Monday, 23 April 2012

Roads upgrade open up Tanzania

Tanzanian President Jakaya Kikwete

TANZANIA IS GEARING  to open up and also link itself with the world for business. A string of road projects prove this point. By the end of February reported Africa development bank, www.AfDB.org, the country boasted of 15 road upgrade projects totalling 1371kilometers. The projects said the bank, are at various stages of completion. A majority are  more than 50 per cent complete.

 This underscores the seriousness with which Tanzania is taking road construction. Just ten years ago, the country could hardly count four kilometres of tarmac road per 1000 km2.
 That number has now risen to 6.7 km per 1000km2 and is slated to reach 8.9 km by 2016. This will ease economic activity both within the country and across its borders.

The projects are jointly  funded by the government and  donors. The largest financiers are the African development bank and JICA who, in the financial year 2010/11 contributed a combined 29.6 per cent of the US$ 494.51 million invested on roads. The Tanzanian government contributed 64.5 per cent .  

Now African Development Fund (AFD), the soft loan lending window of the African
Development Bank (AfDB) has approved a US$237.1 million for road construction in Tanzania. The project will enhance road linkage in Tanzania, raising paved roads coverage to 8.9 Km per 1000KM2 from the current 6.7 km per 1000KM2. The project will also link the country with her neighbours thus easing road transport, not only in the country, but also in  the region.

The loan forms 65 per cent of the entire project cost estimated at US$360million. Other financiers of the project are: JICA, the Japanese development agency 29 per cent ($105 million) and the government of Tanzania ($18 million).

The project will tarmac 391 KM of road in the Tanzanian network namely: the 188 KM Dodoma -Babati and the 202KM Tunduru-Mangaka-Mtambaswala roads. Both  roads are missing links on the national and regional network. 

The Tunduru-Mangaka-Mtambaswala for instance lies in the Mtwara corridor, the transport hub originating from the Mtwara Port in the South of Tanzania. This corridor is a vital import/.export route for southern Tanzania and the neighbouring countries- Mozambique, Malawi and Zambia. The corridor is part of the SADC Regional Spatial Development Initiative (SDI) whose goal is to “attract private sector investment through adequate, reliable, cost-effective, efficient and seamless transport systems to reduce the cost of doing business,” says the evaluation report.

 Up in central Tanzania, the Dodoma-Babati road is a section of the trans-Africa highway that links several regions in the country and also links it with her neighbours in the north including Kenya and Ethiopia all the way to Cairo and also the South right up to Cape Town in South Africa.

These sections says the bank's evaluation report, are extensions of other projects that the bank also partially funded. These include Dodoma-Iringa and Tunduru-Namtumbo roads. The Dodoma –Babati section will link with the 260 KM long Iringa-Dodoma road to the south and the 244 KM Arusha-Namanga-Athi-River section to the east. This section is complete and operational

On the Mtwara corridor, the Tunduru-Mangaka-Mtambaswala joins the 193km long Tunduru-Namtumbo road  which links with the road and the Namtumbo-Songea road currently under construction.


Road upgrading opens up isolated areas linking them to centres of economic activity such as markets thus enabling trade which results in poverty reduction. The Tanzanian government has recognised the importance of roads in poverty alleviation in its development blue-print-vision 2025. In addition to developmental benefits, there are also benefits accruing to Motorists and travellers.

The benefits accruing to travelers include the reduction of travel time between destinations. For instance the journey between Dodoma and Babati will be cut by 40 per cent from 5 hours to three hours. Vehicle operating costs on the same road are expected to shrink by 33 per cent from $0.824 per vehicle kilometre to $0.555.

On Tunduru- Mangaka road travel time is expected to shrink to two and a half hour from three and a half hours a 30 per cent reduction. Vehicle operating costs on the same road are expected to shrink by 41per cent from $0.877 per vehicle kilometre to $0.516. Travel time between Tunduru and Mtambaswala is expected to shrink by 33 per cent to one hour from one and a half hours while vehicle operating costs will be cut by 43 per cent to $0.54 from $0.949. Apparently, this section is one of the most expensive sections to operate a vehicle in Tanzania.

