Boost for trade as Eastern Africa invests in ports, logistics

East Africa is seeing a growth in infrastructure investment to push economic expansion. By Shem Oirere, special to the AJOT

Africa’s average economic growth might have dropped from 5.1% in 2014 to 3.4% in 2016, but the drop was not sharp enough to halt the surge in trade between the region and the rest of the world as the continent’s ports recorded an increase in exports and imports throughout that period. Increasing exploration and production of oil and gas especially in East and Southern Africa and the rising number of international infrastructure development companies, eager to get a share of the booming construction market in the region, has created huge demand for more efficient and bigger ports together with regionally integrated interfacing and interconnecting transport systems especially modern railway and road networks. With the region’s steady economic growth and anticipated surge in exports and imports, the question for governments and port operators in the region is whether Africa should focus more on developing of ports in anticipation of business opportunities that come with a growing economy or let the new opportunities drive the ports’ development agenda. Eastern Africa – The China Impact It would appear countries in Eastern Africa have opted to simultaneously expand their ports’ cargo and vessel handling capacities alongside the associated modern railway lines and roads to support sustainable intra-regional and global trade.

“Ports stand a better chance to do good and sustainable business when they develop facilities ahead of demand and in anticipation of business opportunities,” says Catherine Mturi-Wairi, managing director of Kenya Ports Authority (KPA), a State-owned port operator in Eastern Africa’s largest economy, Kenya. see map above: (1) Djibouti, (2) Kenya and Tanzania (3) top the list of countries that have launched major port expansion strategies in the Indian Ocean coastline and linking them to modern rail and road network systems for easy transportation of goods and services to and from the region. The International Monetary Fund (IMF) says Djibouti “is expanding its transportation and utilities infrastructure to leverage its strategic location as transshipment hubs and host to military bases.” “Djibouti’s recent investment boom in infrastructure has the potential to transform the economy into a regional hub for East Africa, creating more jobs and helping the country return to a sustainable level of debt,” says IMF in its 2017 Economic Outlook for Djibouti. Djibouti, a key gateway to Suez Canal (4) and currently enjoying the advantage of being in a geostrategic position of a shipping lane with convenient ease of access to several global markets, is currently implementing a $14 billion port and terminal expansion program, targeting its five ports, largely financed by China under the national economic blueprint Vision Djibouti 2035. Investment in maritime projects is partly meant to take advantage of its neighbor Ethiopia (5) being landlocked and also the congestion in nearby ports such as Mombasa and Dar es Salaam. Djibouti handles more than 95% of Ethiopia’s export-import trade and recently boosted its port handling capacity with the inauguration of the $590 million Doraleh Multipurpose Port (DMP) that was constructed by China State Construction Engineering Corporation, with capacity to handle twice the amount of cargo of all country’s other ports. “Djibouti has kept economic growth above 5% for several years, thanks mainly to investment in railway, ports and hydroelectric infrastructure,” says African Development Bank in its Economic Outlook for Djibouti for 2017. The bank estimates the country’s economic growth at 6.3% in 2016 and is expected to rise to 6.7% and 6.8% for 2017 and 2018 respectively. Djibouti’s total capacity of its ports is estimated at 850,000 containers annually including transshipment of 400,000 containers. In addition, Djibouti launched in mid-2017 the $90 million Tadjourah port under a contact by China’s Bao Ye Hubei Construction Group with capacity to handle bulk minerals including 4 million/year of potash mainly from Ethiopia’s Danakil Potash Project being developed by Circum Minerals. Elsewhere, Djibouti is upgrading Ghoubet port to handle salt from the country’s crater lake of Assal. The $64 million bulk salt terminal project, which is being financed by China’s EXIM Bank, is expected to handle six million tons of salt annually. Djibouti is also developing the $70 million Damerjog port, with financing from the China Merchant Group, and is expected to handle up to 10 million animals, largely from Ethiopia, every year with capacity to handle up to five livestock vessels simultaneously. Port Competition Djibouti’s maritime infrastructure expansion program, when fully implemented, is expected to pose serious competition to the ports in Tanzania and Kenya, two markets that have also enjoyed impressive economic growth over the last five years. For example, Tanzania’s GDP growth hit 7.2% in 2016 and the same growth is expected in 2017 driven mainly by current political stability and strong performance of key sectors such as industry, construction, services and information and communication according to the African Development Bank. The bank says in its 2017 Economic Outlook for Tanzania the country’s economic growth “is projected to stabilize around 7% in the medium term as performance of the major sectors are expected to remain stable and reinforced by increased government investment and infrastructure.” Tanzania is expanding the country’s largest port of Dar es Salaam and upgrading the port of Mtwara as part of its drive to develop what analysts have called “bottle-neck releasing infrastructure.”

