By: Midmark Onsongo
Worth Noting:
- The initial budget for the SGR project was set at $3.8 billion (KSh 380 billion) for the Mombasa-Nairobi phase. This phase, covering 472 km, was expected to boost transport efficiency by linking the port of Mombasa to the capital city of Nairobi.
- The Kenyan government secured a loan from the Exim Bank of China to fund the SGR, with repayment conditions tied to the project’s revenues. Kenya borrowed approximately $3.2 billion (KSh 320 billion) for the Mombasa-Nairobi phase. The loan carried an interest rate of 6%, significantly higher than global infrastructure financing norms, which usually hover between 2-4%.
- The direct impact of this financial mismanagement is being felt by the common Kenyan citizen, who now faces higher taxes and increased national debt.
The Standard Gauge Railway (SGR) project in Kenya was initially touted as a major infrastructure initiative aimed at boosting the country’s economy by improving transportation and facilitating trade. However, its implementation has been plagued with concerns about corruption, inflated costs, and inefficiencies. Let’s dive into the factual economic breakdown of this project and highlight the stolen money, over-budgeting, and other areas of financial mismanagement.
“The rich man is respected for his wealth; the poor man is blamed for his poverty.”
This African saying resonates deeply when applied to large infrastructure projects like the SGR. At first glance, the project seemed like a rich idea, one that could uplift Kenya’s economy. Yet, beneath the surface, the actual figures and economic reality reflect the weight of financial mismanagement that continues to burden the common mwananchi (citizen).
Overview of the SGR Budget Costs
The initial budget for the SGR project was set at $3.8 billion (KSh 380 billion) for the Mombasa-Nairobi phase. This phase, covering 472 km, was expected to boost transport efficiency by linking the port of Mombasa to the capital city of Nairobi. When calculating the per-kilometer cost, we arrive at approximately $8 million per km (KSh 800 million). However, the global average cost for a similar project is about $2 million to $5 million per km. This immediately raises red flags, suggesting that the SGR project was already over-budgeted by up to $6 million per kilometer, signaling the potential for financial mismanagement or outright corruption.
Breakdown of Inflation and Over-budgeting
To understand how much may have been stolen or misappropriated, we begin by comparing Kenya’s SGR with similar projects across Africa. Ethiopia’s Addis Ababa-Djibouti railway, for instance, cost $4 million per kilometer. If we use this as a baseline, the budget for Kenya’s 472 km SGR should have been around KSh 188 billion ($1.88 billion).
Actual Cost (Mombasa-Nairobi) is KSh 380 billion
Expected Cost (Based on Ethiopian Standard) = KSh 188 billion
Over-budgeting = KSh 380 billion – KSh 188 billion = KSh 192 billion
This difference of KSh 192 billion is unexplained and significantly higher than regional standards, suggesting either gross inefficiencies or intentional inflation. To dig deeper, we now look at the sources of these inflated costs.
Loan Structure and Interest Payments
The Kenyan government secured a loan from the Exim Bank of China to fund the SGR, with repayment conditions tied to the project’s revenues. Kenya borrowed approximately $3.2 billion (KSh 320 billion) for the Mombasa-Nairobi phase. The loan carried an interest rate of 6%, significantly higher than global infrastructure financing norms, which usually hover between 2-4%.
This over-priced loan means that Kenya has been paying much more in interest than it should have, thereby adding to the long-term costs of the project. By the time the loan matures, the total cost of the loan (interest + principal) will likely reach $5 billion (KSh 500 billion). The extra $1.2 billion (KSh 120 billion) in interest payments could have been avoided if more favorable terms had been negotiated, further increasing the financial burden on the taxpayer.
Overpriced Contracts and Kickbacks
Reports from the Auditor-General of Kenya have also indicated that several contracts associated with the construction of the SGR were overpriced. Equipment was leased at prices far above market rates, and contracts for cement, steel, and other materials involved third-party companies with suspicious ownership structures. These companies were reportedly linked to government officials, suggesting corruption and kickbacks.
For example, it has been documented that certain equipment used for the SGR was leased for KSh 20 million per month, while similar equipment could have been acquired outright for KSh 200 million in total. Over the two-year construction period, the total leasing costs for equipment amounted to KSh 480 million, more than double the actual acquisition cost. This pattern was repeated across multiple areas of the project, contributing to the inflated overall cost.
Estimated excess leasing costs: KSh 280 million
Estimated excess material procurement costs: KSh 50 billion
Revenue Underperformance and the Debt Trap
One of the major selling points of the SGR was that it would generate enough revenue to cover its operational costs and repay the loan. However, the reality has been quite different. The SGR’s revenue performance has been underwhelming, with an average annual revenue of KSh 12 billion, while the operational costs stand at KSh 18 billion annually. This means that the SGR operates at an annual loss of KSh 6 billion.
If we extend this loss over the loan repayment period of 30 years, we’re looking at a total operational loss of KSh 180 billion (KSh 6 billion x 30 years). This is in addition to the debt repayments, which are estimated to be KSh 20 billion annually for the next 30 years, amounting to KSh 600 billion.
Therefore, Kenya is not only facing a debt crisis because of the inflated cost of the project, but also because of its operational inefficiency. As a result, Kenyan taxpayers will bear the burden of a project that has not met its financial goals.
Calculating the Total Economic Loss
Now, let’s summarize the key areas of economic loss due to the SGR:
Over-budgeting for construction: KSh 192 billion
Unfavorable loan terms (excess interest): KSh 120 billion
Overpriced contracts (kickbacks and corruption): KSh 50 billion
Equipment leasing overcharges: KSh 280 million
Annual operational losses (30-year period): KSh 180 billion
Total Economic Loss = KSh 192 billion + KSh 120 billion + KSh 50 billion + KSh 0.28 billion + KSh 180 billion = KSh 542.28 billion
This staggering figure of KSh 542.28 billion represents the total economic loss from the SGR project due to over-budgeting, corruption, and operational inefficiencies. When compared to the project’s actual budget of KSh 380 billion, this shows that the true cost to the Kenyan taxpayer far exceeds what was originally planned, largely due to mismanagement and corruption.
The Impact on Kenyan Taxpayers
The direct impact of this financial mismanagement is being felt by the common Kenyan citizen, who now faces higher taxes and increased national debt. The government has had to implement austerity measures, including cuts to essential services such as healthcare and education, to service the growing debt from the SGR project. Additionally, the burden of this debt will likely fall on future generations, as the loan repayment stretches over 30 years.
The wisdom of our ancestors tells us, “If you close your eyes to facts, you will learn through accidents.” In Kenya’s case, the accidents are already happening in the form of spiraling national debt, higher taxes, and reduced public services.
The SGR project, while ambitious, has unfortunately become a prime example of how corruption and mismanagement can derail infrastructure development. The math shows that Kenya has lost over KSh 542 billion due to over-budgeting, corruption, and inefficiencies. It is essential that legal and policy reforms be implemented to prevent future projects from falling into the same trap. The Kenyan government, the judiciary, and civil society must demand accountability from those responsible for these losses, ensuring that future generations are not left paying the price for today’s financial mismanagement.
Sometimes, it’s essential to truly appreciate and cherish people for who they are. I owe so much to my big brother and closest friend, Jotham Lopez, and to my mother, Esther Kerubo, for always believing in me and supporting my journey with unwavering love. Their guidance has been instrumental in shaping the person I am today. It’s not about my ability to craft critical articles; what matters most are the special people who value the small efforts I make along the way.
This article was scripted by;
MIDMARK ONSONGO
(Sustainable economist, Geopolitics strategizer)
