Analyze Kenya’s Standard Gauge Railway Project with polanyi’s economic theory

KENYA ECONOMIC DEVELOPMENT

Kenya Economic Development: Standard Gauge Railway Project

Name

Learning Institution

Word count = 1995

The development of infrastructure in developing countries is seen as an opportunity to create development, increase infrastructure, and achieve sustainable development goals. The President of Kenya Uhuru Kenyatta in 2015 started the country’s journey in developing the standard gauge railway that would connect the country to other countries such as Ethiopia and Uganda from the port of Mombasa. The project was divided into three phases, with the first phase stretching from Mombasa to the capital Nairobi. The project aims to enhance the country’s achievement of the Sustainable Development Goals, Attract investors, enhance globalization and the country’s competitive advantage. However, the costs of industrialization negatively affect the country with increased foreign debt, human problems, and high costs of living. The SGR development project in Kenya has positively contributed to the economic development and positioning of Kenya in East Africa although it has increased the level of the public debt affecting the livelihood of citizens negatively.

SGR and Achievement of SDGs

Kenya adopted the UN SDGs agenda and ought the long-term economic blueprint to accelerate the country’s transformation into a middle-income country by 2030. The SGR plays a major role in achieving these goals by ensuring inclusive economic growth, productive employment and decent work for all (Nations2020). The construction of the SGR is a major source of economic growth in the country. This is because it has expanded the trade between the neighboring countries. The SGR has contributed to the annual growth of the GDP in Kenya both during and after construction. Apart from the improved transportation of cargo, it has reduced the deterioration of the roads minimizing the maintenance costs. It has also enhanced freight security due to reduced cases of losses. The SGR is a major project in East Africa because it enhances infrastructure resilience and fosters industrialization(Wang and Wissenbach 2019). Kenya has remained underdeveloped due to a lack of infrastructure. The SGR was a major project that was meant to create and develop the infrastructure in the country in a bid to attract new investors and foster innovation (Chege et al., 2019). The major challenge to development was lack of infrastructure, and hence this project was meant to position the country in a position of better international investment against the others.

SGR and Kenya Competitive Advantage in East Africa

Kenya has been increasingly seeking to enhance its competitive advantage in Africa. Therefore, it has worked on attracting new investors. China has become a major investor and financier in Kenya. According to Nyumba et al., China’s non-financial direct investment in Kenya has doubled to $520 million (2021). This foreign direct investment is channeled to construction, industrial engineering, and other industries in the country. Therefore, the construction of the railway has enhanced positive relations with China and has positively enhanced the growth of other sectors. The Chinese investors have increased the economic standings of the country. This is because commercial banks are increasing their lending.

The SGR is one of the extensive projects promoting the development of the country. This is because it has cut the transit times for the travelers and the cargo enhancing economic development. However, it remains an important project in meeting the SDGs and ensuring that the country is well-positioned into a middle-class economy by 2030 (Githaiga and Wang 2019). This is the reason why the project aims at integrating the major cities in the country. The project spans from Mombasa to Nairobi in the first phase. In the second phase, the project stretches from Nairobi to Naivasha. This will be extended to Kisumu and later expanded to Malaba. The main aim is to ensure that the movement of goods and people is made easier across the country to the neighboring countries.

SGR and Economic Development

The SGR is a cleaner energy strategy that places Kenya as a regional transport and economic hub. The completion of the first phase of the project saw Kenya benefiting from the increased growth in GDP by 1.5% and the creation of more than 46,000 jobs (Basu and Milena 2021). There was also a multiplier effect through the economy due to the extensive subcontracting made to Kenyan firms. Kenya is one of the fastest-growing economies in sub-Saharan Africa. The country experienced an average growth rate of 5.45% from 2004 to 2018 (Githaiga 2021). The major reason for this growth is increased trade, especially in this age of globalization. Kenya has become one of the largest trading partners with China and other East African countries through the development of the SGR. Kenya is China’s sixth-largest trading partner, with an important ranging at $3.78 trillion in 2017 (Githaiga 2021). This was 23% of all the imports made in the country. The SGR has made the transportation of goods from the port of Mombasa easier, hence enhancing Kenya’s performance in global trade.

SGR and Globalization

The SGR has contributed to the interconnectedness of the country with the neighboring countries. Globalization has resulted in greater connections in the markets. The SGR has opened new opportunities in different countries neighboring Kenya. This is especially because it has opened far markets in these countries to ensure that they improve the country’s profit opportunities and trade development. The products and services are available within different markets such as Tanzania, Rwanda, and Uganda due to the globalization effects caused by the development of SGR (Zhao and Juanling 2020). This has also led to the unification of the economies through increased investment and trade.

The SGR project has made Kenya maintain a competitive advantage over its neighbors. Globalization has led to an increase in competition between countries. This is because the companies are broadening their target areas and pursuing to enhance their operations to the rest of the world (Basu and Milena 2021). However, infrastructure plays an important role because every company wants to have a competitive edge in production costs. A proper transportation system in Kenya is an added advantage for the development of companies and the settling of new investors. Globalization causes the companies to fight strong competition from the others outside their production zones (Wissenbach and Yua,n 2017). Therefore, material sourcing and labor are important aspects. With the right transportation system in Kenya, the materials can easily be transported from the port to the industrial centers in the country.

