Kenya Freight Transport Report 2009

Abstract

Kenya' s President Mwai Kibaki said in October 2008 that Kenya would need to see infrastructure
investments of US$4.5bn over the following five years for improvements to the country' s infrastructure.
Kenya is the most developed country in East Africa and it serves as a regional hub for trade, as its ports
and airports can handle the largest volume of goods and passengers in the region. Nevertheless, the
national transport system is ageing, thus eroding the country' s competitiveness and business environment
credentials. The president made the remarks during the country' s first conference on infrastructure bonds.
Such bonds will be a main avenue for raising funds for the necessary infrastructure upgrades. According
to Reuters, the government would also issue its first US$500mn sovereign bond in 2009.
Based on President Kibaki' s remarks, overhauling the transport sector is a priority. Accordingly, the
government earmarked KES186 (US$2.3bn) for building or upgrading 64,500km of roads, modernising
and expanding the rail network, and the development of the Mombasa port – the largest and possibly most
congested port in the region – in addition to the construction of a second, smaller port in Lamu. The
problems with the country' s infrastructure have been chronic, but were accentuated during post-election
unrest in December 2007, which created a container pile-up at the Mombasa port that has yet to abate.
This has highlighted the fact that although superior compared to its neighbours, Kenya' s supporting
infrastructure around Mombasa (including road and rail for the transportation of 16mn tonnes of
offloaded goods) and beyond has been operating above its capacity. During 2008, the government sought
to address the problem and accelerate the pace of investments in infrastructure. Rift Valley Railways, the
company that, amid much controversy, won the concession to operate Uganda and Kenya' s railways, was
planning a US$206mn capital expenditure to revive the Kampala-Mombasa railway. Another crossborder
rail link is the Mombasa-Bujumbura railway to Burundi, which is under development. Kenya' s
Railway Corporation was also planning to upgrade the entire system (its total length is 2,600km) to a
standard gauge within the next 10 to 15 years. Moreover, the government was also planning a capital
expenditure of KES112 (US$1.4bn) for new roads. Because of Kenya' s role as a regional trade hub, the
country' s infrastructure is pivotal for sustained macroeconomic growth. The government put forth an
economic strategy called Vision 2030, which envisages initial investments of up to US$25.2bn over the
next five years, to transform Kenya into a middle-income country in two decades. However, budgetary
constraints limit the government' s ability to fund most of the necessary infrastructure projects. To address
the funding issue, in addition to using infrastructure bonds, the government has also been actively
supporting the creation of public-private partnerships (PPPs). In our latest Kenya Freight Transport
Report, one of BMI’s conclusions is that maritime freight volume is set to expand by an annual average
of 5.2% in the 2009-2013 forecast period.
Various factors support this prediction. Taking into account the current global slowdown, we now expect
average GDP growth of 4.0% a year over the next five years, which will underpin demand for freight.
International trade will grow at a higher 6.7% rate over the same period. Kenya’s ports are of course an
important conduit for freight transit to neighbouring East African countries and this too will support
demand. A further factor is the likely improvement of hinterland transport links, with a focus on
upgrading the aging rail network.
Despite a difficult international climate, prospects are encouraging for reasonable growth across the wider
freight business. Road freight will continue to be a key mode of land transport. We are predicting that
annual volume will grow by an average of 6.4% in the 2009-2013 period. Rail freight, plagued by underinvestment,
has contracted and it will take some time before any kind of strong recovery is likely. We are
forecasting average annual growth of 4% in tonnage. Air freight has been affected by the downturn in
tourism following the post-electoral violence of late 2007. We expect average annual growth of 5.7%. In
the overall Middle East and Africa (MEA) business environment matrix, Kenya currently scores 51.7 out
of a theoretical maximum of 100. The country has below average scores in a number of categories,
including political and economic risk, and in its development and support of infrastructure. However,
Kenya manages to score close to the regional average in terms of its regulatory and competitive
environments.
For the 2009-2013 forecast period, we expect Kenya’s transport and communications sector to continue
outpacing the economy as a whole. It will achieve average annual growth of 4.2% in value terms, versus
4.0% for overall GDP. The total value of transport and communications GDP will rise to US$5.65bn in
nominal terms by 2013, representing 8.2% of Kenya’s GDP. The transport and communications sector
employed 109,000 people, or 5% of the labour force, in 2008. We see that figure rising to 127,000 by
2013, while remaining proportionately constant at 5% of the total.
SWOT Analysis
The rail operation and network is currently undergoing a form of privatisation. As with other aspects of
the transport sector, the government’s favoured method is concessioning, with private operators running
the rail network for an initial period of 25 years before ownership reverting back to state (or domestic)
day-to-day control. As this process moves forward, there are plans to link the Kenyan and Ugandan rail
networks officially, to extend a rail link to Sudan and to construct a line to Ethiopia.