The bank’s report says that it has mitigated the problem of delays in implementation of the projects by advance contracting to facilitate procurement and timely award of contracts. In effect, the projects that are expected to begin in 2013 and be completed within three years will start on time. A frequent traveller on Tanzanian roads has confirmed that there is some activity on the Dodoma -Babati road

Tuesday, 17 April 2012

Awaiting birth: energy cities in Kenya's arid lands

Pix. Vision2030 Secretariat

THEY WERE CONCEIVED AND  designed as resort cities, -sites meant to enhance Kenya’s tourism by extending the menu of products and destinations.  They are rich in tourism attractions. However, recent developments point to growth of mega cities where tourism will play a second fiddle to other economic activities.
In a bid to stem migration into the already congested cities and also to enhance and diversify tourism sector, Kenya will build several resort cities in the next couple of years. According to Kenya’s development blue print, vision 2030, the cities should be in place by 2030.
The cities will be located in Lamu,Kilifi and Kwale counties at the Coast and Isiolo and Turkana counties up country.
Conceptual designs of Isiolo and 
Turkana Resort Cities:
 mega cities waiting to happen
According to the web encyclopedia, Wikipedia www.wikipedia.org, a resort city is a city where tourism or vacationing is a primary component of the local culture and economy. Most resort towns have one or more actual resorts in or nearby.  That is what is expected of the resorts at Kilifi and Kwale counties.


However, the other three namely Lamu, Isiolo and Turkana resort cities appears set for bigger things. The three are located on the Lamu Port South Sudan Transport Corridor (LAPSSET). This corridor will include a standard gauge railway line from Lamu Port to Juba in South Sudan, an highway linking the same locations and an Oil pipeline from South Sudan Oil fields to the Lamu port. See http://eaers.blogspot.com/2012/02/kenya-to-begin-construction-of-gateway.html
Then developments in the energy sector, changed all that, the corridor is beginning to look like the energy corridor of east Africa. For one, oil  has been discovered in Turkana and depending on whether its commercial viability is confirmed, which according to experts is fait accompli, will change this corridor into an energy corridor, say analysts. Apart from oil, Turkana is also home to Africa’s largest wind power energy project, the 300MW Lake Turkana wind Power project. Seehttp://eaers.blogspot.com/2012/01/africas-largest-wind-power-farm-set-to.html
Studies are ongoing in Isiolo to establish the viability of a proposed 150MW wind power project  while another is also on-going for a 300MW wind power project in the neighbouring  Marsabit county. See http://eaers.blogspot.com/2012/02/kenya-turns-to-geothermal-and-wind.html.
The Lamu port will comprise among others, oil refineries in addition to oil export jetties. In effect the entire corridor will produce, distribute or transport, and export energy products. Given the potential for energy to attract mega dollars analysts see these cities growing into mega energy cities, where tourism will play a secondary role. Not that anyone would complain.
Initially the (US$22billion) LAPSSET corridor was expected to generate an additional three percent a year to Kenya’s GDP when completed. However, with the discovery oil, it shall be expected to generate more Experts are yet to place a finger on the figure.
A dreamer's Paradise. Pix 
As resort cities, the three cities are endowed with rich natural heritage such as wildlife natural parks. Isiolo resort city for instance is bordered to the South by the world famous Lewa Wildlife Conservancy, to the north by Buffalo Springs and Shaba National Reserve, and Samburu Game Park and Ewaso Ng’iro River to the west. Other under exploited parks that stand to gain from the Isiolo resort city are; Mt Marsabit, Ruma; Rahole, Kitui, Bisanadi, and Kora parks. These parks abound with rare wildlife and other attractions including beautiful scenery.

Isiolo was catapulted to international fame by Movies that were shot at Shaba over the last two decades. These include; born Free, Out Of Africa, To Walk with Lions and CBS TV blockbuster series, Survivor Africa.  In effect Isiolo has scenery that rivals Hollywood.

The city will be built on a 6000 acres (2,630Ha) site at Kipsing Gap, 20KM outside Isiolo town. Preliminary estimates show that Isiolo city will cost kshs18.9 billion (US$220 million. The government has indicated that city will be developed on a Public-Private Partnership (PPP) basis. The government is about to complete an international airport in Isiolo. It is also a junction city of the Mombasa-Nairobi- Addis Ababa highway and Lamu-Addis Ababa-railway line.


 It is not clear yet what are the estimates for Turkana resort city located at Eliye springs, on the shores of Lake Turkana, will cost more or less the same amount developed on the same terms as Isiolo city. Lake Turkana hosts three National parks namely: Sibiloi, Central Island and Southern island national parks. Loiyangalani the site of Africa’s largest wind power farm is located within to the South east of Lake Turkana.


Designed to mimic other world renowned resort cities in the world such as the sun city in Durban, South Africa and Dubai, the city will boast of; three and six-star hotels, a local art and craft museum, theatres for international festivals and international sports, Casinos discotheques, swimming pools, conference centres.  These are mega cities waiting to be born!