Negative Impacts of SGR

The development of the SGR has come with several negative impacts in the country. First, the project was funded from a loan from China. This means that the country has been increasing its debt ceiling, developing the infrastructure. The Kenyan parliament has discussed debt and estimated that the country is moving above the $86 billion( 2020Jiang). This has affected the healthcare, housing, and manufacturing sectors in the country. This is especially because Kenya has more than 50% of the population living under the poverty line. The criticism of the SGR project has increased, especially because of China’s debt-trap diplomacy allegations. Therefore, the people are against the SGR developments as they see it as a source of higher debts, whereas they have hard economic times. This is especially after the World Bank raised questions and concerns and stated that the country is pushing its debt to distress (Wissenbach and Yuan 2017). Therefore, even though the project was intended to enhance its competitive advantage, it has been a source of more debts and increased economic problems.

The country is concerned about the SGR project as it has increased trade relations with China. The problem is that 90% of Chinese exports to Kenya are high-value finished products that include machinery, equipment and miscellaneous products (Jiang 2020). On the other hand, Kenya exports low-value products to China,including agricultural and natural resources. This means that the country spends more on loan repayment to China and the imports. The benefits the Kenyans are receiving from these developments are thus minimal. The sustained economic growth and the improvements in the human development indices, the country faces great challenges. The high loans are unsustainable because 14.55 of the population live in extreme poverty. The unemployment rate is high, standing at 11.5% as of 2017 (Zhu Rafiq and Jennifer 2020). This means that the people require humanitarian assistance, especially due to droughts. Therefore, infrastructural development is less effective in enhancing the quality of life of the people.

How Karl Polanyi Political and Economic Origins Applies to the Kenya’s Standard Gauge Railway Project

Karl Polanyi explained that the market economy is controlled by the market prices, production of goods, and the self-regulation mechanism. The main aim in most countries is to achieve maximum money benefits. Production process is controlled by the prices of the factors of production. Therefore, efficiencies in production results to better profits. The standard gauge railway enhances the movement of factors of production especially from the port of Mombasa to the companies in Nairobi. According to Polanyi, the distribution of goods depends on the prices and with the incomes; the goods are distributed to all the members in a given society (1944). The SGR helps the distribution of goods In Kenya and the neighboring countries.

Conclusion

In conclusion, the development of the standard gauge railway in Kenya was a project that was meant to enhance economic performance in the country,including attracting more investors, enhancing regional competitive advantage and trade in the face of globalization. The SGR has placed Kenya in a competitive position as it has opened new markets with the neighboring countries, including Rwanda, Tanzania, and Uganda. This has also enhanced international trade with China as Kenya imports 23% of its goods from China. However, the project has had negative impacts on the debt ceiling, with most Kenyan people feeling the hard economic times. The infrastructural development led to increased employment and growth in GDP by 1.5%. However, this was not enough to enhance the economy’s performance in a country experiencing natural disasters such as droughts, and more than 14% of the population lives in abject poverty.

Bibliography

Basu, Pratyusha, and Milena Janiec. 2021. “Kenya’s regional ambitions or China’s Belt‐and‐Road? News media representations of the Mombasa‐Nairobi Standard Gauge Railway.” Singapore Journal of Tropical Geography 42.1: 45-64.

Chege, SamwelMacharia, et al. 2019. “Influence of technology transfer on performance and sustainability of standard gauge railway in developing countries.” Technology in Society 56: 79-92.

Githaiga, Nancy Muthoni, and Wang Bing. 2019. “Belt and Road Initiative in Africa: The Impact of Standard Gauge Railway in Kenya.” China Report 55.3: 219-240. Irandu, Evaristus M. 2017. “A review of the impact of the Standard Gauge Railway (SGR) On Kenya’s national development.” World Transport Policy & Practice 23.2.

Githaiga, Nancy Muthoni. 2021. “The Successes and Challenges of Kenya’s Mombasa-Nairobi Standard Gauge Railway Transport Operations: A Special Reference to the Users. Research in World Economy”.

Jiang, Feng. 2020. “Chinese contractor involvement in wildlife protection in Africa: a case study of Mombasa-Nairobi Standard Gauge railway project, Kenya.” Land Use Policy 95: 104650.

Nations, U. 2020. “The Sustainable Development Goals Report 2020. United Nations; 2020.”

Nyumba, Tobias Ochieng, et al. 2021. “Assessing the ecological impacts of transportation infrastructure development: A reconnaissance study of the Standard Gauge Railway in Kenya.” PLoS One 16.1: e0246248.

Polanyi, Karl. 1944. “The great transformation: the political and economic origins of our time.” New York: Rinehart.

Wang, Yuan, and Uwe Wissenbach. 2019. “Clientelism at work? A case study of Kenyan Standard Gauge Railway project.” Economic History of Developing Regions 34.3: 280-299.

Wissenbach, Uwe, and Yuan Wang. 2017. “African politics meets Chinese engineers: The Chinese-built standard gauge railway project in Kenya and East Africa.” Johns Hopkins University-SAIS Working Paper 13.

Zhao, Mugo Kenneth KamumbuandJuanling. 2020. “Sustainability of Rail Transport in Africa: A Case Study of Kenya’s Standard Gauge Railway.” Journal of Environmental Science and Engineering 17: 27.

Zhu, Keren, RafiqDossani, and Jennifer Bouey. 2020. “Addressing Impact Evaluation Gaps in Belt and Road Initiative Projects in Africa: The Standard Gauge Railway Project in Kenya as a Proof of Concept.” The African Review 1.aop: 1-38.