Saturday, Jul 31, 2021
International Finance
Logistics Magazine

Kenya’s multimodal strategy is good for trade

ifm-analysis-kenya-multimodal
Strong connectivity in ports, rail, road and air services will deepen the country’s integration of transport into trade

The logistical revolution in Kenya began in the early 1970s when transport in the industrialised and industrialising world was shifting its focus away from physical infrastructure built during the colonial period to institutional structures and organisations which support those infrastructures. This shift over the last two decades has marked a turning point for the country as it seeks to develop a deep integration of transport into production and trade. 

All of Kenya, is now making a significant headway, with a development agenda which was devised to strengthen the country’s position as an evolving logistics and transportation hub in East Africa. Although the country has an extensive infrastructure that is also superior to its African neighbours, it points to the fact that major spending, expansion and rehabilitation are necessary in the coming years. The World Bank published a report titled Kenya Public Expenditure Review which found that the country necessitates annual spending of up to $4 billion which equates to 20 percent of the GDP over the coming decade. Positively, its logistics plans are supported by heavy government spending, foreign investments and active participation in the private sector. Five years ago, the World Bank had observed that the increased levels of spending on infrastructure was heading in the right direction on the back of its growth potential. 

Today, experts believe that the country’s logistics industry will reach Sh500 billion by 2023, and that it is attempting to spin up new projects to strengthen infrastructure expansion. As part of the estimated figure, roads and railways network are prominent factors in accelerating the country’s efforts, and an effective strategy for it to reach a monumental achievement on this front will be multimodal transport. Global aggregator and publisher of market insights Ken Research carried out a study which found that Sh180.9 billion has been allocated for ongoing construction projects in addition to rehabilitation and maintenance of roads, which is more likely to spur domestic growth. The research further studied that road, railway, sea, pipeline, air freight forwarding, international and domestic freight, integrated and 3PL freight are all important stimulants for the country to act on its multimodal strategy. Otherwise, there will be loose integration between the logistics infrastructure and trade, and also between the industry’s contribution to economic development and bilateral relations. 

Classified and unclassified road network 

Foremost among Kenya’s multimodal logistics strategy to prove effective is, essentially, the road network comprising 63,575 kilometers of classified roads and 114,225 kilometers of unclassified roads. Of the total classified and unclassified roads, only 16,902 kilometers have been paved for vehicle movement. However, a total of 5,681 kilometers of the road network have been recognised under the Vision 2030 for various interventions. Even the Ministry of Transport has been working on an ambitious road annuity programme for the construction of roads stretching 10,000 kilometers. 

That said, the country is expected to bring toll roads into effect again with private sector participation. For now, it has earmarked five major toll roads—Nairobi-Nakuru-Mau Summit highway, Thika Road, Nairobi’s Southern Bypass and a second Nyali bridge under a PPP plan. This approach might prove beneficial in helping the government to raise funds for road network development in addition to maintaining the existing infrastructure. Interestingly, there is another upcoming PPP toll road construction project which is a long 77 kilometer stretch from the elevated double decker Jomo Kenyatta International Airport to Nairobi-Nakuru highway worth $380 million. It is reported that the project will have a dedicated lane for large-capacity buses under the Bus Rapid Transit plan which is aimed at easing public commuting service. Currently, the project is being stated in detail for design. 

For those who are not familiar with how the road network can contribute to the economy, the Kenya National Highways Authority has prioritised the design, financing procurement and construction of critical roads that will support the predicted 5.8 percent economic growth. For example, the authority is highly interested in incorporating the private sector in the development of Nairobi-Mombasa Expressway and Nairobi-Nakuru-Mau Summit Road among others. Even the National National Treasury Cabinet Secretary Henry Rotich has allocated $1.1 billion for the development of road networks encouraging institutional investors to put money into PPP road projects in the country. 

Modernising aviation can facilitate free-flow of trade 

Two years ago, Kenyan President Uhuru Kenyatta identified the importance of modernising the aviation infrastructure to further promote economic growth. In his view, the total air transport in Nairobi contributed 0.4 percent to the country’s GDP at the time. Now the country is enhancing its multimodal infrastructure with airport expansion following its modernisation and rehabilitation loan worth $285 million from the World Bank. It is reported that a significant portion of the funds will be used to modenise the Jomo Kenyatta International Airport in terms of modern terminals construction, national airport master plan, installation of security systems and communications equipment. This is especially important to the country because it is the busiest airport in East and Central Africa, and it is also the seventh busiest on the continent. 

Other experts say that expansion and modernisation of the Jomo Kenyatta International Airport is a flagship project under Vision 2030 and also part of the long-term national development plan. In fact, the International Development Association has funded two key projects which will contribute to the overall air transport in the country. This includes the Northern Corridor Transport Improvement Project (NCTIP) and the Kenya Transport Sector Support Project (KTSSP). Now Kenya Civil Aviation Authority is equipped with modern technology to effectively manage the aviation industry. 

