Wednesday, 18 December 2013

EAst Africa Infrastructure: Shifting Gears

Design plan of JKIA Green Field  In Nairobi, Kenya
IT IS THAT TIME of the year when we take stock of the past year. We review how much progress we made in economic development in east Africa. The region has enjoyed robust economic growth for much of the last decade which robustness has spilled into the current decade. Rather, bottlenecks defined by the robustness of the last decade are being removed in this one. Chief among all bottlenecks was infrastructure -roads, railway lines, hydro dams, geothermal wells, sea ports and airports.

There is a reason to focus on infrastructure:  Fossil fuels have been discovered in the top three of the five east common market countries. Consequently demand for infrastructure to service this new economic factor has shot up. Some mega projects, which just a few years ago would have been quietly dismissed as pipe dreams are becoming reality.

 Tanzania is so far the leader in discovery of fossil fuel with confirmed 40trillion Cubic feet (TCF) of natural gas. She is targeting 200TCF by 2017 and probably more, later. Tanzania has also exploited some of the gas reserves found in Songo songo in the early 2000s to power cars and generate electricity at home. The other two neighbours Kenya and Uganda are yet to exploit their discoveries.  But even before fossil fuels were found, the region had already identified physical infrastructure as a bottleneck.

 Here is what is going on: Lapsset US $23 billion, Konza Techno city $7 billion, Mombasa _Kampala – SG Railway line Kigali $13.5 billion, Kigamboni city $6.7 billion.  Bagamoyo Port $11 billion, Three Hydro dams in Uganda $ 4.2billion. Total $65.4 billion. That is the total bill for the mega projects.

Karuma Dam Uganda to generate 600MW
The transport sector has a high concentration of mega projects .These include; the US$23 billion Lapsset Corridor, the US$13.5 billion Mombasa-Kampala- Kigali SG railway line and the US$11 billion Bagamoyo Port.  Both the SGR and Lapsset corridor are at the implementation stage.  The first three berths of the 32 berth Lamu Port, ( Lapsset Corridor)  in Kenya is under construction, and so is the high speed Railway line starting from Mombasa, Kenya. As for the proposed Bagamoyo port in Tanzania, funds have been procured. Construction is yet to begin. The mega port will have a capacity of 20 million TEUs a year, perhaps the largest capacity in Africa.

 On a lower scale is the air transport, where the region is also investing heavily. Many projects in this sub-sector are being implemented with some nearing completion.  These include the US$450 million upgrading of Jomo Kenyatta International airport in Kenya. This phase which also includes the construction of Unit 4 of terminal one will end by January 2014.

The second phase which involves of a US$650 million green field terminal   was launched two weeks ago.  Completion of these phases by 2017 will make JKIA in Nairobi the largest airport in Africa with a capacity of serving 20 million passengers a year. Another airport in this  category is the US$650 million Bugesera international Airport in Kigali, Rwanda. The contract is at the negotiation stage.

Also on the cards is the US$ 163 million expansion of Julius Nyerere International airport in Dar-es-salaam. The project is expected to raise capacity of JNIA to 6.0 million passengers a year from the current 1.2 million. The contract has already been signed.

On Sea Ports, the expansion of Mombasa port going on. The port has already been dredged and widened into a mega Port. Berth 19 with a capacity of 200 thousand TEUs  a year is operational while the phase two of the container terminal is  due for completion sometimes in 2014. It is running ahead of schedule. This phase will raise the Port’s capacity to 2.1 Million TEUs a year.

 On roads, the US$ 140 million Kigamboni Bridge in Tanzania, will have the greatest impact. The bridge over the Indian Ocean will link the Dar-Es-salaam city with its Kigamboni  suburb. Kigamboni is lasted for a US$6.7billion Resort City, which will make Dar-Es-salaam the tourist hub in Tanzania.

