On March 19, President William Ruto stood at a ceremony near Naivasha and launched construction on a railway that had been stuck in the ground for six years. The Naivasha to Malaba Standard Gauge Railway extension, valued at over $3.2bn (Ksh500bn), will run 369 kilometres through nine counties to the Ugandan border. China built the first phase. China is building this one too. But this time, Kenya is not taking a single new loan from Beijing. The financing model is the story.
The original SGR, linking the port of Mombasa to Nairobi, was completed in 2017 using Chinese state loans at relatively favourable rates. The plan was always to extend the line west, through the Great Rift Valley to Kisumu on Lake Victoria and then to Malaba at the Ugandan border, creating a continuous standard gauge rail corridor from the Indian Ocean coast to the East African interior. That corridor would transform the Northern Corridor, the main trade artery connecting Kenya, Uganda, Rwanda, Burundi, and South Sudan, cutting freight costs and transit times and positioning Mombasa as the dominant East African gateway port.
Construction stalled at Naivasha in 2019, stranding the project more than 350km short of its destination. China’s Belt and Road Initiative lending to Africa, which had totalled over $120bn in government-backed credit since the early 2000s, was being wound down as Beijing grew concerned about debt sustainability across its portfolio. Kenya had accumulated a significant bilateral debt burden. China became Kenya’s largest bilateral creditor. Nairobi now spends over $1bn annually servicing that debt. When BRI lending dried up and no alternative financing was in place, the extension simply stopped.
It became a symbol. Critics of Chinese infrastructure lending pointed to the Naivasha railhead as proof of the debt-trap thesis: that Beijing had extended large, often opaque loans for projects whose economics did not work at commercial rates, leaving recipient governments indebted and infrastructure incomplete. China disputes that characterisation. The more precise diagnosis is that BRI lending was never designed for multi-phase projects requiring sustained decades-long commitment, and when China’s risk appetite changed in 2019, projects mid-construction had no fallback.
The new model: securitise the levy, not the sovereign
Kenya’s solution is structurally different from anything attempted on African rail before. Transport Cabinet Secretary Davis Chirchir has presented parliament with a plan to securitise the railway development levy, a charge collected on all cargo carried on the existing Mombasa to Naivasha SGR line, to raise up to $4bn in capital markets financing. The levy generates approximately $220m (Ksh35bn) annually and is legally ringfenced for railway development purposes. By converting that revenue stream into a bond-like instrument, Kenya is accessing capital markets rather than bilateral creditors, tying repayment to the commercial performance of the existing line rather than sovereign creditworthiness.
The structure has an important complication. The railway levy was originally designated as collateral backstop for servicing the initial Chinese loans. China has expressed concerns about Kenya now securitising it for new purposes, according to Treasury Cabinet Secretary John Mbadi. Ruto’s administration has made clear it will proceed regardless. Kenya also recently converted its original SGR dollar loans into yuan, extending the tenor to 15 years at approximately 3% interest during a four-year grace period, reducing annual debt servicing costs by approximately $215m. That restructuring bought the government enough fiscal space to treat the levy as available for the new financing.
China Road and Bridge Corporation and China Communications Construction Company remain the main contractors on Phase 2B. The shift is not from Chinese contractors to Western or African ones. It is from Chinese government debt to Chinese private-sector participation under a commercial contract financed by Kenyan capital market instruments. Peter Kagwanja, a Nairobi-based international relations analyst specialising in China-Africa ties, describes it as the direct result of the 2024 Beijing Summit, where African leaders and China agreed to move from a debt-led to an investment-led model. “China and Africa discussed a new model based on investments to sustain the level of building infrastructure,” he told Reuters.
What the extension actually builds
The SGR Phase 2B runs in two segments: Naivasha to Kisumu, covering 264km and passing through the heart of the Rift Valley and Nyanza regions, and Kisumu to Malaba, covering 107km to the Ugandan border. Kenya Railways managing director Philip Mainga has set a target of June 2027 for completion of the Naivasha to Kisumu segment, an ambitious timeline given the project’s history. The full Naivasha to Malaba route will follow.
The economic logic is straightforward. Kenya’s existing SGR from Mombasa to Naivasha handles cargo from one of East Africa’s busiest ports but terminates at a dry port with no onward rail connection. From Naivasha, freight currently transfers to road, adding cost, transit time, and truck congestion on already strained highways. A rail connection to Kisumu opens Lake Victoria’s ports as additional distribution nodes. A connection to Malaba completes Kenya’s segment of the Northern Corridor rail link, eventually connecting to Uganda’s SGR programme and the planned cross-border network reaching Rwanda. The African Development Bank estimates that completing the Northern Corridor could reduce regional trade costs by 20% to 30% over 15 years.
Kenya’s existing SGR has performed reasonably well by African standards. Freight volumes have grown since Mombasa to Nairobi opened, and the line has provided measurable relief to the Northern Corridor highway network. The Naivasha inland container depot has become an increasingly important logistics node. But the absence of the western extension has capped those gains. The line to nowhere became a logistics system to nowhere once it hit the Naivasha terminus.
Bigger Picture: Kenya has found a way to finish infrastructure that Chinese debt built and then abandoned, without either begging Beijing for more loans or waiting for Western development finance that has not materialised. Revenue securitisation, backing capital market instruments with ringfenced commercial income rather than sovereign creditworthiness, is the model Africa’s most infrastructure-constrained economies have been searching for. It is not without risk: the Naivasha to Nairobi SGR has yet to prove itself commercially profitable enough to reliably service both its existing Chinese debt and a new $4bn securitisation. But the architecture is correct. Infrastructure that pays for itself through commercial revenue is more durable than infrastructure that depends on bilateral goodwill that can be withdrawn overnight. The Northern Corridor is not finished. It is closer than it has been in six years.
Source: CNBC Africa / Times Live / Construction Review
