China may sponsor Lamu Port

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A woman walks past a Chinese road construction project in Kenya in this 2008 Reuters photo.

Business Monitor International | Oct 15 2009

The Kenyan government has entered into talks with China over the development of the Lamu Port and related road and rail links. China has been one of the most active proponents of infrastructure development in Africa over recent years, but thus far its involvement in Kenya has been limited.

A delegation from Kenya is currently in China discussing prospects for Chinese investment in the port project, according to the Financial Times (FT). While discussions are at an early stage, the Kenyan government is hopeful that Chinese investment will provide a much-needed boost to the country's port sector.

In late 2008 Kenya and Qatar were reportedly in negotiations over a US$3.5bn plan to build the port. In return for financing the port, the emirate would lease 40,000 hectares of land to be used for food production. However, no deal was ever secured, and China is now being eyed as a more appropriate suitor for the project. According to Kenyan Prime Minister Raila Odinja, 'the Chinese offer the full package', as cited by the FT, in terms of expertise and financing, the latter of which would potentially come from the Export-Import Bank of China.

The project under discussion not only includes a new port at Lamu but also the development of road and rail links to the port for what has been described as Kenya's 'second corridor'. The development of a new port and associated infrastructure in Kenya would provide China with a route to export oil from Sudan - where it is heavily invested - and a route for its exports out of Ethiopia, which are most likely to be related to food produce. In addition, it would establish the necessary infrastructure for exporting any oil discovered in northern Kenya.

The development of a port at Lamu would certainly improve the condition of the country's port sector, as congestion at the Port of Mombasa is a major problem. The proposed port would specifically cater for northern Kenya's trade needs. BMI notes that the port would not only reduce congestion at the Port of Mombasa, but would also offer an alternative route for trade to and from Kenya's landlocked neighbours, which is likely to be one of the main attractions for China to the project.

China has been one of the largest forces in the development of infrastructure in Africa over recent years. In return for access to natural resources, the country has built roads, bridges and other core infrastructure. However, with Kenya having little to offer in terms of proven mineral resources, it has not received the same attention as countries such as Ethiopia, Nigeria, Angola and Sudan. Guinea may become the latest beneficiary of Chinese investment in Africa, with negotiations for a deal worth US$7bn reportedly under way.

Despite the country's lack of proven resources, China has some history in Kenya; in 2006 it was awarded a contract to refurbish Jomo Kenyatta International Airport in Nairobi and in 2008 China Overseas Engineering Group was awarded a US$48mn contract to expand Kenya's third largest airport - Kisumu airport - as well as a US$105mn contract for the reconstruction of a road. China is also involved in Kenya's nascent oil industry, holding exploration rights for the Lamu basin and having plans to start prospecting for oil in northern Kenya by the end of October.

Recently, Kenya's cash-strapped government has called for increased Chinese investment in infrastructure and energy projects in the country, and this port project could be the answer to its call. The Chinese government is reportedly planning to invest US$5bn in Africa through the China-Africa Development Fund, and Kenya hopes to reap the benefits of the investment plans.

Original source: BMI
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