled out to every Kenyan which allowed them to be received with pomp and circumstance.

Crazy were the few who questioned these seemingly noble fetes by our leaders to turn Kenya into a semblance of the developed nations in Europe and Asia. Highlighted in bold and italics were all the positive aspects of these projects to the country yet in fine print were the much much delayed gains to be enjoyed by Kenyans.

In spite of these projects, the local manufacturing industry gained miniscule market for its products while the few Kenyans who did get employment were taken as casual labourers and limited technology and know-how was transferred.

Not only so but our financiers would also have control over some of these projects for decades to come until the hefty loans given to us were repaid, if ever.
Maybe this time, it is different?

At a staggering 2 billion US dollars, the Lamu coal plant is almost fully funded by debt. In a coalition where there is limited ownership of the project by the locals, 60% of the plant will be funded by a Chinese state-owned commercial bank and 15% by a South-African financial services group and lender.

Of the 2 billion US dollars required to construct the plant, only 25% (US 500 million dollars) will be obtained internally.
Perhaps, they will use our raw materials?

In addition to the debt required to construct the plant, another important aspect of the deal struck for this project is that the coal to be fed into the plant to generate electricity will be procured from South Africa, at least until the railway line (probably still not funded internally) necessary to transport coal from Mui Basin in Kitui is up and running.

Well, we get employment, don’t we?

The promise of employment opportunities have caused one too many Kenyans to sign deals with the devil and we are yet to learn from our mistakes.

Even in the case that Kenyans do get jobs, these will as has been past practice, casual bottom-of-the-pyramid jobs in the mines where they are exposed to life-threatening explosions, black-lung disease and other respiratory problems, all for minimal wages.

However, quitting is not an option because jobs are scarce and mouths have to be fed.

With no labour unions to campaign for better pay and working conditions, this results in a vicious cycle of jobs at any cost, even death.
It doesn’t matter. It will be ours, eventually?

In 25 years, a lot will have changed in Kenya and more so in the world. Vision 2030 will be long achieved (the optimists say) and we will be able to download food from our screens onto our plates; but in this small country in Africa, the Lamu coal plant will finally be ours, assuming we repay the debt we owe.

May we not forget the hidden costs of this project such as the medical treatment of residents neighbouring the plant and the specialists needed to revive the depleted marine ecosystem.

In foresight, the Lamu coal plant does not vastly differ from past development projects in Kenya but there is room for improvement.

What if resources were to be redirected to renewable energy projects that promise similar electricity outputs but with fewer social and environmental costs? Research shows that solar and wind energy technologies have lower capital, operation and maintenance costs compared to coal projects.

Great strides have already been made by the government in commissioning solar and wind energy projects as well as creating an enabling environment for private-sector involvement in renewable energy.

To grow as a nation, debt is inevitable but it is our responsibility to use what we borrow for the betterment of the citizens, now and even when that downloadable-food comes!

Rachael is a junior energy economics researcher and stakeholder in the energy sector.

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