China has signalled a reduction in loans to Kenya and other African countries in coming years after it cut financial commitment to projects in the continent as much as a third in the next three years.

Nairobi has been a major beneficiary of China’s loans for the development of mega infrastructure projects such as roads and a modern railway over the last decade, making Beijing the largest bilateral creditor since 2015.

President Xi Jinping on Monday pledged — through a video link to the Eighth Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) in Senegal — to invest $40 billion (Ksh4.5 trillion) in African countries for three years.

That represents a 33.33 percent drop from the $60 billion (Ksh6.75 trillion) the world’s second-largest economy has committed to African countries in the last two FOCAC summits, which takes place every three years.

Lower funding to Africa, research economists say, could be a pointer that Beijing is starting to see signs of reduced benefits from the cash it commits in the continent.

“I think the Chinese debt has reached or it’s nearing a point of diminishing returns if the big-ticket public expenditures in Kenya, for example, are anything to go by,” said Churchill Ogutu, an economist at IC Asset Managers (Mauritius).

“As such, I see China being selective in terms of projects they fund going forward.”

China has over the last two decades established itself as a financier of first resort for many low- and middle-income countries, providing record amounts of international development finance, according to the researchers at College of William & Mary in a report late September.

The findings suggested that African countries received 42 percent of all Chinese official development assistance between 2000 and 2017.

This is consistent with Beijing’s official position to invest its foreign aid budget in Africa.

China’s influence on Kenya’s mega projects development started gathering steam with the construction of the Thika Superhighway between January 2009 and November 2012 at a cost of nearly Sh32 billion in the last term of President Kibaki.

China Road and Bridge Corporation, a subsidiary of China Communications Construction Company, has since bagged the lion’s share of Kenya’s mega projects — at least two railways, two ports and 23 road projects.

They include a $3.5 billion (Sh393.82 billion) standard gauge railway, a $398 million (Sh44.78 billion) oil terminal at the Mombasa port and road projects such as Southern and Eastern Bypass in Nairobi.

“Obviously Kenya ranks highly as one of the largest African recipients of Chinese debt, but then again we have already started seeing a slowdown in Chinese debt issues lately,” Mr Ogutu, who covers Kenya, Uganda, Tanzania and Rwanda, said.

“This is unlike what we saw in the previous decade.”

Treasury data shows debt contracted from China has grown by single-digit in the past two financial years compared with double-digit growth previously.

For example, China’s debt to Kenya grew 4.99 percent last financial year through June to $7.09 billion (Sh797.77 billion) compared with a 49 percent growth to $4.6 billion (Sh517.59 billion) in the year ended June 2017.

The plan to cut cash flows — which largely come in form of credit lines, investment and trade finance— comes in the wake of rising indebtedness by African countries, worsened by economic fallout emerging from the pandemic.

Countries such as Zambia have struggled to service external debt in recent years and became the first one to default on Eurobond, while Ethiopia’s risk of default has heightened on the back of unfolding civil war which has hurt economic prospects.

Kenya on the other hand was forced to drop a bid to extend debt relief with Beijing beyond June after Chinese lenders, especially Exim Bank, opposed the deal reached by world’s richest countries under Debt Service Suspension Initiative (DSSI) framework.

This followed a stand-off which had seen Chinese financiers delay disbursements, resulting in a cash crunch for Chinese-funded projects in June.

“Kenya mutually agreed not to pursue DSSI (deal with China) for mutual benefit,” the director-general for public debt management office at the Treasury Haron Sirima said in September. “The shortfall compensated by other funding sources that are non-debt.”