Monday, 27 August 2012

Africa shrugs off a fourth economic crisis in a decade


An indigenous consumer goods Factory in Kenya:
 Local Manufacturers gained from Africa's changed fortunes
GOING BY THE SHEER NUMBER OF Reports about Africa’s economic response to the Eurozone crisis, the continent has weathered this one.  

If so, the continent has shrugged off the fourth major economic crisis in a decade or so.

Ours is a sturdy continent that weathers down crises that are crippling economies elsewhere in the world. And to attest to her resilience, the continent has in some instances exploited these crises to its advantage.

For instance, the current drivers of economic growth in the continent are; retail commerce, transportation, telecommunications and manufacturing. In many instances, homebred players lead the pack especially in Finance, telecoms and manufacturing- a majority of these leaders are home bred, some as young as  below ten years old. The oldest among the players is probably just about 20 years old.

Take the rapid expansion of commercial banks for instance. In the second half of the 2000 decade, the fastest growing and expanding banks in Africa were homegrown. These include, Nigeria’s Ecobank and UBA, each of which has spread its wings into more than10 countries in the continent. There are indications that Nigerian Banks will soon dominate the African Financial market. Kenya Commercial Bank, Equity and Co-operative bank are spreading their wings outside Kenya. This rapid expansion comes amidst the collapse of major banks in the West, some of which had to be rescued through government intervention in the face of the 2008 financial meltdown in the West.





In the transport sector, African airlines have thrived as others close shop or are acquired by others. Kenya Airways, Ethiopian Airlines, Egypt, Air and South Africa Airways have kept the African flag in the skies  while major airlines such Alitalia have folded their wings. Although SAA flew into a storm in the early 2000s, it has emerged from its ashes. Kenya airways and the Ethiopian have thrived amidst gloom in the industry and are now rapidly expanding their destinations. In the land transport sector, A
Ethiopian and KQ:
They thrived amid gloom in the industry
frica has invested heavily on roads and Railways line over the past decade, this increasing activity in the land transport.


In the telecoms sectors, the top three players in Africa are homebred. South Africa’s MTN is the giant in the US$30 billion a year telecoms market in Africa where it has spread into 21 countries. It is a major TNC with a major presence in Middle East. Orascom of Egypt comes as distant second with nearly 78 million subscribers. Orascom has a major presence in Algeria, Egypt, Bangladesh and Canada.

The majors together with their smaller relatives, a majority of who are home bred, have pushed the Mobile penetration to 64 per cent. Many of these companies expanded because of the dotcom meltdown in 2001. The meltdown arrived just as Africa was opening up the telecoms sector for the private sector. Since the Major players in the West were steeped in debt- some estimates place it at US$380m billion- they could not take advantage of the opportunities opening up in Africa.  Thus homebred companies grew and expanded.

The expansion of these major employers, coupled with good commodity prices in the decade 2000s, drove the growth of a strong middle class in Africa.  The middle class spends and estimated US$680 billion on consumption each year. Part of this expenditure goes to local Manufacturers of consumer goods. This has sparked off a growth in demand for manufactured goods mainly from local manufacturers. The local manufacturers distribute their goods through local out let such as Supermarket chains that have posted an impressive growth in the last decade or so.

 The commodity prices were partly responsible the growth between 2000-08 but was edged out by the growth of local enterprises which reduced profit repatriation. Africa has witnessed a rapid growth of highly profitable local enterprises, spread across all sectors, which boosted employment, tax revenue collection and domestic investment as they invested in further growth. 

Africa has just completed the first d10 years of sustained economic growth averaging about 5.6 per cent. In that period six of the world’s ten fastest-growing countries were African, says the Economist. “In eight of the past ten years, Africa grew faster than East Asia, including Japan.

And this feat appears to set to continues over the next five years or so. Projections show that in the next five years, probably further, the seven fastest growing countries in the world will be in Africa. The seven Include; Ethiopia, Mozambique, Tanzania, Ghana, Nigeria, Congo and Zambia. These, the crystal ball says, will post average growth above 6.5 per cent.

