S E C R E T NAIROBI 000181
SENSITIVE
SIPDIS
NOFORN
E.O. 12958: DECL: 2020/02/17
TAGS: PREL, EAID, KE, XW, ECON, EINV, ENRG, EFIN, PGOV, CH, PINR
SUBJECT: Chinese Engagement in Kenya
REF: 10 STATE 10152
CLASSIFIED BY: Christopher Walton, Economics Officer, State, Econ;
REASON: 1.4(B), (C), (D)
1. (S/NF) Summary: China's engagement in Kenya continues to grow
exponentially. China enjoys a large trade surplus with Kenya;
exports increased by more than 25 percent a year from 2004 to 2008.
The China National Offshore Oil Company (CNOOC) is drilling for oil
in the Isiolo region. China may be a potential partner in the
development of the new mega-port at Lamu. In addition, China is
heavily involved in various infrastructure projects across Kenya
primarily with roads. China is also providing weapons to the GOK
in support of its Somalia policies and increasing their involvement
with the Kenyan National Security and Intelligence Service (NSIS)
by providing telecommunications and computer equipment. Recently,
China signed an economic and technical cooperation agreement with
the GOK providing new development grants. To date, China and the
U.S. do not collaborate on development projects in Kenya. End
summary.
2. (U) China enjoys a large trade surplus with Kenya, exporting
more than 30 times its imports. For 2008, China exported $917
million of goods to Kenya while China imported $29 million worth of
Kenyan goods. China's exports in 2008 grew by 39 percent over 2007
capping the fourth straight year of at least 25 percent export
growth, including a 54 percent increase in 2007 and a 79 percent
increase in 2005. China is now the third largest exporter to Kenya
after the United Arab Emirates, which principally exports oil to
Kenya, and India. In comparison, the U.S. exported $440 million
worth of goods to Kenya in 2008 while importing $343 million worth
of Kenyan goods.
3. (U) The CNOOC is drilling for oil in the Isiolo region of Kenya
(see ref A). The exploratory well will cost $26 million dollars
and drilling will be complete in April 2010. Numerous oil
companies have drilled 31 exploratory wells in Kenya over the last
50 years without success. However, CNOOC is making a credible
effort to find oil in an area geologically similar to Southern
Sudan, with its substantial oil finds. As reported ref A, we had
heard that CNOOC would announce results from the exploratory well
by January 2010; we are now hearing an announcement may come in
April.
4. (U) The GOK is highly interested in developing a major port
complex in Lamu, which has much greater potential as a deep water
port than Mombasa. The GOK originally held discussions with Qatar
over the development of the Lamu port in return for a substantial
allocation of farm land. Negotiations involving development of the
Lamu port reportedly occur inside the "black box" of President
Kibaki's inner circle at State House. We understand, however, that
talks with Qatar are off, and that the Chinese are in play as a
potential partner for the port development project and associated
regional infrastructure (road and rail infrastructure to Southern
Sudan and Ethiopia, and pipeline infrastructure to Southern Sudan
and Uganda). China's interest in the Lamu project is reportedly
linked to the presence of oil in Southern Sudan and Uganda which
could be exported via Lamu as well as the greater export potential
to Ethiopia, Southern Sudan and Uganda. The addition of oil from
Isiolo would add additional impetus to China's interest in the port
development which is estimated to cost more than $5 billion.
5. (SBU) China is currently developing a number of infrastructure
projects in Kenya. Currently, China Wuyi, Syno Hydro, and China
Overseas Engineering Corporation are working on the Thika Road
project, a major eight lane highway from Nairobi to Thika town.
Another Chinese firm, Shengli Engineering & Consulting Company was
the prime contractor for the Mombasa-City Centre-Gigiri road
upgrade project. In addition, the second phase of a project to
upgrade the Jomo Kenyatta International Airport (JKIA) is being
worked by China National Aero-Technology International Engineering
Company (CATIC). The first phase of the project was completed by
the Chinese company, China Wu Yi. TBEA International, another
Chinese firm, is developing a 120 MW thermal plant in Longonot and
600 MW coal-fired power station in Mombasa as an independent power
producer. TBEA is also undertaking projects that involve
construction of 132 kV lines and sub-stations in the Rift Valley,
Central, Western and Coast provinces. During a recent visit to the
Olkaria geothermal development site in the Rift Valley Province,
Econoff observed that Great Wall Drilling, another Chinese company,
was exploring for geothermal energy. The KenGen Olkaria Geothermal
Development Manager told Econoff that while he would prefer to buy
quality American drills, pipes, and other geothermal-related
products, American companies could not compete with China on price
and price won every time in Kenya.