In energy sector , Uganda leads the pack with a slew of hydro project worth US$4.2 billion. The projects include Karuma Hydro-project with a capacity of 600MW, Ayago Hydro dam also with a capacity of 600MW and Isimba dam with a capacity of 188MW. All projects will cost a whopping US$4.2 billion.  On the completion of the projects in seven years’ time, Uganda will emerge as the giant hydro power producer in the east African common Market bloc.  Her current capacity is 700MW which will rise to 2100MW by 2020. The projects are in construction stage.
Kigamboni Bridge Dar, Tanzania
 In Kenya Lake Turkana wind power project is the largest wind power project in Africa. It will generate some 300MW for Kenya’s national grid. This is 40 per cent of Kenya’s e current electricity output standing at 1250 MW. The US$763 million project is the largest private sector investment in the country’s history. It is funded by both Debt and equity.
Kenya’s electricity generation sector is an investment hotspot.  The country plans to increase its power generating capacity by 17000MW by the year 2030 when it will transit to an emerging economy status. The capacity currently is less than1500MW hence the mad rush to hit targets in just 17 years.  The bulk of this power will come from clean and renewable sources such wind, geothermal and solar sources.

 According to experts in the energy sector, on average, it costs US$2.5 million to produce a MW of electricity. This means that to produce 17,000MW will cost a massive US$42.5 billion for an average investment of US$2.5 billion a year.  In terms of the amount of investment needed, electricity

 For her part, Tanzania’s known potential is estimated at 10GW of which 3.5 GW is hydro. There is some Geothermal whose potential is yet to be determined. However, Tanzania’s power potential keeps changing due to on-going discovery of LNG and Coal. This means that Tanzanian capacity will keep on expanding as more Natural Gas and Coal are discovered. In fact some sources indicate that the future of Tanzania’s energy potential lies with coal and LNG

Wednesday, 11 December 2013

EA Central Corridor: Time to invest is now

Dar-Es salaam Port:Where the central 
Corridor beings and Ends
THE PURPORTED rivalry between Tanzania and Kenya on matters of infrastructure development is hot hair, say experts. The time to invest in the central corridor is now. And Tanzania need not feel guilty of seeking investment partners on the corridor.  There is nothing new in Tanzania entering into joint investment projects. She has done the Arusha-Namanga-Athi-river road with Kenya and is also doing the –Voi-Taveta-Holili – Moshi road jointly with Kenya. Therefore the notion that Tanzania is investing on this corridor to spite Kenya is dumb, say experts in Nairobi.

A substantial stretch of the Central corridor traverses Tanzania. Therefore it is in the country’s interest to connect unlinked regions for trade and development.  It is also in the country’s interest and those of her neighbours to extend the central corridor to her neighbours since by definition, the corridor ends and starts at the Dar-Es-salaam Port.

Mombasa Rd in Nairobi: Part of Northern Corridor
A report released in April 2013 by the Africa Development Bank shows that the central corridor is scantly used due to the fact that much of it is not paved.  Consequently, average annual daily traffic on large sections of this corridor is less than 1000 vehicles only 40 per cent of the corridor boasts of an AADT of more than 1000 vehicles. The implication is that investment is needed on this corridor to make it a viable route.

 And now that peace is returning to Burundi and DR Congo, time to invest is now, experts say. It is in this spirit that Tanzania, Burundi and Congo agreed to jointly develop road, rail, and air and water transportation infrastructure on the central corridor. Reports indicate that Tanzania engineered this move to counter the Northern Corridor’s purported “Coalition of the willing.”

 Experts in Nairobi describe this as “hullabaloo over nothing.” The transport infrastructure in question forms what is called the Central corridor. The central Corridor is, by definition all land transport infrastructure- rail and Road that begins and or terminates at the Dar-Es-salaam city in Tanzania.  It links Burundi, Rwanda , D R Congo and Uganda.

The Northern Corridor on the other hand, is by definition all land transport infrastructure originating or terminating at the Port of Mombasa in Kenya.  It also links Uganda, Rwanda, Burundi and D R Congo.  It is an alternative route to the central corridor. Given its relative efficiencies, the northern corridor is the busiest and most competitive route in east Africa, says State of East African Infrastructure a publication of Africa Development Bank
 However, for all practical purposes the central corridor is the more appropriate route for Burundi and parts of D R Congo.  For Burundi, it is 400 Kilometres shorter than the Northern Corridor.