In fact, says IMF projections, Africa will be the fastest growing continent in the next half- a decade with an average rate of around 5 per cent.


Monday, 20 August 2012

Toyota bids for Juba-Lamu Oil Pipeline


An oil pipeline: Bid in place for Africa's largest PPP project
TOYOTA TSUSHO, the investment arm of Toyota Motor Corporation of Japan, has bid for the construction of the US$3 billion, Juba-Lamu oil Pipeline. The pipeline will initially transport some 700,000 to one million barrels per day (bpd) of Sudanese crude to the Lamu Port in Kenya which is under construction. Eventually it is expected to transport crude from Kenya and Uganda to the Lamu port for export.
Apart from the 2000Km Pipeline, the bid also includes the construction “of an oil refinery, power stations, jetties and other infrastructure facilities” said Dennis Awori, Chairman-Toyota Kenya Ltd.
The bid, if successful, will be the largest PPP project in Africa. In a statement released this week, the company said it has proposed to develop the Pipeline on a Built-Operate and Transfer (BOT) basis on a 20 year concession.
The company is still doing a feasibility study of the project whose construction is expected to begin in June 2013. The construction is expected to last 18 months to the end of 2014.South Sudan expects to turn the tabs through Kenya come 2015. However, some analysts say that a project of this magnitude lasts three –years citing logistical and security concerns in the general area on which the pipeline is to be constructed.
Lamu-Juba Railway line: Next   in line 
Toyota Tsusho has also announced that the project could be expanded to include a pipeline to Uganda and another to Djibouti through Ethiopia. This would raise the cost of the entire project to US$5 billion. The proposal is apparently based on non-binding MOUs signed between South Sudan and Ethiopia to construct a pipeline to Djibouti through Ethiopia. South Sudan has already signed an agreement with Kenya for the construction of the 2000KM pipeline through Kenya to the Lamu Port.

The bid for the pipeline is a clear signal that the private sector has been sucked into Lapsset, which is the largest business venture in Africa. http://eaers.blogspot.com/2012/07/lapsset-biggest-business-venture-in.html)
Already Kenya has floated tenders for the construction of the first three berths of the 32-berth Lamu port. http://eaers.blogspot.com/2012/08/lapsset-kenya-hits-ground-running.html   
Analysts in Nairobi say that the BOT bid is the best option to implement trans-national projects. It will enable one provider to easily build the Pipeline across the nations that need to transport crude oil to Lamu.
Then the users, in this case oil producers in South Sudan, Kenya and Uganda will pay for use. South Sudan has confirmed reserves of 7 billion barrels of crude oil. It is not clear the quantity of reserves in Uganda so far. Kenya has just discovered some quantity of oil whose commercial viability is yet to be determined.
 But Kenya’s Minister for Energy, Kiraitu M’Muriungi, was quoted as saying the country’s “reserves could be as much as, or even more than South Sudan’s.” Here we are talking about 7 billion barrels or more.
The cost of transporting crude per barrel is slightly less than a US dollar, says Oil price.com www.oilprice.com.  This means that the rate return for the investment is just about 14 per cent given the Sudanese oil exports only, say analysts in Nairobi. Therefore the 20 years concession the company has proposed to the South Sudan government is reasonable , they say. Should Kenya and Uganda join in, the rate will rise to more than 25 per cent, they say.