Tuesday, 10 April 2012

This is how to make Oil and Gas windfall a boon-Experts


Investing in Roads, housing and Water and
 electricity supplies among others 

would  benefit every one 

 COMMENTS IN RESPONSE to  my article http://eaers.blogspot.com/2012/04/oil-and-gas-wealth-in-east-africa-boon.html  or comments on the subject matter is positive that well managed, oil  and gas windfall can  boost development in east Africa. Many have suggested ways in which to turn the windfalls into a boon for the region. here is a synthesis of their views

One of the commentators, the President of the Africa Development Bank, AfDB, Donald Kaberuka is poignant.  He advised east Africa to avoid increasing recurrent expenditure and instead use the windfall on development expenditure. Mr. Kaberuka was speaking in an interview with the wire service, Reuters www.reuters.com. He argued that increasing recurrent expenditure, especially through sharp increases of public sector salaries will lead to high inflation and eventually conflict.

Economists and oil industry experts in Nairobi agree with this view. They argue that, the public sector is the single largest employer in east Africa. Sharp increases of public sector salaries, experts argue, will increase domestic demand for goods and services which in turn lead to high rates of inflation.

This is how it works: currently, there is a given stock of goods and services in the region. This stock ranges from food, to housing to schools and health facilities, to locally manufactured consumer goods, to power plants, oil refineries roads, railroads  and similar infrastructure. In the short-run this stock is more or less fixed as it depends on the availability of other factors. To increase this stock will require expansion of production capacity and the infrastructure to produce and distribute the goods and services equitably.

The last two factors require substantial investments and time. For instance a new power generation source could take up to four or five years to come on stream. A new road may take up to four or five years to complete. Training skilled manpower could take up to 20 years.  This means that it may take up to five or six years for local suppliers- be they manufacturers, real estate developers or even  the government sector to adequately respond to increased domestic demand. 
 
 In a situation of sharp wage increases, this time lag will result in high prices for domestic goods and services. That is rapid domestic inflation. High domestic inflation wipes out the benefits of low or zero imported inflation.

 Inflation erodes the purchasing power of the citizens, hurting most severely the poorer sections of the population, say experts. Such erosion leads to further demands for wage increases thus adding fuel to the fire.

In this situation, the poorer segments of the population that cannot compensate loss of purchasing power through further wage demands lose out. They thus become disgruntled and this could lead to a rebellion. Oil and gas finds thus become a curse to a country, say the experts, echoing Kaberuka’s sentiments.


A case is point is the conflict between the Sudanese. Both North and South Sudan depend on oil revenues to finance more than 80 per cent of the budget.  When Juba seceded in July last year, it took with it 75 per cent of the oil reserves. That  also meant 75 per cent of oil revenue went with the South.

That immediately plunged Sudan into a financial crisis since 80 per cent of her revenue came from Oil. That crisis in Khartoum, including budget deficits, high and rising inflation has forced the strongman, Omar-El Bashir to launch frequent raids to Juba’s territory bombing Oil wells. This diversionary tactic won’t last long for sooner than later, the truth will catch up with him, say analysts in East Africa.

Another example is Angola and Gabon, where the oil sector has overshadowed other sectors giving rise to inflationary pressures that erode then citizens' purchasing power. Apart from these two, Africa’s largest nation, Nigeria depends on oil revenue to finance 75 per cent of her budget. “That” said, Kaberuka, “is a mistake other oil producers in Africa must avoid.”

However, when invested in infrastructure that support sustainable economic sectors such as manufacturing, agriculture, trade and tourism, the economic gains are diffuse. East Africa, said the AFDB boss, has done well without oil and gas. Experts again agree with Kaberuka that, East Africa is better placed to exploit Oil and Gas windfall to further diversify their economies and develop the infrastructure needed to sustain economic growth into the future.

Demand for infrastructure in east Africa is very high due to robust economic growth of the past decade. The region is also a free trade area known as the east African common Market. This bloc brings together Kenya, Uganda, Tanzania, Rwanda and Burundi. Three other applications are pending. The regional integration has spawned demand for intra regional infrastructure such as roads, rail roads, Ports, oil and gas pipelines, refineries  water and waste disposal infrastructure and power grids.

Therefore say economists, where the oil and gas revenue is to be invested is already clearly defined by local demand. For the marginal segments of the region, investment in water supplies, schools and health facilities and food security are pre-requisites.

Should the oil and gas revenues be invested in these necessary areas, say experts, then oil will be a boon for east Africa.

Monday, 2 April 2012

Oil and Gas wealth in east Africa? A boon or bane?


An offshore rig: drwaing out the family jewels in Tanzania

SINCE CRUDE OIL WAS discovered in Uganda in 2006, the school of pessimists in east Africa has grown by leaps and jumps. This school pre-supposes that the discovery of Oil in east Africa will be a bane “a curse” as they put it. Consequently, the pessimists opine, they have to set up watchdogs to ensure that east Africa does not slide into anarchy due to the discovery of oil. As the discovery of oil and natural gas are becoming common place in the region, we expect more of the “prophets of doom” to come on stream.

