The Nairobi Solution: Ch.8
Several months later.
Erik sat his desk and leaned back. It was Tuesday morning and as was increasingly becoming the case, things were under control. There were no fires to put out and no new loans to sign off. Aside, from the Zimbabwe loan, which Erik had quietly disbursed after the regulatory meeting, the bank was only granting new loans when old ones were repaid. Things were quiet. This was how it was supposed to be Erik thought. Banking should be like farming. No drama. Just quietly collecting interest.
But it was also slightly boring. Especially for someone with a trading background. What was he going to do the rest of the week? Erik looked out his office window thinking. It was time for a road trip.
He picked up the phone and called Claire.
“Claire, hi. It’s Erik.”
“Hi. It’s been awhile. Should I be concerned that you are calling? Is everything OK?”
“Everything’s good on my side and hopefully yours too. I was thinking we should do a site visit this week.” Erik said playfully. “You know, to check the progress of the railroad.” Erik said switching to a serious boardroom sounding voice.
“What do you mean by a site visit?”
“I was hoping to see the rail construction out near Emali in Mukueni County. It’s about a 2 and a half hour drive. I have a client who wants to grow chia seeds out there. I thought it would be good to drive out and see the area and the railroad construction. Do you want to come? It could be fun. Are you free on Thursday?”
“What? Drive around Mukueni County this week? C’est impossible. I love your adventurous spirit though. Unfortunately, I have a lot of things I need to work on here at the office. I have that big project update to prepare. This is the meeting where I break the news of our switch to EcoRail. It’s a delicate situation so everything has to be perfect. But if Emali is the area I’m thinking of there is a work camp out there. I can call ahead to China Eastern and let the site manager know you are coming. He can show you around.”
“Thank you. That would be perfect. Good luck with the board report. It will go well. Just say you made an executive decision and switched suppliers. You can do that. You’re the CEO.”
“Yes, there are just a few points I’m wrestling with on how to smooth over the gap in time between when we got the invoice from CERS and when we signed the new contract with EcoRail. I sat on a material change in the project for a long time without informing them. But if everything is going smoothly and moving ahead the IFC can probably overlook it. Fingers crossed. Have fun.”
Erik’s driver picked him up outside his house at 7:00am. They had one last stop to make on the way out of town. To get a coffee.
His favourite perk of the job was a driver and a shiny, black Landcruiser at his disposal. The interior had brown leather seats. An African limousine. A luxurious interior with Toyota ruggedness and 4WD to get you where you were going, but most importantly, back again.
Erik hopped out of the truck in front of a new chain of coffee shops in Nairobi. Inside he stared at the board trying to decide what to order. He looked around the clean, modern franchise. He could have been in Santa Monica. It was another sign of how quickly Nairobi was modernizing. He finally settled on a latte, but with oat milk instead of regular. Nicole said cutting out dairy was better for his allergies.
Soon they had left Nairobi and were cruising at high speed down the highway to Mombasa. As Erik looked out sipping his coffee the view was mostly the same mile after mile. Scenic in that it was so open, but mostly flat, dry scrubland with brown grass and thorn trees. It looked really dry. Erik was worried about Grace’s chia seeds. He hadn’t told her, but he was intending approve the loan. He would have to double check what she was doing about irrigation.
Two hours later they rolled into the town of Emali. It looked small, with no buildings higher than 2 stories, but the streets were congested lots of cars, and motorbikes. Low buildings sprawled out from the dusty town center. The town must be a hub for the surrounding area where people came in to shop Erik thought.
Erik leaned forward to talk to the driver. “Claire said we should drive by where they are building the new train station. She said it’s near the Catholic church.”
His driver rolled down the window and waived down the nearest person to ask for directions to the Catholic Church. Everyone was quite friendly and we quickly got directions.
On the south side of town, past the church, was an open space with lots of survey flags planted in the ground. There was also a billboard with a picture of a modern looking train station which would be built there. If it actually looked like the picture, it would be quite impressive Erik thought.
Erik got out and walked around the site. It wasn’t much to look at. Just yellow survey flags fluttering and an optimistic billboard. The town wasn’t much to look at either and no one seemed to be giving the rail site any attention.
This train station was going to be a big deal though. A lot more than the people of Emali realised. It reminded him of the small towns which sprung up across Montana when the railroads first connected the Western US to the East for the first time. The railroads changed everything. Farms near the railroad shot up in value because suddenly they could sell their goods to customers in Chicago. Towns near the railway stations boomed. The same would happen to Emali. It made Erik consider whether it might be a smart idea to buy real estate here. Good idea yes, but then he remembered the long list of other things he needed to do before he had time to speculate in Emali real estate.
