How Africa Borrows From China: And Why Mombasa Port is Not Collateral for Kenya's Standard Gauge Railway

In December 2018, a leaked letter from Kenya's Auditor General (AG) warned that Kenya Ports Authority's assets-of which Mombasa Port is the most valuable-risked being taken over by China Eximbank if Kenya defaulted on the Standard Gauge Railway (SGR) loans. The rumor that Kenya had used Mombasa Port as collateral for the railway became widely accepted globally as another example of "Chinese debt trap diplomacy". Our research shows why this rumor is wrong. Unpacking this complicated case required expertise in the practice of international contract law, auditing, and commercial project finance. Our scholar-practitioner team's forensic analysis of all available primary documentation, over nearly two years, found significant mistakes in the AG's analysis. The AG's misreading was amplified by media misinterpretations of the project's take-or-pay agreement (TOPA) and its sovereign immunity waiver clause, both common features in international commercial project finance. Instead of a deliberate debt trap, the railway project was carefully and creatively designed to reduce the risks of a sovereign default and enhance the bankability of a project with high costs but significant long-term benefits for Kenya and the region. Our research puts Kenya's SGR in the context of debates over Chinese strategy and African development. We shed new light on how China Eximbank lends to large Belt and Road Initiative (BRI) infrastructure projects - and how African and other governments borrow. And for Kenyans, we provide the explanation that Kenya's government has failed to give: a detailed account of why they can rest easy that China is not going to be seizing their port - or indeed, any port.