A. Sanghi and D. Johnson

# **Contents**

|**1**<br>**Intr**|**oductio**|**n**|**1**|
|---|---|---|---|
|**2**<br>**Ken**|**ya and**|**China’s Trade Relationship**|**3**|
|2.1|The co|mmon belief: Exports from poorer countries are commodity-dependent . . . .|3|
||2.1.1|Kenya should pay more attention to the overall trade balance . . . . . . . . .|3|
|2.2|China|is a large source of imports for Kenya . . . . . . . . . . . . . . . . . . . . . . . .|4|
||2.2.1|Kenya imports rubber manufactures from China . . . . . . . . . . . . . . . . .|6|
|2.3|China|is still a small export market for Kenya . . . . . . . . . . . . . . . . . . . . . . .|7|
||2.3.1|Kenya exports raw goods and metals to China . . . . . . . . . . . . . . . . . .|8|
|2.4|Winne|rs and Losers from Kenya’s current trade patterns<br>. . . . . . . . . . . . . . . .|10|
||2.4.1|The net beneft to the economy is positive . . . . . . . . . . . . . . . . . . . . .|10|
||2.4.2|Consumers and retailers gain . . . . . . . . . . . . . . . . . . . . . . . . . . . .|10|
||2.4.3|<br>Producers are worse off; some beneft from Chinese intermediate goods . . .|10|
|2.5|What|drives Kenya’s exports? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .|14|
||2.5.1|Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .|14|
|2.6|Bright|er prospects for services exports as China rebalances . . . . . . . . . . . . . . .|16|
||2.6.1|China’s rebalancing will help reduce poverty by 2030 . . . . . . . . . . . . . .|17|
|**3**<br>**Fore**|**ign Di**|**rect Investment in Kenya**|**18**|
|3.1|Chine|se FDI in Sub-Saharan Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . .|20|
||3.1.1|Chinese FDI in Sub-Sharan Africa is relatively small . . . . . . . . . . . . . . .|20|
|3.2|Chine|se companies in Kenya: From large state companies to small private ones . . .|24|
||3.2.1|Chinese invest the most in metals, communications, and automotive original<br>equipment manufacturing (OEM)<br>. . . . . . . . . . . . . . . . . . . . . . . . .|24|
||3.2.2|Corruption is the biggest obstacle for Chinese frms . . . . . . . . . . . . . . .|26|
||3.2.3|Chinese frms source most materials from China . . . . . . . . . . . . . . . . .|26|
||3.2.4|Chinese frms employ a large share of local workers . . . . . . . . . . . . . . .|27|
||3.2.5|Chinese frms face some competition from the informal sector . . . . . . . . .|30|
||3.2.6|Chinese companies less likely to take credit line . . . . . . . . . . . . . . . . .|30|
|**4**<br>**Off**|**cial De**|**velopment Assistance from China**|**30**|
|4.1|Chine|se aid is small compared to commercial activities . . . . . . . . . . . . . . . . .|30|
||<br>4.1.1|<br>Kenya may rely more on Chinese aid because of volatile aid fows<br>. . . . . .|31|
|4.2|Most|<br>Chinese fnancing does not qualify as ODA . . . . . . . . . . . . . . . . . . . . .|32|
||4.2.1|China loans the most to ministries of energy and petroleum and transport<br>and||
|||infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .|32|
||4.2.2|Chinese stands out in education aid . . . . . . . . . . . . . . . . . . . . . . . .|33|
|4.3|Lack o|f quality Chinese aid data<br>. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .|34|
||4.3.1|Drawbacks of existing Chinese aid data: Media based data collection is prob-<br>lematic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .|34|

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