Claire had said the China Eastern work camp was 20 miles east of Emali on the Mombasa highway. They should look for a turnoff to the left, and a dirt road about 100 meters past the gas station. Nearby there was a wide river drainage the rail line had to cross and the Chinese contractors were building an elevated section which might be interesting to see.
They drove back along the side streets of Emali then turned east on the highway towards Mombasa. They passed through a town called Simba, which was also going to get a train station from the looks of things. Then they saw the gas station and slowed down to look for the turn off. When they saw it, Erik was glad they were in the Landcruiser.
They followed a highly rutted dirt road until they came to a clearing which looked down on the wide river drainage below. It was the dry season so the river was small and narrow, but the veins in the ground spreading out on both sides across the land showed how wide the river would become during the rainy season.
In the clearing in front of them was a work camp. The work camp was a cluster of white temporary buildings surrounded by a chain link fence. As they drove closer they could see Chinese characters on the sign. Also written in English was the name China Eastern Construction (CEC). This was the sister company of China Eastern Rail Systems which they had met in Shanghai. Off in the distance he could see the beginnings of a bridge they were building across the wide riverbed.
As the Landcruiser pulled up to the front gate someone must have heard the sound of the truck’s tires on the loose gravel. The door of one of the white buildings opened and a Chinese man in a construction hat came out and stood looking at them from the steps. After a pause he started to walk towards the gate where they were parked. Erik got out to say hi.
When the man got to the gate he was speaking in Chinese and making shooing gestures with his hand. Erik tried explaining in English that they were here to see the rail project. He explained that Claire from East Africa Rail must have notified someone that they were coming. After about 5 minutes Erik could tell this was going nowhere. Neither person understood each other and the man was not at all welcoming. He obviously had no idea who Claire was and wanted them to leave. Which was fine.
They drove off a short distance from the gate to an overlook where they could see the bridge CEC was constructing. This seemed to please the man. He went back into his office and left them alone.
Erik could see the engineering challenge. The scrubland was flat so during the rainy season the narrow river overflowed it’s banks and widened considerably. The bridge wasn’t crossing a narrow gorge, but rather a wide, shallow floodplain.
The construction was fascinating. CEC had sunk a line of tall concrete pillars which would support the track. On the east side of the crossing there was already a large steel section with rail connecting several of the pillars. On it was a heavy machine with train wheels and a crane. It looked like the crane was laying track sections ahead of itself. It would lay down the steel section and the rail, then move forward and do it again. Erik had always liked big machinery and trains as a kid, so it was fun to watch.
He had been annoyed with China Eastern at their meeting in Pudong, but seeing their work on the river crossing made him think differently. He had to admire the Chinese. Here they were, in the middle of nowhere, a long way from home, tackling complex engineering challenges on time and on budget with no strikes, complaints, or labor disputes. They just got on with it.
He was interrupted from his observations by his phone ringing. He held up the screen to see who it was. Niko. He should probably answer.
“Niko. Hi. Good to hear your voice. You’ll never guess what I’m doing. Well, I’ll tell you. I’m in the middle of nowhere Mukueni County, Kenya watching the Chinese build a railroad over a river. How are you? How are our locomotives?”
“Erik! Things are good. That’s what I’m calling about.”
“Great. What’s the update?”
“Things are going well. We got the money. Thank you very much and we’ve been refurbishing the buildings behind the main workshop so we can work on multiple trains at once.”
“That all sounds good.”
“Yes, it’s all good. There’s just one small issue with the steel.”
“What do you mean an issue with the steel? Is there something wrong with it?”
“No. I’m sure it will be fine when we get it. The problem is paying for it. As you might recall there is an election coming up here, and the central bank always gets a bit sensitive about the Zim dollar weakening around elections. So they’ve given all the banks a limit on what price they can offer in the FX market.”
“I’m missing what this has to do with ordering the steel. Weren’t you going to order it from South Africa?”
“What I’m trying to say is there is an FX shortage in Zim right now and we can’t get our money out to pay the bank in South Africa to buy the steel.”
“Why did you say things were going ‘well’. That sounds very ‘unwell’. You can’t get the money out for the steel? And why is the money in Zim to begin with, we paid it to the MCB account in Mauritius.”
“Well naturally, we needed to bring the $’s into Zim to pay expenses. We just didn’t anticipate that moving some of it out to buy steel would be a problem.”
Erik slightly doubted an experienced operator like Niko would not have anticipated this was going to be a problem, but he couldn’t yet see the angle.
“OK. Well, this is absolutely not what I needed to hear. How long do you think this FX problem is going to last? A few weeks?”
“Yes, maybe a few weeks. Or maybe a few months, until the election is over. You never know.”
