Kenya needs to rethink its regional business strategy
Posted on : Saturday, 21st May 2016
The necessity for the private and public sector to work together to safeguard and grow the country’s economy has never been greater than it is today following recent regional developments.
Uganda fired the first shot in what appears a coordinated assault on Kenya’s interests when it decided to tear up its agreement to build a joint crude oil pipeline. The decision has the potential to throw a spanner into regional plans for the construction of the Lamu Port-South Sudan-Ethiopia Transport (Lapsset) corridor unless Kenyan leaders rise to the challenge—fast. Hot on the heels of Uganda’s decision, Rwanda dropped the bombshell that it plans to develop its rail links to the Indian Ocean ports through Tanzania. On the face of it, Rwanda’s argument that the Tanzania route is cheaper and shorter than the one transiting Kenya appears plausible. But Kigali’s argument that the construction of the Tanzanian route would not take as long as the Kenyan one would have taken is undermined by the realisation that the one passing through Uganda would have taken even a shorter time had the two countries started the building of its sections of the line at the time Kenya did.
Analysts may be forgiven for arguing that it is but a matter of time before Uganda announces than it is switching the bulk of its export and import cargo from the Kenyan route. This is because it has been an open secret that a cabal of business and government leaders in Kampala has been routing for the southern route despite its being longer and more expensive than the Kenyan one. Their voices grew louder in 2008 following the post election violence. Analysts argue that the two developments are a signal that Nairobi needs to rethink and re-strategize its regional and global trade and business plans. For starters, Kenya Ports Authority (KPA) should be given new performance goals in terms of costs and efficiency to make sure that Mombasa remains the port of choice for regional businesses irrespective of what their governments’ intentions and decisions.
The expected reduction of freight costs following the launching of the Kenyan section of SGR from Sh20.13 to Sh8.05 per kilometre per tonne should give the Kenyan route a competitive advantage. Kenya’s decision to give the contract for the running of the SGR line to the company building it appears to be an inspired one as it robs the China Road and Bridge Corporation any excuses for not meeting the set targets. KPA should also not be allowed to rest on its laurels but be encouraged to strive to do even better than it has done so far. To its credit, the State firm has since 2014 made improvements in the turnaround time in the movement of cargo from the Port of Mombasa to Kampala from 18 to four days and from Mombasa to Kigali from 21 to six days. Cash-flow constraints But the challenges posed by the recent political decisions in Kigali and Kampala mean this should not become the new normal. Instead, they should be the new base on which to make further improvements. Second, the laws, rules and regulations governing the transit of goods through Kenya should be reviewed to make sure that the efficiencies and cost advantages derived from a better-run port and use of the Standard Gauge Railway (SGR) are not lost are the value chain.
If this means the elimination of road blocks along the country’s roads, so be it. Third, Treasury should be persuaded to allocate the funds needed to speed-up the construction of Lamu Port despite the obvious cash-flow constraints it is facing due to increased demands at a time of reduced revenues. Hopefully, the announced lifestyle audits of targeted Kenya Revenue Authority (KRA) staff, principal secretaries and other public officers dealing with government revenues will breathe new life into efforts to control government expenditure. Kenya’s need to find new markets in Ethiopia, South Sudan and even larger Sudan and Egypt has never been more urgent than it is today.
