Uganda Kenya Rail investors pledge efficiency

Monday, 8th August, 2011

The securing of $164m (about sh440b) to revamp the aging Uganda-Kenya railway line underscores investors’ confidence in the East African Community and opens the doors wide for increased trade.

Last week, a consortium of lenders agreed to grant the money, which will be used to repair 1,000 locomotives, 3,500 wagons and the rail track in efforts to make rail the most preferred mode of transport for heavy cargo.

The Rift Valley Railways (RVR), the investor, has the mandate to operate the railway services on the 2,000km rail network, linking Uganda to the Indian Ocean port of Mombasa in Kenya.

“Overall, this will reduce the freight costs of Ugandan exports and imports. It will in turn reduce the cost of doing business,” Maria Kiwanuka, the finance minister, explained.

“Transport and logistics underpin the ability of our business communities to trade and do business efficiently and competitively locally, regionally and internationally.”

Indeed, the cost of doing business in East Africa remains the highest, with the transport and logistics expenditure eating up the largest chunk of operational costs, according to a recent report by TradeMark East Africa, an agency, which promotes trade in the region.

“As much as 75% of the value of exports can be in transport costs,” states the report.

This is higher than in the EU bloc or the US.

Poor roads, unreliable railway transport, different axle road measurements and myriads of unnecessary roadblocks, manned by corrupt police officers, all add up to the burden on transporters.

Out of the five East African member states, it is only Kenya and Tanzania that have direct access to the sea through Dar es Salaam, Tanga, Mombasa and Malindi harbours, while the rest –Uganda, Burundi and Rwanda are landlocked.

Studies indicate that transport to Uganda from Kenya sometimes costs $0.13 (about sh350) per tonne/km due to in large part the heavy reliance on trucking.

Brown Ondego, the RVR chief executive officer, explained that moving goods and people by rail will free up the congested roads, offer more cost-effective transport solutions, protect the environment and save hundreds of millions in shillings in repairing roads eroded by overloaded trucks.

The East African region has attracted increased investor interest with the optimism linked to the tapping of multi-billion oil projects in Uganda and the new nation, South Sudan and the formation of the East Africa common market.

RVR intends to invest in the building of a new railway line between Uganda and South Sudan in a bid to capture the expected huge flow of goods between Africa’s newest state and the East Africa region.

The new investment is being discussed by the two governments of Uganda and Kenya, but Egypt’s Citadel Capital—which has a 51% stake in RVR— said it would consider financing the project as an alternative corridor tapping opportunities in Sudan.

“We may consider financing the construction of a new railway between Tororo and Juba to open up South Sudan to the rest of the region,” Ahmed Heikal, the Citadel Capital chairman said.

South Sudan, which broke away from Khartoum, has stated its intentions to find new trade routes for its oil as well as goods and services to cut its reliance on northern facilities as a gateway to international markets.

“It would be more viable to build a shorter railway that would be operational in a few years and spur trade in the region than go for an extensive one that requires many years to complete,” Heikal said.

The planned rail line from Tororo in eastern Uganda to Juba—the capital of South Sudan—is estimated at almost half the distance of the 1,200-kilometre Lamu-Sudan line.

An efficient rail network could, in time, bring East African transport costs down by as much as 35% due to the operational and fuel efficiency of shipping by rail.

By Ibrahim Kasita: The New Vision Newspaper