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Why Kenya may lose out on shipping billions

By Macharia Kamau | Updated Tue, February 21st 2017 at 11:29 GMT +3

Landlocked countries in the region are watching with interest the mega infrastructure projects that are taking place in countries along the Eastern Africa coastline.

Countries such as Uganda, Rwanda, Eastern Congo and South Sudan are currently heavily depended on the port of Mombasa for their imports.

Limited alternatives have always seen them put up with high costs, delays and congestion at the port of Mombasa but this could soon change, as Tanzania spends big on upgrading its ports of Dar es Salaam and Tanga and building corridors connecting the ports to the hinterland and neighbouring countries.

Djibouti, while not a traditional competitor to Mombasa, is also spending large sums in infrastructure upgrade, with the help of China in its ports and setting up a free trade zone that it expects could be the ‘Dubai’ of the Great Lakes region.

While there has always been talk of importers and shippers ditching Mombasa for Dar es Salaam, experts say the new developments when complete will keep Kenyan port operators on their toes. Already, there is a sense that power is shifting in the region, with Kenya’s tradition partners keen on playing a bigger role in the region.

Kenyan neighbours – and even Kenyan importers – have over time expressed discontent with delays and congestion at the Port of Mombasa but have lacked alternatives. The delays and congestions have always had the effect of pushing up prices of imported goods in the region.

Among ongoing and planned infrastructure development on the Tanzania coast include projects aimed at modernising the ports to increase capacity and efficiency, the rehabilitation of existing railways and upgrading railways to standard gauge. The country is also improving the roads with access to the ports and construction of oil terminals and adjoining pipelines to the interior.

Mid-January, Djibouti broke ground on what it said would be the largest free trade zone in Africa. This comes after the country, together with Ethiopia, commissioned a new railway serving both countries. Djibouti hopes that the port built with Chinese assistance will become a gateway not only to the Horn of Africa but also the Great Lakes regions and the Common Market for Eastern Africa.

The railway to Addis and the Free Trade Zone are just two of the projects that the country is investing in that it expects will transform the country, largely regarded as a military outpost by Western countries, into a ‘new Dubai’. Jean- Pierre Labuschagne, Infrastructure and Capital Projects Leader, Deloitte Africa speaking on the projects by Tanzania noted they would give importers into the region an effective alternative to Mombasa Port. He added that the landlocked countries that have relied mostly on Mombasa need cost effective alternatives.

“In the longer term, the developments may affect the competitive position of Mombasa. Once Tanzania opens up capacity covering the full transport corridor to landlocked countries such as Uganda and Rwanda, it could provide an effective alternative to Mombasa,” he said.

Labuschagne, however, views the new developments at the regional coastline as complementary as opposed to competing, adding that there is a major infrastructure deficit. This has all along hampered inter-regional trade.

“Africa has a high cost of transport, especially to inland or to landlocked countries, more alternatives offer the ability for cost competitive transport options and benefits end users,” he reckons.

“The developments are in part competitive. However given the existing high cost of transport, especially to inland or landlocked countries, they offer the potential for cost competitive transport options and benefits for end users.”

Trade Mark East Africa notes though Mombasa remained competitive in terms of pricing, the new ports that infrastructure upgrades will see countries have a shorter import routes that will also have an impact of lowering their costs. Frank Matsaert Chief Executive Officer TMEA noted Mombasa is currently ahead and but added that there are countries that should ideally be using other ports as the shortest and potentially cheaper external trade outlets.

“When the other corridors such as Dar Port and Central Corridor and Tanga Corridor are fully developed, some traffic would potentially divert to them as the natural hinterland of the Dar and Tanga ports,” he said.

He noted that the Central Corridor offered the shortest and potentially cheapest route for countries like Burundi, Rwanda and some parts of Eastern DRC. Mombasa would however remain a preferred route for importers into Uganda and South Sudan as well as parts of Northern part of Eastern DRC (North Kivu)

“Mombasa offers the shortest route. Ideally it is imperative that the shortest routes are well developed so as to give the countries the opportunity to secure the cheapest possible transport for their external trade,” said Matsaert

“Denying them the opportunity to exploit the geographical set up is not being fair to countries concerned. That is why TMEA supports the development of both the central and northern corridors, the principal corridors.”

There have been instances where Ugandan and other regional importers have expressed frustrations at delays, congestions and even Kenyan taxation measures when using the Port of Mombasa. TMEA said with better infrastructure in place, each port would have to remain not just competitive but also cost effective.

“Competition among the corridors is advantageous to the user countries. It will keep the corridor operators on their toes to avoid unreasonable pricing and other regulatory or facilitation excesses,” he said.

In addition to the infrastructure investments that Tanzania is making, there is also the relatively new political dispensation under John Magafuli that has taken corruption head on.

Reduced levels of corruption at the ports could also be an attraction for companies to import through Tanzanian ports.