“A FEW MONTHS!! You mean EcoRail is going to sit around doing nothing with no steel for months!!! Niko.. Wow. This is not good. Really not good!” Erik was fuming.
“One solution is Turkana Trust could wire additional money to MCB and we pay the South Africans directly from Mauritius. It would be another loan to EcoRail. Then when the FX markets are working again, we pay back the extra loan. The money is still there in Zim. We just wire it back to MCB.”
“I am absolutely not sending EcoRail more money. That is definitely not the solution.”
“Look. I only said several months as the worst-case scenario. It could resolve itself sooner. And you need to learn to not get so worked up. You’ll get your trains. Just be patient.” Niko added with a touch of edge to his voice to remind Erik he had no leverage in the situation and should cool his jets.
“Thank you Niko. This is absolutely terrible news. Thank you for this update. Now I have to make some awful phone calls. Good bye.” Erik said ending the call.
Who to call first? Maybe Claire. Maybe she could delay again and not bring up EcoRail in the meeting.
“Claire. Hi.”
“Hey. How was the tour? Did they show you around?”
“The tour was great. Thank you. I need to talk about something else. About your update with the IFC.”
“What about it?...” Claire said her voice changing to ice.
“Is there anyway you can not update the IFC about the deal with EcoRail just now? Just put it off again for one more meeting?”
“No way. We signed the final contract with EcoRail and there is a schedule of upcoming payments which the IFC is going to have to approve. Which means I have to bring it up. I have to tell them. What’s the problem?”
“Well, it turns out there is an FX problem in Zimbabwe. Apparently, it’s impossible to get money out of the country until after the next election. Which means EcoRail is having trouble buying materials and it’s causing delays. Maybe a few months of delays.
“A few months of delays? Is this a joke Erik? We have literally just signed the agreement with them and there are already going to be months of delays?”
“I was thinking maybe East Africa Rail can buy the materials itself and then ship them to Zimbabwe so EcoRail can use them.”
“Hors de question! East Africa Rail is not some circus, unlike your bank, where we can wheel and deal and send money all over the place buying train parts. Everything is by the book. Every line item. I’ve done a lot of irregular things already because of you and put myself at great risk. At this point I have to go ahead with the meeting and notify the IFC we’ve switched from CERS to EcoRail for the rolling stock. And you on your end are going to have to sort this out. For the sake of both of us.” Claire added hanging up.
Erik put the phone down and stared at the sky. He could see the cascade of events which was about to unfold. The IFC was going to look into EcoRail, see the FX problems, and see the delays right out of the gate. Question everything. Halt all further funding. Order a full review of the project, which would take 10-12 months (at least), and Turkana would then have to reclassify the East Africa loan as non-performing.
In the middle of the scrublands of Mukueni Country Erik was having an anxiety attack.
And he still had to call Dwight. He looked down at the phone in his hand. At this moment he would almost rather die than have the next conversation.
“Dwight. Hi. It’s Erik.”
“Erik! Hey! What’s up?” Dwight was in a good mood for some reason.
“Do you have a second? I need to talk to you about something.”
“What?” Dwight replied curtly instantly knowing Erik was about to deliver something he did not what to hear.
“We have a problem with EcoRail. Niko says there are problems with the Zim FX market and it’s making it difficult to source parts and materials and there are going to be delays until this works itself out. Maybe a few months.”
“OK. That sounds annoying, but manageable. Is there some bigger problem because of this?”
Erik then laid out the series of events he was worried this delay was going to trigger.
Like in Shanghai what followed next was an eruption. This time with more personal insults layered in about Erik’s numerous failures in life and how Dwight should never have hired him and should never have trusted Erik’s analysis on Turkana and invested in a failing African bank. Like in Shanghai Erik held the phone away from his ear and stared out at the clouds and riverbed and the rail line while Dwight yelled down the phone.
In hindsight maybe he shouldn’t have given Dwight the full picture that day of what he thought would unfold. But he had been stressed and anxious wanted to give Dwight a full no BS assessment of the situation. That was how it worked on trading desk. Don’t sugar coat it. Tell it how it is and take action.
After the call was over Erik was silent. He wanted to throw his phone in the dirt. Furious with himself about everything. He kicked some stones instead. Then walked back to the Landcruiser.
When he was in the back seat the driver asked him softly if everything was ok. He had seen Erik on the phone. Seen he was upset. Seen him kicking stones.
“Is everything OK sir?”
“Yes. I guess so.” Erik said sarcastically. “Just getting really tired of having to solve one impossible problem after another.”
“I know it’s hard. It’s Africa. You’ll get better at it with time,” his driver said smiling at him in the rearview mirror.
Erik was in such a bad mood. The comment did make him laugh though.
“Alright. Enough of this. Let’s get back to Nairobi.”