The involvement of China in Kenya has been increasing in recent years. China’s investments in Kenya are still impacting the Kenyan economy significantly. The China Road and Bridge Corporation (state-owned) funded a Kenyan rail line connecting Mombasa and Bairobi that opened in 2017 and it continues to fund other infrastructure projects in the region. All over Africa, many large-scale infrastructure projects are being carried out by Chinese multinational corporations (with state backing).
Figure 1 Kenya domestic market
Chines FDI to Kenya may cause an increase in aggregate demand which is illustrated by a movement from AD1 to AD2, through an increase in exports and a decrease in imports. As a result, it will increase the real GDP shown as a movement from Y1 to Y2. The imports of cheaper Chinese products have enabled the Kenyan consumer to purchase them. Some Kenyan consumers, such as the more impoverished population now can afford cell phones and other electronics. Access to cheap cell phones may have improved small business, and the overall quality of life by making communication easier. Other than this, Chinese cars and auto-parts have also been dominating the road. These cheap Chines products would lead to an improvement in the quality of life. Also, this FDI trigger firms to increase the size of their markets, allowing them to increase their potential revenues and profits, by producing and operating in more than one country. With the transfer of technology and investment from China, Kenya would be able to increase efficiency of production and break off poverty trap.
On the other hand, Kenyan economy would be harmful as it will cause the loss of the Mombasa port. In fact, China’s Belt and Road Initiative (BRI) contracts suggest that the port in Mombasa would be held as collateral for the construction of a new standard gauge railway line (SGR) loans. Since Mombasa port is the largest seaport in Kenya, it would be detrimental. Cheap imports for both consumer and producer goods could create an unfair competition among the local producers. When the local producers lose business, it extends to the local firms which collapse as they cannot deal with the competition. Consequently, the employees lose their jobs, and it will increase the level of unemployment. It is important to be aware that some of these projects are financed by unsustainable government debt in the recipient countries. In fact, Kenya got huge amount of debt in the process of BRI. Repatriation of profits and payments of China may lead to outward flows of foreign exchange and worsen the balance of payments.
For short-term, FDI would be helpful to LECDs to increase investment and gain technological innovation. This would enable citizens access products with chapter price which would increase the quality of life. However, the corruption and transfer of labor-intensive technology would be detrimental to LEDCs own domestic economy as they would cause inequality of income and increase in unemployment. It should be noted that there could be a negative impact on domestic employment and environment in the long-term as they come for lax standards.
by
dongwankimistianjinnet (student)