Mine is not to discuss the merits or otherwise of this school. Mine is to discuss the conditions on the ground in the region and whether they breed the seeds for future chaos or not.

My thesis is: Oil and natural gas finds are a boon for the region and also the world. It is this paper’s thesis that the conditions on the ground in east Africa favour a boon from oil rather than a bane. The Political, economic, and social conditions favour prudent management of family jewels in east Africa.

Let’s start with the market conditions in the world. There are indications that there is enough supply of crude oil to meet world demand. However, there is a strange phenomenon going on in the market, Crude prices are high, suggesting that supply does not meet demand.  This means that any new oil finds will find a ready market. Even east Africa and the neighbouring countries are a big enough market oil found in the region

But there is enough crude to meet world demand therefore the price per barrel should be lower. Dr Darmawan Prasodjo, PhD - writing in the petronomist  www.petronomist.com says that the high crude price reflects a fear premium arising from fear of instability in the middle East. He estimates this premium to be in the region of US$27 per barrel. The implication here is; crude oil production in east Africa, depending on the quantity produced could have a stabilising effect on the world market prices. That is a potential benefit to the world.


Back to east Africa. The region has enjoyed robust economic growth over the last decade averaging 4.5 percent. This growth was driven by sectors as agriculture, tourism, trade, manufacturing and services. Generally revenue collection has been on the rise reducing the region’s dependence on donors.  Such economic performance suggests that economic drivers in east Africa are diverse. Only Newly independent South Sudan depends on oil to fiancĂ© nearly 80 percent of her budget.

This suggests that Oil revenue, whenever it comes, would not only supplement existing sources of public finance but also bouy economic growth. Oil, whenever it is found will be an additional cog in the wheel which will probably reduce the planner’s nightmare of raising resources to meet public needs.

Already, there are indications that the governments in the region are thinking ahead. Tanzania is considering a law that will set up a sovereign wealth fund to absorb additional Natural gas revenues. Kenya has also indicated that it will set up a separate account to collect Turkana oil revenues. That is an indication that the region is thinking ahead how to manage Oil revenues.
Such moves give confidence that additional revenue from resources will be prudently managed. There is no reason to belief that Oil and LNG revenues will be mismanaged since the same people managing our meagre resources will be the same ones managing additional resources.

Assuming prudent management, east Africa should start with eliminating foreign debt. As at the end of 2010, foreign  in east Africa stood at about US$21 billion broken down as follows: Kenya $6.2  bn  www.centralbank.go.ke; Tanzania $10.011 billion www.bot-tz.org and Uganda $4.6 billion www.finance.ug

In the last decade prudent management of our meagre revenue has seen east Africa reduce donor dependency significantly. Tanzania has already passed the 50 per cent mark and so has Uganda. In Kenya, donor dependency, especially on budget support has been reduced to a paltry six per cent of US$ 13 billion budget-the largest budget in the region. This trend has also witnessed faster completion of development projects because donor funding is a major culprit in project delays and associated cost-overruns.

Another yoke that prudent management of oil resources will eliminate or substantially reduce is trade deficits. Country reports by the respective central banks show that by the end of last year overall balance of payments deficit stood at US$5.1 billion. Tanzania’s BOP position was the worst in at US$4.3 billion. Uganda was second at US$686.3 million and Kenya was third at US$144 million. Trade deficits were worsened by the rapid rise in Crude oil prices. 

Consequently the discovery of LNG and Crude oil in east Africa will shave off a large chunk off the regions BOP deficits. Deficits will not be entirely eliminated considering that the region has to import capital goods for its development. However, they could be significantly reduced.

The local currencies will also gain from increased accumulation of foreign exchange from Oil and LNG exports. Currently the local currencies-the shilling- weakens with every rise in the price of crude for it increases demand for foreign currencies to buy crude oil.  Crude oil exports have the opposite effect on domestic currencies. Further a significant driver of domestic inflation worldwide is the price of crude. East Africa is not an exception. Crude exports have an opposite effect. So once crude oil exports begin, inflation caused by high crude prices will be contained.

In the meantime, oil discoveries will spawn investment into the sector that will begin to filter into the general economy even before the first barrel is exported.  There will be investment in downstream, mid-stream and upstream infrastructure. See http://eaers.blogspot.com/2012/03/eastern-africa-coast-emerging-fossil_28.html. This will create local employment and increase consumption of local goods.

 The last decade of high commodity prices has resulted in rapid growth of the GDP in east Africa. It is expected that crude oil exports will boost the already robust economies and hasten the pace of development.  Such a robust growth has to some extend liberated east Africa from the clutches of so-called donors. Oil and LNG finds and exports would further enhance this independence by increasing the cash flows so that government can respond to public development needs with a degree of certainty.