6. (S/NF) In January 2010, the GOK received from the GOC via CATIC
weapons, ammunition, supplies, and textiles for making uniforms in
support of the GOK's Jubaland initiative.
7. (S/NF) As of late August 2009, Telkom Kenya awarded Zhongxing
Telecommunications Equipment Company (ZTE) a contract to provide
landline telephone monitoring equipment to the NSIS. Telkom Kenya
awarded the contract to ZTE after being pressured to do so by the
NSIS Director General Michael Gichangi and the NSIS Director of
Operations Division Joseph Kamau. Gichangi's preference for ZTE is
based on kickbacks he received from the company while on a visit to
China. Kamau received monthly payments of over $5000 from ZTE
which were used to pay medical bills.
8. (S/NF) As of September 2008, ZTE was building e-Government
infrastructure on the NSIS headquarters compound. The project
involved a secure network for Kenyan e-Government activities,
including software and computer-based security, and a two-story
complex that would house the entire Kenyan governments' network
files. As of early March 2009, Chinese technicians were working on
a project in the basement of the NSIS headquarters. The presence
of the technicians was well known throughout the NSIS and was
causing some concern over the level of cooperation between the NSIS
and its Chinese counterparts.
9. (U) The GOK and GOC recently signed an Economic and Technical
Cooperation Agreement. The agreement provides a $7.3 million grant
from China to Kenya. Of the grant, $150,000 will finance a
computer program for the Ministry of Finance while the remaining
funds can be used by the GOK to fund development projects of their
choice. The agreement also covered Chinese funding of feasibility
studies for the potential development of Lamu port. In addition,
China committed to funding portions of the Northern Corridor road
project, which links Mombasa and Nairobi to Ethiopia and Southern
Sudan, as well as parts of the new Mombasa-Kampala standard gauge
railway. Currently, China's Shengli Engineering Construction is
refurbishing The Moi International Sports Complex at Kasarani with
$12.8 million of grant-in-aid money from China. In Early 2009,
China provided a $1 million grant to the GOK for the construction
of a 100 bed hospital in Nairobi. In 2008, the GOK received
approximately $381 million in interest-free and preferential loans,
with $145 million intended for the planned ring roads aimed at
decongesting Nairobi. Since 2008, the GOK has implemented
campaigns to attract investment from the $1 billion China-Africa
Development Fund.
10. (U) China's companies working in Kenya tend to import a
substantial number of Chinese workers. This importation of labor
from China tends to limit the number of Kenyans who directly
benefit with wages and knowledge transfer from the projects. The
low Chinese bids on major projects also push local firms out of the
process, especially in infrastructure areas where capacity building
of local firms would be useful. In addition, the Kenya Wildlife
Service (KWS) noticed a marked increase in poaching wherever
Chinese labor camps were located and in fact set up specific
interdiction efforts aimed to reduce poaching (see ref B). KWS
also reports that 90% of the ivory smugglers detained at JKIA are
Chinese nationals.
11. (U) The U.S. mission in Kenya has no current or pending
development partnership arrangements with the GOC or any informal
collaboration at the program or project level. The GOC does not
participate in donor coordination in Kenya. Donors have encouraged
the GOK to bring China into the donor coordination process, but no
progress has been made to date. While we do not recommend it, a
potential area for collaboration could include agricultural
development, a USG strength and an area of Chinese interest in
Africa. However, the GOC does not participate in the multilateral
agricultural donors group in Kenya. The GOC could be invited to
join this donors group, predicated on their willingness to sign a
Memorandum of Understanding ensuring their support of Kenya's long
term agriculture strategy. The World Bank recently announced a new
initiative to work in cooperation with Chinese infrastructure
development in Africa. This new effort seems to be aimed at
working with China and African countries to maximize the benefits
of Chinese development aid to the African people.
12. (SBU) Comment: Collaboration between the USG and China in Kenya
should be approached cautiously as there appears to be little
dovetailing of our interests to date. The GOC has been silent on
the implementation of the reform agenda, which we consider
essential to Kenya's future stability and prosperity; the GOC turns
a blind eye to the flooding of the Kenyan market with Chinese
counterfeit goods, such as batteries, which directly damage U.S.
market share here; and the GOC has not demonstrated any commitment
to curb ivory poaching. We expect China's engagement in Kenya to
continue to grow given Kenya's strategic location. If oil or gas
is found in Kenya, this engagement will likely grow even faster.
Kenya's leadership may be tempted to move ever closer to China in
an effort to shield itself from Western, and principally U.S.,
pressure to reform. Given the possibility of a backlash by the
Kenyan people against China, perhaps over the issue of imported
Chinese labor or mishandling of natural resources, there may be
benefits to keeping our distance, at least publicly, from China.
RANNEBERGER