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Belarus tractor deal is a live wire

by kenya-tribune
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I am surprised that we can even dare contemplate buying thousands of tractors and agricultural equipment from Belarus—of all the places.

Have we seriously pondered the risks of tripping the sanctions that have been imposed by the United States and its allies on trade with Belarus and Russia?

You can accuse me of exaggerating and being a sensationalist journalist if you like but here are some of the risks that a company or sovereign that chooses to trip the trade sanctions by Western countries on Russia and Belarus must expect to face.

First, they can freeze your Central Bank’s account at the New York Fed—the pillar of your participation in the global financial system. If you lose access to dealings with the New York Fed, you can find yourself at a place where it will be impossible for you to import food, medicine and fuel.

Secondly, any sovereign or company that trips trade sanctions by Western countries risks finding itself in a situation where access to correspondence and regulated commercial banks in the West are closed or limited. You’ll find it hard to open letters of credit. We can find ourselves facing difficulties in getting paid for our exports of tea, coffee and flowers.

Thirdly, as we saw with Russia and Belarus, tripping sanctions comes with the risk of potential loss of access to the global Swift money transfer system. That can cripple import and export trade.

Fourth, there is the risk of loss of good standing with the International Monetary Fund (IMF) and the World Bank. The Bretton Woods institutions are usually reluctant to deal with countries sanctioned by their main shareholders.

Lastly, under Agoa, the treaty that gives Kenya and other developing countries duty- and quota-free access to US markets, there is an annual certification process by the entity known as US Trade Representative. If you trip the sanctions, you can be mentioned adversely by this body.

We must always remember that our financial systems are more interconnected with the international financial system than was the case during the 2008 global financial crises. Like Ghana, Angola, Mozambique and Rwanda, we have issued Eurobonds like crazy. The appetite for commercial borrowing, mainly through syndicated loans, has ballooned to unprecedented levels.

I found myself pondering the implications of the collapse of the Silicon Valley Bank on Friday. I read that the proximate cause of the collapse of this large bank was rising interest rates in the US.

Rising interest rates

I asked myself if rising interest rates in the US can precipitate the collapse of the 16th-largest bank in the US (with assets totalling $200 billion), what about a sovereign like Kenya, with external dollar-denominated debts of circa $50 billion?

The point is, the economic international scene is so dicey for us right now that even just contemplating doing business with a country under Western sanctions equates to contemplating economic suicide for us.

I need to explain what the deal being planned with Belarus involves from the correspondence I have seen, including draft Cabinet Memos, a concept paper by the Agricultural Finance Corporation (AFC), the public entity implementing the project on the government’s behalf, and the party acting for Belarus.

First, the government is in the process of rolling out a massive project titled “The National Mechanisation Programme” that will involve the purchase of tractors and equipment at a whopping Sh31 billion from Belarus. Secondly, the government has identified AFC as a key implementer of this project which is designed as a “government-to-government arrangement”, meaning the equipment will be purchased without competitive bidding.

Thirdly, the tractors and equipment are to be sourced from Belarus by a Dubai-based SPV-type entity owned by nationals of Belarus. Fourth, the Dubai-based company, which is known by the name AFTRADE DMCC, has been identified by Belarus as its agent in the programme. 

Once the tractors and equipment arrive in the country, they will be shared between a broad range of parastatals, including the Kenya Agricultural and Livestock Research Organisation (Karlo), Agricultural Development Corporation (ADC), the Kenya Prisons Service and the National Cereals and Produce Board (NCPB).

Grandly designed projects like these pose high corruption risks. But the biggest puzzle in this saga is the source of funds for the grand plan. According to the correspondence from government offices, the money is to come from Trade Development Bank (TDB). Ironically, the regional bank says it is neither aware of nor involved in the project. 

Look, we could be opening ourselves to the risks of dealing with Russian oligarchs looking for avenues to hide their monies. The government should, therefore, terminate the deal with Belarus immediately. The risks of tripping sanctions imposed on the country by the US and its allies are just too big for us.

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