Questions over Sh31bn mystery tractor imports deal with Belarus
What you need to know:
- If the deal goes through, it will be the single largest import of tractors and agricultural equipment in Kenya in recent years.
- The transaction – which is envisaged to be implemented in 18 months by the hitherto moribund and financially-troubled state-owned credit body Agricultural Finance Corporation (AFC) – is shrouded in mystery in several respects.
- President William Ruto’s administration is taking a risky diplomatic gamble in seeking to transact with Belarus -- a country under sanctions from powerful Western nations.
The government is rolling out a plan to purchase tractors, high-speed propelled forage harvesters, centre pivots and tipping lorries and assorted equipment in a project estimated at Sh31 billion, according to documents and correspondence seen by The Weekly Review.
If the deal goes through, it will be the single largest import of tractors and agricultural equipment in Kenya in recent years. The transaction – which is envisaged to be implemented in 18 months by the hitherto moribund and financially-troubled state-owned credit body Agricultural Finance Corporation (AFC) – is shrouded in mystery in several respects.
First, the imports are to come from Belarus – an eastern European country and ally of Russia in the Ukrainian war. Belarus is under United States, United Kingdom and European Union sanctions.
Since the Ukraine war started, Belarus has been struggling to circumvent Western sanctions against exports of its agricultural equipment industry and has been fighting to limit exposure of its companies and subsidiaries to the penalties.
Just how high the diplomatic stakes are was aptly demonstrated recently by a strong statement by United States Secretary of State, Antony Blinken, on the first anniversary of the war.
He said Russia and President Aleksandr Lukashenko’s regime in Belarus will pay a severe economic price for the aggression against Ukraine and warned of sweeping sanctions to target export controls, visa restrictions to cut off Russia’s and Belarus’ access to vital technological inputs, and measures to atrophy industrial bases of the two countries.
President William Ruto’s administration is taking a risky diplomatic gamble in seeking to transact with a country under sanctions from powerful Western nations.
As one follows the key documents in the transaction, including a Cabinet memo, a memorandum of understanding between AFC and a Dubai-based entity known as Aftrade DMCC, one ends up with a narrative that sheds more mystery than light.
Where is the money to buy billions-worth of machinery from Belarus to come from?
In a February 27 letter to the Office of the Attorney-General, the chief executive of AFC, George Kubai, requested the help in drafting a government-to-government agreement between Kenya and Belarus, implying that the multibillion-shilling project will be funded by a concessional facility by Belarus.
The second mention of source of funding is to be found in a Cabinet paper headlined “The National Agricultural Mechanisation Programme to be implemented by the AFC”.
Trade Development Bank
“The programme will be funded through a line of credit from Trade Development Bank (TDB) for a seven-year period with interest anticipated at a maximum of two and three per cent,” it says.
It is important to note that TDB is specifically mentioned as the source of the project funding.
According to a briefing document prepared by AFC, the “National Treasury will negotiate for programme funding on the back of AFC’s balance sheet and augment the funding by budgetary allocations to AFC to at least Sh1 billion”.
Once again, TDB is specifically mentioned in the document that adds: “All the government will provide is a letter of comfort to TDB to compliment the programme”.
Another section of a report prepared by AFC headlined “An executive report on the mechanisation of select government agencies in the agricultural sector” says the project is to be funded from a line of credit to be arranged between Kenya and Belarus on a “G-to-G” basis.
TDB’s name comes up again in yet another section of the briefing document: “The financing to be arranged will be from the Trade and Development Bank of Comesa, where the government of Belarus is a shareholder.”
“The corporation proposes to raise the initial approximately Sh31 billion for machinery through a loan to be arranged by the government of Kenya through the TDB”.
It adds: “This will be secured on the back of the programme cash flows and the corporation’s balance sheet. The corporation proposes to raise the balance of Sh4.1 billion through equity contributions and government injections.”
In yet another section of the briefing document, AFC says: “The corporation proposes to secure funding of this project on its balance sheet and annual allocations from the government of Kenya (Sh1 billion). The programme will be secured on the back of AFC’s assets. The government will additionally be requested to enhance its annual budgetary allocations to AFC to at least Sh1 billion to enable roll-out of this programme and to provide comfort to the lenders.”
Finally, “a letter of comfort” from the National Treasury to the Trade Development Bank will further compliment the programme!
The biggest riddle over sources of funding of this massive agricultural implements import project deepened when The Weekly Review reached TDB and asked the regional lender to shed light on its involvement.
Here is how TDB’s Chief Operating Officer, Michael Awori, responded to our questions: “I am not sure of your sources, but wish to confirm that we are not in receipt of any application or engaged in any discussions of import financing of agricultural equipment from Belarus. There is nothing under discussion at the moment.”
He added that Belarus is a very small member of the bank, “with a stake of under one per cent in shareholding”.
The big question that arises is: If it is, indeed, the case that even a stage as rudimentary as identifying source of funds has not been determined, what are these documents – concept notes and Cabinet papers – about? Who is the mysterious source of the billions who is so influential as to set up key government departments to draft Cabinet, memorandums of understanding and brief documents to justify such a massive project? What are the credentials, history, capacity, client list of the Dubai-based counterparty to act on behalf of Belarus?
According to the documents and correspondence seen by The Weekly Review, the company to execute the multibillion-shilling deal from the Belarus side is a Dubai-based SPV-type entity established in 2017 by Belarus nationals by the name Aftrade DMCC.
As a matter of fact, the name of this company features in nearly all correspondence in this saga, including the Cabinet memo and letters by AFC boss Kubai.
This is how Kubai’s letter to the Attorney-General puts it: “The government of Belarus has identified Aftrade DMCC as the company that will organise the whole process of identification of manufacturers, identification of equipment and the party that will lead negotiations with TDB”.
In an introduction letter sent to AFC dated February 2 and signed by a director of the company, Volha Sheuko, the Dubai-based firm put Zimbabwe, Togo, Burkina Faso, South Africa and Tanzania on its list of clients and the Belarus export credit agency, the Development Bank of Belarus, Trade Development Bank, Afro Exim Bank and the Western Africa Development Bank as its financial partners.
Exim-like loan arrangements
Curiously, the Dubai-based company has also disclosed that its assessment is that the task at hand will cost a mere $5 million – a paltry amount when compared to the $320 million-budget projected by AFC as scope of the project.
“We will look for machinery and equipment that meets the needs and then take it a step further by setting up offshore concessionary Exim-like loan arrangements to make it possible to purchase these technologies,” said the Dubai-based entity in a letter of introduction to Sheuko.
Under the plan, billions worth of machines and tractors imported will be dumped on four government entities – Kenya Prison Service, National Youth Service, Kenya Agricultural and Livestock Research Organisation and the Agricultural Development Corporation.
The Cabinet memo asked the Executive to direct the National Treasury and AFC to commence negotiations with the Dubai-based entity and procure the equipment.
The memo also sought Cabinet approval for the appointment of AFC as the implementing agent for the government of Kenya on the project, to mandate the agency to begin negotiations with Afritrade DMCC and to treat the Dubai-based company as official agents of the government of Belarus.
Belarus has only recently been rated as a sovereign in “selective default” and “default” by the global rating agency, S&P. This means no advanced country, commercial bank or listed entity answerable to shareholders can have financial dealings with any counterparty or entity from the country.