The entry of Japan into Lapsset is expected to spark off an Asian rivalry that will largely benefit Kenya. The rivalry is between China and Japan in backing up development projects in east Africa. Chinese contractors are more efficient than their Western counterparts and are relatively cheap.
These two factors have contributed to the popularity of Chinese Engineering companies in Kenya. In fact this popularity has contributed to the view that China is the largest foreign donor in Kenya. In fact, Chinese Engineering companies win the most contractors because they are efficient. The financiers include the Kenya government and African development Bank among others.
If Japan bags the Pipeline, China, it is expected, will gun for the 1720KM Railway line from Lamu Port to Juba in South Sudan. Chinese companies have bagged a string of contracts to build railway lines in Africa. Although the feasibility study found the railway line viable if build by the government, then leased to concessionaire, analysts expect a Chinese company to build the railway. Probably, China which has the financial muscle, could lend Kenya the money to build the line, they say.
The Tsusho bid is also likely to attract more bidders for other proposed PPP projects on the same corridor. These are the remaining 29 berths of the Lamu Port and three Resort cities namely, Lamu, Isiolo and Lake Turkana resort cities.

Tuesday, 14 August 2012

EAC: How Tanzania is shooting herself at the foot

 President Jakaya Kikwete: Shadow boxing
Regional integration?

TANZANIA'S LAGGARD stance on integration in the region, is stymying their own country, analysts say. Its spirited attempt at sabotaging Kenya, has not paid off, they add. If anything, Tanzania is losing out.   Her efforts to sabotage Kenya are guised as efforts to protect her family jewels in Tanzania.
 Initially, her concerns were reasonable and beneficial to the country. She feared that her weak industry will be elbowed out of the market by imports from Kenya. This resulted in asymmetrical tax system in which Kenyan exports were taxed at 90 per cent discount while Tanzania and Uganda Exports came to Kenya tax free.

The result has been an impressive 319 % rise Tanzania’s exports to Kenya between 1996 and 2010.  Official data shows that Tanzanian exports to Kenya stood US$6.6 million in 1996 -the first full year of the operation of the EA Customs Union toUS$210.5 million in 2011. Such growth would not have been possible without some form of protection for the weak Tanzanian manufacturing sector.

 However, as the region sought to deepen its integration, Tanzania’s concerns graduated to “Kenya Phobia.” According to Kenyan officials, “Tanzanians always think the first beneficiary of any progress in the region is Kenya. So they simply reject things out of hand.”  And they are hurting their country’s interests.

A Kenyan Factory: Many shun investing in Tanzania
The latest step is her refusal to ratify discussion on the proposed political Union in the region due to the issue on Land. The proposed document wants the citizens of the East African common market to be free to own land anywhere in the bloc. No says Tanzania. Our land is for Tanzanians only. Last week, Tanzanian government officials minced no words: “some countries in East Africa are greedily eyeing our land. We shall not bulge,” they told the local media.

 According to Kenyan officials familiar with the negotiations, in Tanzanian parlance “other countries” means Kenya. Kenyan officials dismiss this as “Kenya phobia and myopic stance. They claim that Tanzania objects to every move that in their eyes could benefit Kenya.  For years, for instance, they objected to exports of Kenyan assembled vehicles saying they do not meet the rules of origin of the East African community. Other members of the Community accorded Kenyan assembled vehicles a preferential status. Tanzania finally relented after stalling for nearly a decade.

It is distressing that Tanzania does not learn from her mistakes. Despite attempts at open sabotage, say observers in Nairobi, Kenya ends out maneuvering her. In early 2000s for instance, Kenya Airways’ (KQ) bid to buy Air Tanzania Corporation, ATC, was frustrated by politicians who preferred South African Airways (SAA), despite advice by ATC management to sale the airline to KQ. At that time politicians argued Kenya was only interested in Tanzania’s tourism circuit.
 In 2002, ATC was sold to SAA for a whopping $20 million. Five years down the road. The marriage failed and ATC was returned to Tanzania. By then, KQ which bought a privately owned Tanzanian airline, Precision air, had completely dominated the Tanzanian airspace. ATC could not even find an elbow room in the lucrative domestic routes.
In 2000, KQ flew to Dar-es-salaam only three times a week. To date, it flies five times a day Monday to Monday to Zanzibar-Dar-es-salaam-Kilimanjaro-Nairobi.
Now, ATC‘s survival is in doubt, being kept alive, by government handouts. The trend in the world, say analysts, is that Airlines that cannot sustain themselves are grounded. It is just a matter of time before ATC breaths its last.