Ndogo Kundu Road Designed  to ease transport at Mombasa Port.
What of Bagamoyo  and Dar -Es- salaam
Ports?
Tanzania is a large country, measuring nearly a million square kilometres; she needs as much physical infrastructure as possible to open up the country.  She needs no permission from anyone to develop her internal infrastructure, say analysts in Nairobi.

 If the Central corridor were efficient, it is ideal for Burundi and D R Congo. However, it is inefficient forcing traders to use the relatively efficient Northern corridor. According to the African development Bank report mentioned earlier, imports to Burundi through Dar-Es Salaam take 33 days to reach their destination.  They take 29 days to travel through the Port of Mombasa. Of the 33 days, clearing through the Port of Dar-es-Salaam takes 25 days, it takes 21 days to clear through the Mombasa Port.  That is why there is need for investment in support infrastructure to ease congestion at the Dar Port.

That is why, Uganda, Rwanda and Kenya agreed to build a standard Gauge Railway line on the northern corridor to ease the cost of transport of imports and exports in order to support faster development in their countries. Construction was launched three weeks ago. The Railway will cut cost of freight by 60 per cent and reduce travel time to two days from Mombasa to Kampala and three days to Kigali. Such speeds will not escape notice of businessmen in Burundi, and D R Congo.

Before then, they agreed on removal of Non-tariff barriers that has improved efficiency at the Mombasa Port by 300 per cent. Imports to Kampala through the Mombasa Port now take 5 days to reach their destination by road down from 15. To Kigali, imports now take 8 days down from 22 days a few months back. The implication here is; to Bujumbura,   imports could take less than 10 days compared to 33 through Dar-Es Salaam.

And while still at efficiency of the transport infrastructure, Tanzania has opted to build a large port at Bagamoyo. This is a sensible move for Dar-es- Salaam port suffers structural limitations. The port is billed the largest in Africa, with a capacity to hold 20 million TEUs a year compared to Dar-es-salaam whose capacity is 800,000 containers a year. New roads and railroads will connect to existing road and railroad networks, and these will also undergo upgrades.

The port construction project will include the building of a new 34-kilometre road joining Bagamoyo to Mlandizi and 65 kilometres of railway connecting Bagamoyo to the Tanzania-Zambia Railway (TAZARA) and Central Railway.  Improving the transport infrastructure on the central corridor will go a long way to eliminate bottlenecks to the Bagamoyo Port.





Monday, 2 December 2013

Ground Breaking for JKIA Greenfield Terminal is finally here

AFTER SEVERAL postponements, Kenya’s President, Uhuru Kenyatta will preside over the ground breaking ceremony for Nairobi’s green field terminal at JKIA, to day, December 3rd .

 The US$ 653 million terminal has been has been on the balance for a while due to financial considerations. The terminal will be developed on a design, build, finance, operate and transfer (DBFOT) basis. It will not get any guarantees from the Kenya government. Consequently, financiers were slow footed in taking the risk. The terminal will be guaranteed entirely by the strength of the balance sheet of Kenya Airports Authority, the agency that owns airports in Kenya.

However, the authority will now foot 15 per cent of the costs.The agency increased the airport tax to $40 for departing passengers since last year. By now,it has accumulated a tidy sum that it is using to begin construction work at the terminal, said Engineer Joseph Kamau, the Cabinet Secretary in charge of transport.

All necessary inputs are in place: Two Chinese firms, Anhui Construction Engineering Group and state-owned China National Aero-Technology International Engineering Corporation will build the terminal jointly with Pascall and Watson Architects. The supervising consultant is also in place.

 The ground breaking will pave for the construction, which will start soon thereafter. The work will last 30 months, meaning terminal shall be completed by mid-2016. Engineer Kamau indicated that three consortia have made competitive bids to finance the project and that soon one of them will be identified and contracted.

