17 May 2014

Kenya: Rail Deal Offers Competitiveness

Last weekend, President Uhuru Kenyatta of Kenya signed an $3.8 billion finance deal with Premier Li Keqiang for construction of the Mombasa-Nairobi railway.

In Nairobi, to witness the event, were his East African Northern Corridor partners, Rwanda's Paul Kagame of Rwanda and Uganda's Yoweri Museveni.

Eventually the proposed standard gauge line will cut across Uganda into Rwanda, but with a link to Juba. This is why South Sudan leader, President Salva Kiir was also present. The grand vision is that the new railway will open up the region for more trade and sharply reduce intra-EAC transport costs, which are said to be some of the highest in the world.

When efficiently run, railways can provide an inexpensive means of transporting high volumes of freight and passengers. A fact well known to Old Timers who saw how well East African Railways operated at its peak.

Low transport costs improve the competitive positions of exporters (especially in landlocked countries like Rwanda, Uganda and South Sudan.

Exim Bank of China is putting up 90% of the costs while the Kenya government pays for the rest. Not surprisingly then, China Communications Construction Company were selected as the main contractor.

In turn, Rwanda, Uganda and South Sudan will also put up their own share of the money to cover their relevant sections. This is East Africa's biggest infrastructure project for over 40 years. Not since coincidently the Chinese built TAZARA (Tanzania-Zambia Railway), has there been such international attention focused on a project in East Africa.

First of all, it is an expensive undertaking, but also much overdue. For all the efforts being made by Rift Valley Railways to rehabilitate the line colonial Britain laid out for Kenya and Uganda 100 years ago, there will always be a question mark over its long term capacity to cope.

Meanwhile, sceptics in certain quarters of the Western media say this is just a ploy for the Chinese to find jobs for its excess capacity and also make it easier to ferry out the region's natural resources in future. Western companies are also not pleased that this was a closed procurement process that left them in the cold.

On the other hand, there is some aspect of double standards here. The Kenya-Uganda Railway was certainly not built out of the goodness of the collective British heart, but as a tool to exploit what East Africa had to offer. So it is better we do not bicker about this.

The fact of the matter is, the railway is badly needed. Next to water transport, rail transport is the most energy efficient means of moving large volumes of goods and passengers. Railways opened up North America, Russia, China, India and Brazil. Why not East Africa?

But most important many commodities are traded at world market prices and transport costs come out of producer profits. Lower transport costs would really help boost regional business morale.

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