Owing to its recalcitrance, Tanzania is no longer an exciting destination for Kenyan investors. In the mid-1990s and early 200s, Kenyan investors trooped to Tanzania, catapulting Kenya to the position of  the second largest investor in Tanzania after Britain.

Such Kenyan giants as East African Breweries, Nation Media group and Kenya Commercial bank set up shop in Tanzania. There were other smaller investors too. Although Data is not readily available there are indications that Kenyan investors are looking elsewhere and that the flow of Kenya investment funds has slowed down. Some investors such East Africa breweries, have pulled out altogether.

Kenya’s fastest growing companies are the banking industry and the retail chains. And they appear to have given Tanzania a wide berth. For instance, Major Kenya retail outlets appear to have shunned Tanzania denying the country’s manufacturing sector a major outlet for their products. Nakumatt Limited, the largest retail Chain in Kenya has already opened three branches in Uganda and one in Rwanda and two in Tanzania. Uchumi Supermarket has opened a branch in Dar-Es salaam, Tanzania and three in Uganda.

 Banks are also following a similar trend: Kenya Commercial bank, which ventured into the Tanzanian market in 1997 boasts of only 11 branches there. At the same time she boasts s of 14 branches in Uganda; 19 in South Sudan and 9 in Rwanda. It is noteworthy that KCB entered the latter three markets years after it set up shop in Tanzania.

 Equity Bank, the fastest growing bank in the region boasts of 38 branches in Uganda five branches in South Sudan; six in Rwanda and three in Tanzania. It is not worthy that Tanzania is the second largest economy in east Africa

So why is Tanzania becoming unattractive to Kenyans? The expansion of the East African community to include Rwanda and Burundi and the birth of South Sudan spelt trouble for Tanzania, say analysts. Initially Tanzania and Uganda were the favoured destinations for Kenyan investors. However, the entry of the three new countries into the market changed the equation. While Uganda is still attractive, Tanzania is sliding lower in the ranks of investment destinations.

Tanzania has to stop living in the past and wake up and smell the coffee. As far as investment destinations goes, she now ranks fourth and once the road to Ethiopia opens, she will slide down further. And the creation of a larger free trade zone will consign her to irrelevance.
She is not the only investment destination for Kenyans. There are other competing destinations in the region gunning for one suitor.  If she drags her feet, there will be nothing for her by the time she wakes up. As politicians chest thumb and fight ghosts, Tanzanians are definitely losing out. Time they woke up to that cruel fact.

Thursday, 9 August 2012

Are oil and Gas finds fueling border disputes in eastern Africa?



Guarding Crude oil Refinery in South Sudan.


SOUTH SUDAN vs.SUDAN,TANZANIA vs.MALAWI, KENYA vs SOMALIA.. There is a worrying growth of boundary disputes in eastern Africa. The quarrels, given what is at stake, pose a risk of violence in the region. The region has become significant producer fossil fuels. News of discovery of oil or LNG dominated the Pages in the first half- of this year. Visit http://eaers.blogspot.com/2012/03/eastern-africa-coast-emerging-fossil_28.html

To date, an estimated 100 trillion cubic Feet (tcf), of recoverable LNG had been discovered in Tanzania and Mozambique. Kenya for the first time joined Uganda and South Sudan in the crude oil producing class. Kenya is also seeking for LNG for it is estimated that some 286 trillion cubic feet lie off the eastern Africa coast, Kenya included.

 Sadly, the frequent discoveries are rekindling long ignored boundary disputes in the region. Previously silent disputes , such as the Tanzania- Malawi and the Kenya-Somali maritime border are becoming loud and public. Few in these countries knew of the 50 year- old disputes. To many observers in the region, the only border dispute existed between the Sudans.