For further reading go to:
http://eaers.blogspot.com/2012/02/authority-awards-640-m-contract-for.html

Thursday, 21 November 2013

Kenya's economic Diplomacy, ICC and all that

David Cameron The UK PM: 
Misreading the signs?
CONNECT THE DOTS and tell me what picture emerges. In the last four Months a flurry of events, have happened in Kenya. In early September Nigeria was given 46 oil exploration blocks in Kenya. In October, Tullow Oil, the British owned oil exploration firm that has been active in Kenya, discovering commercially viable wells almost on a monthly basis, ran into trouble with the local community. In November, Kenya’s President attends the Africa-Arab summit in Kuwait. Here the President Called on Arab-Oil Producers to help Kenya exploit her oil and LNG discoveries. Read anything? I read a warning shot to the west.

 Kenya has grown horns and is poking the soft belly of those not taking note. “Choices have consequences,” so said the Former US assistant Secretary of State, Johnny Carlson, as he appeared to warn Kenyans against voting in the Jubilee Alliance. It seems now the same logic is being applied on the West by Kenya. And the West, which is adept at misreading signals from the developing world, is misreading this one too. The message emerging is; “if you rank low in terms of economic importance to Kenya, you shall rank low diplomatically.”

This far, five diplomats from countries thought to be unfriendly, are still waiting for the President’s dairy to open up. Germany, France, Italy, Austria and Japanese Ambassadors are yet to present their accreditation Papers to President Kenyatta. Where diplomatic links are not the soft under belly, the economic card is being played with warning signals that “no country is indispensable for Kenya.”

Although most analysts link this to the West’s support for the ICC on the cases facing the Kenyan President and his deputy for allegedly financing the 200/08 post-election Violence in Kenya, that could only be a catalyst but not the cause.

Frosty relations with the West began with the first Kibaki Administration after the 2002 elections. Kenya was warming up to the east, equipping her security forces with hardware from the east. Here we are talking about vehicles. The Kenya police and military were traditionally using the British Land Rover.

However, come 2003, and they replenished the fleet using Japanese Land cruisers and other vehicles from China. That had the then British High Commissioner in Kenya, Richard Clay, hopping mad and spewing calumny against Kenya government over alleged corruption.  That did not stop the departure. Instead is motivated Clay’s departure from the British Foreign service.

Apart from refusal to buy western merchandise, Kenya also inched closer to China. Before 2003, China was ranked among other donors to Kenya because their contribution was tiny. Then China began to emerge from the shadows, gained its own rank as a development partner in Kenya and has now muscled its way to the top. So china is now a leading economic and diplomatic partner for Kenya.

 This departure to the east rankled the West who began shopping and propping their own Presidential Candidate. In 2007 the West supported Raila Odinga’s ODM party to the hilt. However, he lost to Kibaki igniting the violence for which Uhuru Kenyatta and his Deputy William Ruto are facing the charges against Humanity in The Hague.

Some Kenyan analysts believe the West had a hand in the violence. While a report by UNDP, which was nominated by the West to Co-ordinate election observers, said that Kibaki defeated Raila by a margin of 3 percent, the British high Commissioner in Nairobi openly said they do not recognize the “Kenya government as Constituted then.”

Not only do the analysts believe that the West ignited the violence, but that it also played a part in covering up the real perpetrators of the crime. Consequently the frosty relations with Kenyan are expected to continue freezing.

Tragically, the local press appears to blind to the activities in Kenya.When the local press picked the item on delayed diplomatic accreditation, it said the delay to open diplomatic links threatens Kenya’s trade with these countries. Maybe they should have used another argument.  Trade data seen by this publication shows that the countries in question do not rank highly as destinations for Kenyan exports. Africa is the largest market for Kenyan exports. Uganda leads the pack, and even though Britain sneaks in at second place, Tanzania is not far behind. In fact, Tanzania could dethrone Britain in a short while.

The same countries too do not rank among the major origins of imports for Kenya. The top perch has been taken over by India, followed by China, UAE, South Africa, and Saudi Arabia.  Britain, the US, France, Japan and Germany rank relatively low.  But they once were the major origins of imports to Kenya and were slowly edged out during the Kibaki regime.