A recent economic analysis by market consultancy firm Deloitte said Tanzania’s port sector “is forecasted to grow in the near future influenced by the emerging class, increasing private consumption and a steady GDP growth.” At the moment, Tanzania Ports Authority, the country’s State-owned port operator, is developing a roll-on, roll-off terminal and deepening the port’s berths number one to seven from the current 8m to between 13 and 15m to allow vessels of 19,000 container-capacities to dock under a contract by China Harbour Engineering Co Ltd. The project, which is a component of the bigger $690 million World Bank-financed Dar es Salaam Maritime Gateway initiative will also entail the construction of a new multipurpose berth at Gerezani Creek, restoration of the capacity of the grain silo, and supporting the installation of a conveyor system, and high speed bulk grab. “By 2022, Tanzania Ports Authority will increase the container throughput to 28 million tons/year from the current 22 million currently,” said Deusdedit Kakoko, the Authority’s Director General in a recent statement. The expanded Dar es Salaam will be linked to neighbouring Rwanda’s see map on page 12 (6) capital Kigali with a new $7.6 billion standard gauge railway (SGR) line that runs alongside the existing metre-gauge link. Tanzania has awarded Yapi Merkez Insaat Ve Sanayi of Turkey and Mota-Engil of Portugal a $1.2 billion contract for the construction of 205km of the first phase of the 1,216km SGR intended to link Dar es Salaam with the rest of the country and eventually Rwanda and Burundi. (6) “With the introduction of the new SGR line we can compete with other ports and also reduce the time it takes to transport cargo from Dar es Salaam to Kigali from the current 23 hours to 13 hours,” said Prof Mbaraka Makame, Tanzania’s minister for Works, Transport and Communications. At the Mtwara Port, TPA is constructing a new 350m long berth to serve the 3 million metric tons/year cement plant, the country’s largest cement making factory owned by Africa’s richest man Aliko Dangote through his Dangote Group subsidiary Dangote Cement. The port, which handled 388,000 tons of cargo in 2016/17 year up from the 273,886 tons it handled in 2015/16, serves the countries of Malawi, Zambia and Mozambique and its capacity is expected to increase once the development of Tanzania’s Liganga iron ore and Mchuchuma, a coal mining projects are fully operational. Tanzania’s trade with Malawi, Zambia and Mozambique will get a major lift when the Mtwara port is finally linked with the 700-kilometre road network between Mtwara-Masasi-Tunduru and Mbamba Bay. The country’s port expansion and modernization boom was, however, slowed down recently when the government suspended the construction of the $10 billion Bagamoyo port project to allow TPA to focus on optimizing the capacity and efficiencies at the ports of Dar es Salaam. “The government wants to focus, instead, on improving the capacity, performance and efficiency of the Mtwara and Dar es Salaam ports,” says Brown Mugeta, operations & HSSE manager at Maersk-APM Terminals, Tanzania. He said: “The construction of the Bagamoyo Port has so far become a politically sensitive issue with opposition politicians and the private sector have been pouring scorn on the project arguing it was a waste of resources and urged for putting more focus on improving the existing Tanga, Dar and Mtwara ports and the connecting infrastructure.” Kenya’s Infrastructure Development But in Kenya, the country’s ports operator, KPA and the country’s Ministry of Transport and Infrastructure have made progress in the expansion of maritime infrastructure at the port of Mombasa port, construction of the new Lamu port and new $3.8 billion SGR line linking Mombasa to Nairobi that was recently completed under a contract by Chinese firm China Road and Bridge Corporation. KPA is expanding the Mombasa container terminal to handle 1.5 million TEUs annually with the first phase of 550,000 TEU capacity having been completed and commissioned in 2016. Construction of the second phase, with financing from Japanese government, is likely to be launched before the end of the year.

Mombasa port, which is the nerve centre of business serving Uganda, (7) Rwanda, Democratic Republic of Congo, Northern Tanzania, Burundi, South Sudan (8) and Somalia, (9) will also have a crude oil terminal to accommodate bigger tankers of up to 200,000 deadweight and develop a special economic zone and a free port at the Dongo Kundu area through a public private partnership model. The largest KPA maritime project so far is the $5 billion Lamu port project that involves construction of 32 berths and associated works such as dredging, reclamation, construction of yards, a causeway and road network. The port is part of the Lamu Port -South Sudan -Ethiopia Transport (LAPSSET) Corridor project, Eastern Africa’s largest and most ambitious regional infrastructure project being implemented in Kenya, Ethiopia and South Sudan. Apart from the Lamu port, the LAPSSET project construction of interregional highways from Lamu to Isiolo, Isiolo to Juba (South Sudan), Isiolo to Addis Ababa (Ethiopia), and Lamu to Garsen (Kenya). It also includes development of a crude oil pipeline from Lamu to Isiolo, Isiolo to Juba and a product oil pipeline from Lamu to Isiolo and Isiolo to Addis Ababa. Four standard gauge railway lines will also be constructed to link Lamu to Isiolo, Isiolo to Juba, Isiolo to Addis Ababa, and Nairobi to Isiolo. Other LAPSSET corridor project components include three airports at Lamu, Isiolo, and Lake Turkana, three resort cities at Lamu, Isiolo and Lake Turkana. A new multipurpose High Grand Falls Dam will also be constructed along Kenya’s longest river, the Tana. KPA has already awarded China Communication Construction Company the contract for the construction of the first three Berths of Lamu Port to be completed in 2018 while the other 29 berths will be developed by the private sector later although no timelines have been confirmed. “Construction of the Lamu port and LAPSSET corridor project will provide a reliable access to the sea for the northern/eastern parts of Kenya, South Sudan and Ethiopia, which have hitherto remained without direct access to the sea,” said KPA’s Mturi-Wairi. Is the race to expand existing ports and construct new ones in East Africa overambitious and likely to lead to too much idle capacity in the long-term? “I think governments in East Africa should sit down and agree on a common approach in the development of ports in the region instead of competing to construct individual ports that may turn out to be unviable,” says Mugeta. But for the time being, the port construction boom and expansion of railway and roads to evacuate goods from and to the gateways is gaining momentum and is likely to peak in the next 5-10 years as approved long-term maritime infrastructure projects break ground.