This dispute was, and still is, an attempt by Sudan to sabotage the independence of the South which impoverished Sudan. At her independence last year, South Sudan took with her 75 per of Sudan's oil output, leaving with a paltry 25 per cent or 125,000 barrels per day. Khartoum then sought to sabotage Juba by raising the cost-transporting crude from the South.

Basically the dispute is about how Khartoum can plug the financial hole left by the departure of the South which turned off the taps for some 350,000 barrels of crude a day. Before the South's independence, Sudan generated some US$15-US$20 billion a year in oil revenue. The cessation of the South reduced that to just about $3.5 billion to $5.0 billion a year depending on the world market prices. Khartoum had been reduced to a pauper by just a stroke of a pen. See http://eaers.blogspot.com/2011/12/revealed-why-frequent-spats-among.html

However the boundaries disputes between Kenya and Somalia and between Tanzania and Malawi are surprising. Both are quarreling over Maritime boundaries of long ago. Both are arguing over where the border between them should be.

Kenya would like the maritime boundary to run due east from the point at which the two countries touch on land. However, Somalia would like the border to continue diagonally southeast into the ocean, following the border between the two countries on land.

For their part Tanzania and Malawi are arguing over the ownership of Lake Malawi, also known as Lake Nyasa in Tanzania. Malawi claims that the whole lake belongs to her according to colonial boundaries. Tanzania holds that half the Lake belongs to her.

Both Kenya and Malawi have issued exploration Licenses in the disputed areas igniting protests from the “aggrieved parties.”

It is these latter day protests that have analysts asking: Why have these countries sat over a pestering wound over the past 50 years? Why haven’t they solved it? Why now? Are we witnessing a case of land grab? Are the meek robbing the poor or are the poor robbing the meek?

Are the countries ready to solve their differences or are they going to let it pester, posing a threat to regional security?

Let’s start with the conflict in Sudan, which, to many observers is a continuation of years of hostilities and conflict that preceded the 2005 CPA. Informed South Sudan sources say that the North planned to sabotage the South’s independence through high transit fees for fuel. That failed so the North hoped for military action, in a bid to mobilise the population in the North behind a beleaguered government. The quarrel about boundaries was part of the scheme to sabotage the new government. It will end eventually.

How about the disputes further south? Why the sudden burst of disputes in Kenya and Tanzania? Are the big and stronger neighbours trying to grab the weaker neighbours’ land suspected to contain oil or LNG? Or are the weaker neighbours trying to grab land from the former for the same reasons?

Fossils fuels- if the experience of the Arab world is anything to go by- is a source of massive wealth for countries. Thus each country gets excited about the discovery or the potential of the discovery of fossil fuels in their territory because of the implication in terms of revenue generation. This is a motivation for quarrels among nations.

Unlike the Sudans, which finance 80 per cent of their budget from oil revenues, Kenya and Tanzania fund their budgets from a variety of both domestic and external sources. So they are not seeking to plug financial holes. In fact, for the two countries, fossil fuels discovery simply deepens their pockets. Further, the countries have already discovered fossil fuels in undisputed areas. And there are prospects of discovering even more reserves in the undisputed areas. Why not focus on these, develop them, search in those safe areas and avoid quarrels? Or is greed taking over?

Whatever the case, are the neighbours willing to resolve their disputes amicably? Going by the trend in Sudan, disputes in Africa generate plenty of nationalistic fervor which could lead to stalemates- and stalemates lead to violence. Sometime back, we witnessed some Kenyans yelling their heads off over Uganda’s alleged invasion of one acre of rock in Lake Victoria but common sense prevailed.

Already, in the Malawi- Tanzania boundary dispute, each party is digging in. Even in the Kenya-Somalia dispute, there are signs of hardening positions. This trend could lead to violent altercations that would wipe away the benefits of oil discovery.


On the balance, the two countries are better off not quarreling with their weaker neighbours. Compared to their weaker neighbours, the countries have a lot to lose in the disputes than the former.  Common sense dictates that the two bigger and powerful neighbours should resolve the disputes quickly or simply let go of the disputed areas. Will common sense prevail? Only time will tell.

