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Regional rivalry may hurt profitability of Kenya’s mega projects


Regional rivalry and a lack of sufficient business for East Africa’s mega projects may lead to underutilised ports, rails and pipelines.

Global risk and strategic consulting firm, Control Risks, has said too many African countries are competing to become the next ‘Dubai-Singapore’ hub of the continent, which may make their copycat mega projects unviable.

In East Africa, Nairobi and Kigali are competing to become the business IT hubs of the region, while the ports of Doraleh in Djibouti, Berbera in Somalia, Lamu and Mombasa in Kenya, and Bagamoyo in Tanzania are competing to be the main access points for the region.

Kenya and Tanzania are also neck-and-neck in plans to build pipelines to serve the oil discoveries in the region, including tapping into South Sudan’s fields.

“Regional rivalries increase the risk of oversupply. There are signs that some projects are driven less by sound economic logic than by political ambition and the prospect of easy short-term debt financing from China,” Control Risks said in its latest report.

“These could prove economically unviable and even impose an excessive burden on public finances, raising longer-term sovereign risks.”

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Unnecessary drain

Control Risks said this is particularly the case along the East African coast, where fierce regional competition has led many to wonder about the sustainability of having several large-scale projects servicing the same limited market.

“On coming to power in late 2015, Tanzanian President John Magufuli announced he would suspend his predecessor’s plans for a $10 billion [Sh1.03 trillion] mega-port in Bagamoyo, describing the project as an unnecessary drain on public resources. But such signs of moderation are rare, and over-capacity issues are likely to dog several current projects in the next decade,” the report reads.

The firm points out that these mega projects also depend on bilateral relations, which are very delicate. The accusation by Kenya’s Foreign Affairs Cabinet Secretary Amina Mohamed that regional allies abandoned her bid for the African Union Commission top post marks the height of discord in East Africa.

Kenya, Uganda and Rwanda, under the banner of the ‘coalition of the willing’, had agreed to construct the Standard Gauge Railway together, and fast track East Africa’s integration, but the partnership fell apart.

Kenya has already built the Mombasa to Nairobi section of the SGR, and is opting to branch the project to Naivasha to gain some economic value and get a decent return from setting up an industrial hub next to cheap geothermal power.

The Chinese, who are funding the Ugandan line, are reported to have taken a tough stance on Uganda, insisting on the Kenyan connection.

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Tanzania, on the other hand, ditched the Chinese for a Turkish and Portugese firm to build a 1,216km rail that will eventually link Dar es Salaam to the rest of the country, as well as to Rwanda and Burundi.

Uganda’s dalliance with Tanzania to build an oil pipeline, abandoning Kenya’s Sh210 billion initiative, has also raised doubts about the viability of the larger Lamu Port-South Sudan-Ethiopia Transport Corridor (Lapsset).

If the discord in the region harms the viability of the projects, Africa economies would face tough options, including handing over the projects to China. Sri Lanka had to pawn off its facilities to India and China to reduce its debt distress, but reportedly got a rude shock when the financiers refused ‘their empty ports’.

Control risk added that the lack of a solid hinterland or growth corridor capable of supporting the region’s hubs can be a major obstacle, given the small size of countries’ domestic markets.

Some nations have tied their fortunes to the progress of a key partner – like Djibouti with Ethiopia – making them vulnerable to a downturn in bilateral relations, or their neighbour’s economic or political misfortunes.

A case in point for Kenya is South Sudan, which is in a civil war yet is the main upstream source for oil, ensuring the viability of the Lapsset project.

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