China reboots Kenya mega-projects despite deepening debt crisis

Kenya, in partnership with two Chinese state-owned firms, has broken ground on a $1.5 billion highway expansion project, signaling Beijing’s renewed engagement in large-scale infrastructure development in the country after several years of reduced activity. The project, structured in two phases, will be financed through a mix of debt and equity under a public–private partnership (PPP) model.

According to the Kenya National Highways Authority, the first phase, costing $863 million, will see China Road and Bridge Corporation partner with the National Social Security Fund (NSSF) to widen 139 kilometers of single-lane highway into four- and six-lane dual carriageways. The second phase, valued at $678.56 million, will be undertaken by Shandong Hi-Speed Road and Bridge International, which will expand a 94-kilometer section into a six-lane road. Both contracts include financing costs and will follow a structure of 75% debt and 25% equity. Construction is expected to be completed by the end of 2027, after which the companies will operate the highway under a 28-year toll concession to recover their investment and earn returns.

The project comes at a time when Kenya is grappling with a mounting debt crisis. The country’s external debt portfolio is dominated by multilateral and bilateral loans, with multilateral creditors making up the largest share as of August 2025. Among bilateral lenders, China stands out overwhelmingly as Kenya’s most significant creditor. In August alone, new Chinese disbursements represented more than half of the monthly increase in bilateral borrowing. Other major bilateral lenders include Paris Club countries — particularly France, Japan, Germany, and Italy — though their combined exposure remains far smaller than China’s.

Chinese financing to Kenya come through a range of instruments — concessional government-to-government loans, export-credit “buyer’s credit” facilities often tied to Chinese contractors, and commercial-style loans from banks. Some arrangements combine these elements. The new highway project, for example, uses a PPP structure with roughly 75% debt and 25% equity and a long-term toll concession.

Two recurring issues continue to shape debate around Chinese loans in Kenya. First, the full contractual terms — including interest rates, collateral clauses, and contingent liabilities — are not always publicly disclosed, complicating independent assessments of associated risks. Second, several high-profile decisions, such as Kenya’s 2025 conversion of major dollar-denominated railway loans into yuan, demonstrate that the government can renegotiate or restructure terms to reduce exposure to exchange-rate and interest-rate fluctuations.

Kenya has made notable progress in expanding and modernizing its infrastructure, yet the country’s growing debt burden continues to weigh heavily on the economy. Analysts caution that debt-servicing costs will remain high, as the government relies predominantly on domestic borrowing — about two-thirds of fiscal financing, or nearly 4% of GDP annually — to cover budget deficits. With one-third of government revenue already absorbed by interest payments and external repayments averaging $3.5 billion each year, Kenya’s capacity to generate additional revenue is structurally constrained. Nevertheless, the government continues to pursue large-scale infrastructure projects despite the ongoing fiscal pressures.