The direct impact of enhancing the aviation industry is that it will enable free-flow of trade. The country carried out an economic survey last year which found that the value of imports from Uganda to Kenya grew to nearly $480 million in the previous year. But the coronavirus pandemic has steamrolled the logistics industry, disconnecting free flow of trade between countries. 

Mombasa port stands strong in cargo capacity  

Over the years, the Mombasa seaport has been the largest port in East Africa and the second largest in Africa, connecting both Kenya and its neighbouring countries like Uganda, Rwanda, South Sudan, Tanzania, Burundi, and the Democratic Republic of Congo. An important aspect to note is that Uganda is the country’s largest trading partner in the East Africa Community. The Port of Mombasa has already completed its Phase 1 expansion of the Mombasa Port Development Project  comprising construction of a second container terminal, three additional berths, two ship-to-shore cranes and four rubber-tire gantry cranes. 

One of Africa’s significant investors—Japan had funded $217 for the project. It will become the largest port in the region with a capacity of 2.5 million TEUs annually after the completion of Phase 2 and Phase 3. More specifically, Japan’s Toyota Construction Company has undertaken the Phase 2 which stands at 56.3 percent completion with the final schedule slated for November 2021. The construction of the second container terminal will add a lot of value to the country in terms of coping with the anticipated demand that might stem from the ‘exponential growth in the containerised traffic’. The Port of Mombasa is reassuring for Kenya because of its huge value potential in terms of handling cargo capacity. This development despite the pandemic suggests that the country is preparing to enhance its global shipping scale with the use of larger vehicles. The Inland Container Depot-Nairobi and the Naivasha dry port still remain valuable in handling cargoes to and from Kenya. 

Strategic railway line reduces import and export time

Last year, a Chinese-built railway line linking Nairobi to Naivasha was opened despite delays in constructing an industrial park to encourage freight. The Chinese have been actively involved in development of the rail network in the country through fundings and investments in recent years. The extension of the railway network is already associated with another Chinese-baced $3.2 billion line between the Port of Mombasa and Nairobi which was opened in 2017. But the downside of the development is that it has been underutilised for cargo services. 

The country’s plan in opening an industrial park in Naivasha will in fact provide companies tax breaks for investing in manufacturing and preferential tariffs for electricity produced in closely located geothermal fields. Then there is the famed Standard Gauge Railway line that is promoting trade among East African countries and the rest of the world. The railway line runs from the coastal town of Mombasa to Nairobi, making it efficient for traders from South Sudan Uganda and northern Tanzania to transport and receive goods globally. For the most part, Standard Gauge Railway has lowered travel time for imports and exports in the East African region. 

What multimodal logistics can do for Kenya

Under all these developments arise a common factor which is building a good connectivity in ports, rail and logistics services for a robust multimodal logistics ecosystem. In this context, Tony Saliba, who is the CEO of Agility Kenya, discusses with International Finance that “Multimodal transport in particular which includes sea, rail, truck and air in addition to free zone and bonded warehousing will allow Kenya to truly act as an inbound and outbound hub, supporting landlocked countries like Democratic Republic of Congo, Uganda, Rwanda and South Sudan. Local volumes along with transit volumes will create a critical mass of cargo, which will drive costs down and improve capacity and service levels.”

Saliba explains that slow testing and results at land borders are impacting transit times, causing major delays and equipment shortages. Low levels of digitisation are also causing issues in the context of the pandemic. Face-to-face intervention is needed to process customs files and to clear goods from sea and airports, and to process other government agency approvals.

Legal challenges must not be overlooked 

These challenges in part are creating new opportunities for logistics companies in the country to get around the fact that multimodalism is necessary. “The country’s legal system causes some issues for logistics companies. Ideally, we need a more efficient legal system that adequately supports things like contract litigation and credit collection, and a legal framework supporting free zones for cargo,” Saliba explained. “The industry would also benefit from better digital and physical infrastructure and security. This would include improved connectivity and digital services, an upgraded road network, better cargo security at roads, ports and airports, and an improved, more cost-effective rail system.”

But in his view, a problem that is becoming particularly apparent at the moment is that Kenya has insufficient cold-chain and pharma-related logistics infrastructure. “We do struggle with certain inefficiencies, including inefficient rail-moving containers services. Security of cargo is also an ongoing challenge. We still see quite a high number of thefts from air and seaports and from vehicles travelling by road. Another challenge is that there is a lot of bureaucracy, and processes often change at short-notice, giving us little or no implementation timeline. And there is limited legal recourse for collecting dues that have not been paid on time.”

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