However, in terms of investment, Britain ranks high: Companies such as Tullow Oil have sunk hundreds of millions of dollars in oil exploration in Kenya. In addition a number of British Multinationals have pitched tent in Kenya. These include; Barclays Bank, standard Chartered Bank and Unilever group among others.

 Analysts in Nairobi say that Uhuru Kenyatta’s cold shoulder against the West, while mainly born of the case facing him and his deputy at the ICC, are just a continuation of the decade long bad blood between Kenya and the west. Unless the West watches what it is doing, say analysts, the relations could get worse. And the warning shots are in the air.

Will Kenya lose? A few people believe that line.  Already the West’s economic muscle in Kenya is insignificant. Their aid contribution is insignificant, and so is the consumption of Kenyan exports. What is significant is their exports to Kenya and to some extend their investments. So Can the West afford to antagonize Kenya to a point where the relations would collapse? Few informed people think so.

Kenya will definitely not push the relations to the brink; it will have to stop somewhere. But at that point, the west’s hold in Kenya will have been considerably weakened.

Tuesday, 12 November 2013

Ethiopia: The budding energy power house in Africa

The 6000 MW Grand Renaissance Dam 
WHEN THE NEWS broke out that Kenya has struck a deal to import 400MW of electricity from Ethiopia, a common question arose: Does Ethiopia have the capacity? Is Kenya wasting good money chasing for bad?

 That was slightly over a year ago. Now I know better. I have been disabused of my ignorance. Ethiopia not only has the capacity but the potential to supply the entire east African region with electricity. She is a sleeping electric energy giant-a country with a capacity to supply 67 per cent of Africa’s current population.

Ethiopia, which is emerging from years of communist rule and wars, is not only a champion on track races where her athletes give Kenyans a run for their money; she is a star performer in other areas: Her economy has been growing at an average 8 per cent rate for more than a decade.

 Consequently, the country of 90 million people has seen demand for electricity grows by 32 per cent a year. This means that her current output of 2500MW from hydro sources must increase four-fold to 10,000MW to meet domestic demand by 2015. And she is investing heavily in power projects. Already some 170 MW of wind power have been added to the grid.
The 120 MW Ashegoda wind farm

Among the projects in planned to meet this demand is the 6000MW Grand Renaissance Dam on the river Nile.  Construction of this project, worth US$4.8 billion, is being financed entirely by a long term bond targeting Ethiopians in the diaspora. This is a very large project even by African standards.

Further, Ethiopia’s potential in renewable sources of energy is outstanding in Africa and even in the world. Consider this: Experts estimate that Ethiopia's hydropower potential is 45,000 MW. Geothermal power potential is estimated at 5,000 MW, while its wind power potential is believed to be 13000MW, Africa's third-largest behind Egypt and Morocco.

 Now Morocco generates some 26000Mw of electricity from wind power. It was not immediately clear what Egypt’s capacity is. Some Sources indicate that Ethiopia’s wind power capacity is 13,000MW.  The 45,000MW hydro capacity is higher than D.R Congo’s Grand Inga Dam whose capacity is 40,000MW. According to CNN this is twice as much as the Three Gorges dam in China, currently the world's largest hydro project. The Inga dam project, once complete will supply 500 million people with power, says the CNN report.

 However, Ethiopia is way above D.R Congo in terms of potential to produce power. Figure this 45,000MW of hydro power generation is perhaps the highest capacity in the world. Add to that an estimated 13000MW of wind power and 5000MW of geothermal power, not to count solar energy. We are talking about MW of power 63000MW of power concentrated in a single hand.



 This makes Ethiopia the future power supplier for her neighbours including South Sudan, Kenya, Somalia, Uganda, Rwanda, Burundi and Tanzania whose power supply capacity does not come anywhere near.

Tuesday, 5 November 2013

AL-Shabaab wiped out?

JUST HOW MANY active Al-shabaab operatives are remaining in Somalia? Or just how many are left in the world?  Reports from the front line indicate that the ragtag army of social misfits may have been obliterated in the last one week.

The operation  led by the Kenya Defense Forces (KDF) under AMISOM,  targeted  Al Shabaab training camps and its senior commanders in the tri-border area between Middle Juba, Lower Shabelle and Bay region.

