Kenya strengthens image as E. Africa’s air-cargo hub

Kenya is trying to bill itself as East Africa’s air cargo hub. But as Manik Mehta writes from Nairobi, there is a lot of work to be done before this aspiration is realized. The East African nation of Kenya aspires to create for itself an image as East Africa’s air-cargo hub, poised to generate strong traffic growth between Africa and the rest of the world. Notwithstanding the inadequate and creaky infrastructure, Nairobi’s Jomo Kenyatta International Airport (JKIA) has emerged as a regional hub, with an increasing number of foreign airlines, particularly cargo carriers, vying to get a slice of the business pie as the country expands its exports of a wide range of perishables, particularly flowers, fish, vegetables, fruits, etc. which find their way into the supermarkets of Germany, France, Netherlands, Scandinavia, etc. “The (Kenyan) government would like to push Kenya as East Africa’s most reliable hub for perishables and, possibly, also for textiles and garments. The number of foreign textile manufacturers in Kenya, for example, is rising because of our lower production and labor costs,” J. Kariuki Mbugua, the managing director of Nairobi-based Steam Plant Limited, told American Journal of Transportation. Promising Market At JKIA’s landing strip, a Lufthansa-Cargo freighter aircraft has just arrived with cargo from various countries, which transited at the carrier’s Frankfurt hub. The aircraft snakes its way into the allotted parking space next to a freighter of Etihad Cargo, which has already offloaded cargo and is now filling up the aircraft with all kinds of outbound cargo. “Indeed, one of our MD-11 freighter aircraft has now become a flying ambassador for the charity organization Cargo Human Care. From Frankfurt our aircraft decorated with the footprints of children is now travelling the world, its first destination being Nairobi,” said Michael Goentgens, Lufthansa-Cargo’s spokesman. Cargo Human Care, founded by Fokko Doyen, captain and fleet chief at Lufthansa, looks after orphaned children in Nairobi. This, Goentgens asserted, is a reflection of the carrier’s “deep commitment” to Africa and Kenya. For the cargo carrier, Kenya is a “promising market” with an expanding distribution network, as Hermann Zunker, the Africa director of Lufthansa Cargo based out of Johannesburg, South Africa, told AJOT on the sidelines of a press conference in Nairobi.

Kenya imports some high-value products, including electronic parts and components, by air from a number of countries in Asia and Europe but its exports by air consist, largely, of perishables. Indeed, perishables account for some 94% of air cargo, for example, shipped out of Nairobi on Lufthansa-Cargo freighters. General cargo accounts for just 5%. Zunker also discerned a slight increase in textile/clothing products shipped by air though such products are, generally, part of what is described as “last-minute ordering” urgently needed by overseas customers. The USA is, by far, Kenya’s largest textile and garment market. Citing projections of the African Development Bank, Zunker said that overall economic growth in Africa would average 4.5% in 2015 and 5% in 2016. Africa will see domestic demand rising and, in effect, boosting growth in many countries of the continent while external demand remained subdued because of sluggish export markets. African exports are generally expected to strengthen in 2015 and 2016 as the world economy improves. In 2014, domestic demand in most countries of Africa was strengthened by private consumption and public infrastructure investments. Some of the African countries where foreign carriers deploy freighters include Egypt, Tunisia, Kenya, Ethiopia, Mauritius, Nigeria, Senegal and South Africa. Zunker stated that during its 2015/16 winter plan for Nairobi, Lufthansa-Cargo would deploy MD-11F aircraft (four flights a week), and B-738F and A343 aircraft (three days a week). “Kenya continues to be East Africa’s powerhouse, with a well-defined role as financial and logistics hub. Foreign investment has been rising but the Kenyan shilling faces pressure and has weakened. Kenya received a loan of roughly US$ 5 billion from China to build a standard gauge railway (SGR) line from the port at Mombasa to the border with Uganda,” observed Ivo Seehann, Nairobi-based general manager (Kenya & East Africa) of Lufthansa Cargo. SGR Project The SGR is part of the grand trans-East African railway project, one of many mega infrastructure projects currently under way in that region. It is a direct effort to connect East African countries, thus building up economies of scale, lowering the cost of doing business, attracting foreign investment and ultimately accelerating growth and development. While imports attract high duties, taxes and levies, thus making the end product visibly expensive, the volume of Kenya’s air-cargo exports has remained “quite stable, though dominated largely by perishables”, as Seehann put it. Despite the growth projections, East Africa’s infrastructure is largely underdeveloped. Infrastructure development is crucial for the sub-region to realize its full potential. According to a recent Deloitte report, East Africa recorded more than 50 infrastructure projects in 2014. While this is a drop from 93 projects in 2013, the value did not decrease substantially, reaching an estimated $60-billion last year. Some of the large projects still in the planning phase, and still under negotiation, were not yet reflected in these statistics. Besides pipelines, railways and ports, Kenya attaches priority to airport development. In a bid to assert its position as one of Africa’s major gateways, Kenya is building a new terminal at JKIA in Nairobi. Dubbed the ‘Greenfield Terminal’, and financed largely by the African Development Bank, the 178,000 sq. meter large terminal will cost an estimated $612-million with an annual 20-million passenger capacity. Kenya signed in November a $66-million financing agreement with the French Development Agency to upgrade Moi International Airport in Mombasa. While Kenya continues to be East Africa’s focal point as far as air cargo traffic is concerned, the overall East African growth accelerated in 2014 to more than 7%, up from less than 5% in 2013. It is projected to decelerate to 5.6% in 2015 and accelerate, again, to 6.7% in 2016. East Africa is projected to become the continent’s fastest growing region. However, East Africa’s average growth keeps fluctuating because of the volatile developments in South Sudan, where armed conflict cut oil production and GDP in 2013. Kenya’s security situation has worried foreign investors following terrorist attacks, particularly after the two very disruptive attacks at Westgate Mall and the Garissa University. Kenya’s Challenges But there are also other challenges: Kenya’s once-flourishing oil and gas exploration has slowed down because of the sharp fall in oil prices. There is also an asymmetrical dependency on perishables in Kenya’s air-cargo exports, with cargo carriers hoping that other products would increase their share in the traffic. However, experts see a slight increase in high-value clothing shipments, mainly, to the U.S. market. But experts agree that with the growing strategic and commercial significance of the African rim states of the Indian Ocean, Kenya will play an important role in the future, once the infrastructure is modernized and expanded.