Wednesday, September 4, 2013

MOMBASA PORT, RAILWAY MUCH NEEDED INVESTMENTS


Last week President Yoweri Museveni and his counterparts from Rwanda and Kenya commissioned the Mombasa port extension.

The extension will increase the port’s capacity by almost a third to just over a million containers a year and is expected to help in reducing delays at the port. As it is now it takes about 22 days for a container to get a container from Mombasa to Kampala and this is without factoring in the 10 to 14 days a ship will have to wait when it arrives in Mombasa before it can be berthed.

This has cost implications with shippers paying up to $12,000 (sh32.5m) a day in demurrage fees, which cost is invariably past on to the end consumer.

Clearly this investment was long overdue but is only the beginning of President Uhuru Kenyatta’s  drive to consolidate his country’s position as the region’s logistic hub.

Construction is already underway for the development of another port at Lamu and Tanzania is making appropriate sounds about beefing the capacity of their 500,000 container a year port at Dar es Salaam.

 There is no getting around it. If we are to fully exploit the region’s potential we have to bit the bullet and invest the billions of dollars required to bring our infrastructure to basic standards.

A key investment that needs to be working at optimal levels to derive maximum benefits from our investments on the coast is the Kenya-Uganda railway.

The teething problems for this line’s concession seem s to have been ironed out with entrance of Cairo based equity partner Citadel Capital in 2010.

Kenya and Uganda in 2006 privatized their parts of the railway to a consortium led by private operator Sheltham, which in turn gave way to Citadel in 2010 as the anchor investor in the RVR concession. Citadel’s partners are Kenyan investment form Transcentury and Uganda’s Bomi Holdings.

Since January last year $156m has been invested, monies that went into rehabilitating sections of the line, refurbishing wagons and locomotives and incorporating a GPS train tracking and its accompanying systems.

Despite this massive investment – more money than has been invested on the line for nearly 20 years, volumes are nowhere near where they were in the 1970s, about four million tons per year.

The need for such massive investment cannot be overestimated. What seems to be the challenge in this part of the world is how to bring the required expertise and the necessary funding to deliver on such projects.

It was therefore useful that Citadel took an interest in this project when it did. The firm, which controls $9.5b in investments spread around 15 countries has the connections and access to finance needed.

Over five years $287m in investment will be required, this is inclusive of the $156m already deployed.

It helps too that Citadel is an African company whose appreciation of the risk and how to mitigate against it in a way that the money bags understand comes in handy.

Capital is a coward. Money from the financial capitals’ of the world will forgo higher returns on the continent because they don’t know how to appraise risk here.

Reminds me of the story of MTN”s entrance into Uganda. At the time going by the accessible studies by the donors, Uganda was not ready for mobile technology. Those studies showed there were challenges of inadequate demand, unclear licensing issues and unknown risks they could not even factor into their projections. It took local investor Charles Mbiire to commit his own funds as a local partner to make them take another look. The company used the Uganda experience as a spring board into the continent and the rest as they say is history.

Citadel does the same on a much larger scale, acting as the hand holder as foreign investment tries to secure a foothold on the continent, now touted as the final frontier for exponential growth.

What we need now is for our bureaucrats to understand this and reappraise their role in how they should facilitate these type of investors do what they have failed abysmally to organize since independence.

For example RVR has to pay a concession fees off their gross revenues. Whereas they have paid over $53m in the  last three years and this may look good with treasury, this could have been money better spent investing on the business with ripple effect of this investment much more beneficial to the population.

Maybe that is a bridge we have to cross further down the road.

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