Monday, 6 August 2012

Lapsset: Kenya hits the ground running


The design layout of three berths
KENYA HAS HIT THE ground running in the development of the second transport corridor. The seven component project, popularly known as Lamu Port-South Sudan- Ethiopia Transport corridor, Lapsset, has now entered the tendering stage. The government of Kenya has invited tenders for design and construction of first three of the 32- berth Lamu Port.

 The government funded project will cost an estimated  US$200 million. This figure has provided for allocated in the current (2012/2013) fiscal year’s budget.

Apart from this, the Kenyan president, Mwai Kibaki, is globe- trotting marketing Lapsset and the Konza Technocity to the world.

 The advertised tender is for the construction of one general cargo berth, one bulk cargo and a container berth at Manda Bay, Lamu. All will be dredged to depth of 18.5 Metres. Other works include; construction of a 113 Ha hard standing yard, Construction of; internal roads, Administration buildings, slipways and workshops for small crafts, and associated infrastructure such as water supply, storage and reticulation; Power and ICT infrastructure.

The three berths will be used to transport materials for the construction of other components of the Lamu South Sudan- Ethiopia Transport corridor (LAPSSET)\. These include; a high speed railway line,  a highway, a 1,260 KM of crude oil pipeline, a 980KM white oils pipeline, a 120,000 bpd refinery, a 32- berth sea port, three resort cities and two international airports.

Eliye Springs in Turkana One of the three Resort cities
The need for the development of a second transport corridor serve landlocked East Africa has been on the card for some time.  The two existing ports; namely the 26 berth Mombasa Port and the 10 berth Dar-es-salaam port, cannot cope with exports and imports activity in the region.

Consequently a number of proposals to remove this bottle neck were floated. Among these is the development of alternative transport corridors or improvement of the existing ones. The proposed routes include LAPSSET, the Juba- Gulu Kampala-Nairobi-Mombasa line, the Dar-Es-salaam-Isaka- Kigali- Bujumbura Railway Line, and the Tanga- Musoma –Uganda line.

Of the four alternatives, only Lapsset looks viable from an economic standpoint. It will serve an estimated 100 million people in Northern Kenya, Ethiopia and South Sudan. The US$23 billion project, arguably the largest business venture in Africa, was further boosted when South Sudan chose Kenya as its transport and communications gateway. (see http://eaers.blogspot.com/2012/07/lapsset-biggest-business-venture-in.html)

South Sudan announced that it will build the 1, 230 KM crude oil Pipeline from its oil wells into Lamu Port at a cost of US$4billion. However, with the discovery of promising crude oil reserves in Turkana County in Kenya, the agreement is likely to be reviewed so that Kenya also chips in. Kenya, reports say, will spend an estimated 16 per cent of its national budget over the next five years or so to develop the corridor. Once complete, the project will raise Kenya’s GDP by more than ten per cent a year. (see http://eaers.blogspot.com/2012/02/kenya-to-begin-construction-of-gateway.html)

What’s more, compared to its competition, Lapsset has the potential to become the gateway to Africa as it is the beginning of Equatorial land Bridge. The Bridge, say experts, will link the Port of Lamu on the Indian Ocean to the East to the Port of Doula in Cameroon on the Atlantic Ocean to the West. Such a link will cut freight travel time by at least two to three weeks and increase shipping lines’ turn-around times and hence their revenue, say experts.


These developments have put the viability and development of the other corridors in doubt, analysts say.  This is because the construction of the Lamu port with its 32-berths will ease pressure on the 26- berth Mombasa Port making it more efficient. Since the Mombasa –Nairobi- Kampala railway line is being upgraded to accommodate high speed trains, other corridors whose aim to ease pressure on Mombasa become unviable.

Among the corridors whose viability is now in doubt are; the proposed Juba-Gulu Railway line and the Tanga-Musoma-Uganda corridor.  Reduced traffic volumes do not justify the development of such corridors for the time being.