SME News

President Museveni to seek alternative trade routes from the coast

Transport in kenyaKenya is gearing for elections next year and just like in the disputed 2007 elections, there is a looming fear of disruption in the transport industry. It is due to these prospective transport disruptions in Kenya that Uganda is taking strategic measures to pillow its market from the same.

Uganda has decided to look for alternative routes through Tanzania. With Kenya heading to the presidential elections next year, President Museveni has decided to look for alternative options for fear of the same disruptions according to Macharia Munene, an international relations analyst.

The post election violence of 2007 saw the railway lines leading to Uganda uprooted. In addition, key roads opening up to the northern corridor were blocked by protesters leading to a business standstill in these regions.

These blockades then led to an acute shortage of petroleum and its products thus increasing in the cost of basic items in these regions. In addition, due to lack of fuel, thousands of Ugandans had to walk to work.

To counter that, Mr. Museveni has stepped up negotiations with Tanzania for an alternative railway passage to connect the port of Tanga to Uganda regardless of the higher costs involved. As an encouragement, Uganda has announced tax discounts that could sum up to about 150 Uganda shilling (Ksh5.6) per liter of petrol for traders that import oil through Tanzania.

This revelation was made during a meeting with the Tanzanian President, Jakaya Kiwete. As a suggestion, it is evident that President Museveni is pressing for the construction of a railway line linking Tanga and Musoma.

Uganda being Kenya’s key trading partner, this move will negatively affect the Kenyan economy since it will not only disrupt business between these two nations, but also the business within the wider Common Market for Eastern and Southern Africa (COMESA), from where more than half of its trade is derived.

At the meeting, it was revealed that this 800-kilometer project would cost up to a total of $2.7 billion since it will include digging another multi dollar deep water port at Mwambani Bay in Tanga to Musoma on Lake Victoria, with onward connection to Kampala and Juba.

Since Kenya has an oil pipeline from Mombasa to Eldoret, not far from the border with Uganda, it would have been better to extend this pipeline through to Kampala since the entire road is in good shape and much shorter than the route through central Tanzania, estimated at 1,500 kilometres.

In cost comparisons, the pipeline is the cheapest mode of transport in Kenya since it consumes about KSh43.86 ($.043) per tonne per kilometre within the northern corridor, followed by the railway at Sh69.3 ($.068) per tonne per kilometer and road the most expensive at Sh11,526($.113) per tonne per kilometre.

Charges along the central route through Tanzania are about higher than those of the northern corridor where hidden costs among them, delays siphon up to 46 percent of the entire cost. On the other hand, the costs on the central corridor through Tanzania are higher mainly due to the low capacity at the port of Dar-es-Salaam and the long route. Kenya has an intricate pipeline network which makes sense to use the corridor from Eldoret into Uganda unlike the preferred route through Tanzania.

According to Mohammed Baraka, the managing director at GAPCO Oil, The option of the Tanzania route is unpopular under normal circumstances. To confirm his sentiments, by last week only one oil company had made contact with Uganda Revenue Authority (URA) to move its oil through Tanzania. Many oil companies saying the route puts pressure on operational costs.

Although the railway is a much cheaper option mode of transport, it handles less than six percent of cargo to Kenya, Uganda, Rwanda, Burundi, The Democratic Republic of Congo, parts of Tanzania, south Sudan and Ethiopia.

Rift Valley Railways International (RVRI) that manages the Kenya-Uganda railway received Sh14.7 billion in August this year from six international financiers including the International Finance Corporation (IFC), KfW of Germany and Equity Bank to help in upgrading.

Sheltam Trade Close of South Africa that was granted the concession to run the railway in 2006 has since been frustrating the two nations over their failure to make significant improvement or investment in the joint railway line. However, infrastructure experts consider the meter gauge railway lines have become obsolete and would not support the region’s transport needs even when rehabilitated.

Although it is sensible to move products competitively through the Kenyan route, according to Jimmy Mugerwa, Managing Director at Kenya Shell, analysts however say that the port of Mombasa requires expansion and modernization to sustain the trade between Kenya and Uganda at the moment, the port of Mombasa handles about 99 percent of all cargo heading to Uganda, signifying the importance of upgrading the ports operations.

This is an observation that has been made for a long time and even Gilbert Lagat, the Kenya Shippers Council CEO echoed on the same claiming that the low capacity and congestion at the port of Mombasa remains a drawback to users. Additionally, he pointed out at the need to improve the railway system to be in good trade partnership with Uganda.

Image courtesy: FreeDigitalPhotos.net

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