Kenya: SGR Is Towering Signature Project That Will Transform Kenya

26 February 2020

Since standard gauge railway (SGR) passenger and freight services kicked off in 2017, the gross domestic product has risen a whole percentage point to 6.5 per cent.

This is due to increased volumes of freight and faster clearing of cargo from the Port of Mombasa to the hinterland, saving time and costs and fuelling economic activity.

The earnings from the SGR have climbed to more than Sh800 million a month against Sh1.5 billion monthly operating costs. This is an incredible performance in the first year of operation for any new business venture.

Since the government, and not the SGR, is the client underwriting the servicing of the construction loan obligations, the prospects for breaking even are high, owing to the assured cash flows for the business establishment period.

A crucial fact often forgotten by many SGR analysts, especially the critics, is that the Canadian Pacific Consultant Services (CPCS) had projected a much lower economic growth rate for Kenya in evaluating prospective business viability when it recommended the SGR option as opposed to metre gauge rail in 2009.

CPCS is the firm that undertook the feasibility study for the East African Railways Modernisation Master Plan in 2008-9, and which had projected an economic growth of 3-4 per cent by 2030, which has since hit six per cent in the past two consecutive years.

The Master Plan recommended the SGR, owing to capacity to accommodate growing cargo volumes but which has since come much sooner. This should have debunked every doomster and gloomster business viability cobwebs 10 years ahead of the 2030 targets.

The Master Plan, which is in the public domain, lays out the rationale, cost implications, viability and economic, business and cultural objectives of the region's rail modernisation. SGR Kenya is only a portion of that, though critical because of its linking of Mombasa to Uganda, Rwanda, eastern DR Congo and South Sudan.

An apparent ignorance among critics about supplier credit operations by export-import (Exim) banks, not just Chinese, is that their purpose is to promote export of goods such as machinery and technology and services (like consulting engineers and accountants) to the client country, or projects.

Therefore, the argument that Kenya did not enjoy "trickle down" effects from the SGR loans because all payments were made in Beijing instead of Nairobi misses the rationale and purpose of Exim banks; rarely do they outsource goods and services in project inputs to another country.

Finally, critics keep repeating the fallacy that SGR was procured at a higher cost than the ones in Ethiopia and Tanzania. Most proponents of this line of thought do not attribute the sourcing of their comparative reference to the three projects, either to their own investigations, or official reports.

In comparing the cost of projects that involve land acquisitions, relocation and compensation of project affected persons (PAP) in Kenya, Ethiopia and Tanzania, one must be mindful -- and acknowledge -- the diverse socioeconomic and political realities there.

The bulk of the land along the SGR route is private and had to be purchased. Many PAPs who may not have been landowners were officially evaluated and compensated, overpasses built in Tsavo, wayleaves bought from the Nairobi National Park.

However, the bulk of land in Ethiopia and Tanzania is State-owned, owing to their communist historical heritage, and PAP rights are less clear and secure than in Kenya.

One hardly ever hears national government projects stalled in courts because Ethiopians or Tanzanians sued over all manner of grievances, some 'sponsored' by proxies.

The multi-billion-shilling man-made lake, High Grand Falls Dam in Tharaka-Nithi County, has stalled since 2014 due to court cases yet it is expected to ease the food security problem and generate hydropower for the Lamu port, among others.

Thiba Dam, in Kirinyaga, is supposed to turn around rice farming in Mwea for thousands of farmers but was stalled in courts nearly a decade since the Kibaki regime awarded the tender.

Many other projects are yet to commence as the National Land Commission fights numerous court cases over compensation for land.

Most attacks on the SGR are unjustified and betray a casual attitude to the reading public and poor appreciation of the Kenyan society and the milestone it is making.

The SGR is a towering signature project that will transform the transport, industrial and business environment and trade and cultural relations in East Africa for generations.

The author is a political scientist.

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