 Two senior commanders were killed by a KDF drone at jillib on Sunday, October 26th, the day the operations were launched. A few days later, the Kenya Air force bombarded hurguun training camp in Dinsoor region. The camp is said to host 400 people 300 of who are trainees. An estimated 300 people were killed. Intelligence reports indicate that the dead were buried in mass graves on Friday, November 1st, a day after the attack. The same day, October jillib was again attacked by ground troops using heavy artillery. The size of loss from this assault is not clear.

On November 2nd, the Somali National army killed  more than 30 Al shabbaab insurgents at a logistical base in Kolbio, close to the Kenyan border. On the same date, the Kenya Navy sank a vessel carrying 15 al-shabaab fleeing Dinsoor.

From the intelligence reports, we can estimate that, at the lower side, some 347 Al-shabaab including recruits, trainers and their commanders were wiped out last week. And this is only in the reported incidents. Some incidents such as mop up operations  are never reported. Whatever the case, Al-shabaab is nearly 400 people or more poorer. The ragtag army has effectively been neutralized.

 The AMISOM operation appears to have been designed to not only neutralize Al-shabaab but also to deter future recruits. The fact that they could be neutralized right in their bases is a strong deterrent  to any would-be recruits. They know know contrary to Al-shabaab propaganda, they Local armed forces and specifically KDF, have the capacity  to hit Al-Shabaab anywhere in East Africa.  They also know that an Airforce is  a lethal force that strike with devastating accuracy. The operation also announced the entry into Kenya’s air force assets, of the lethal drones.

 Kenya deployed more than 4,000 troops to Somalia in 2011, blaming the Islamists for a series of kidnappings and the murder of a British tourist at a Kenyan beach resort. Those forces joined African Union troops from Uganda and Burundi as well as a military deployment from Ethiopia in pushing Al-Shabaab out of Somalia’s major population centers including Mogadishu, the capital. The Islamists threatened retaliation against Kenya and other countries with troops in Somalia, bombing a bar in Uganda in 2010 and claiming responsibility for the Westgate attack.


The next target, it seems are the sleeping cells in Kenya, especially in Nairobi and Mombasa. These cells are suspected to be behind the killing of two Pastors in the coastal regions over the past three weeks. But given that there will be no training camps or trainers in Somalia, intelligence sources say, many are likely to be demoralized and abandon the trade.

Thursday, 31 October 2013

KDF wrecks Al Shabaab camp in somalia

  
Hardly a month since they raided the WestGate Mall in Nairobi,the Kenya defense forces have attacked and wrecked an al-shabaab training camp in Somalia.

KDF have confirmed that the "courtesy call was successful."  However, It is not clear who else was involved. intelligence sources have hailed the attack as pay back time. Two days ago, intelligence reports say, two senior commanders were killed in a drone attack in Baraawe in South Somalia. Among the dead was a commander named Anta, a Bomb expert. Kenya Defense forces were also reported to have assaulted an al-shabaab camp in “Jillip deep in South Somalia.”

And now as we write, the same sources report that a training camp in South Somalia is under drone attack. An intelligence source in London is quoted as reporting heavy Bombardment at a camp Known as Hurguun 30 Km from Dinsoor. There are reports of continuous bombardment of the camp which is characteristic of Military jets, rather than drones. The number of casualties is not yet clear, but villagers estimate it could run into hundreds of ill-trained and ill-equipped trainees, our sources say.


An intelligence source has characterized the attack as “payback time for WestGate and he say, al-shabaab is paying a heavier price.” The camp is said to host some 400 trainees. Heavy smoke is reportedly billowing from the camp. Villages are said to be celebrating the demise of the tyrants.

Monday, 28 October 2013

Wind power: Ethiopia beats Kenya to the finish line.


Ashegoda windfarm: The largest wind project in Africa
ETHIOPIA HAS JUST commissioned a 120MW wind power farm, the largest operating wind power farm in sub-Saharan Africa so far. This brings to 170MW the quantity of Ethiopia’s electricity produced by wind power. In the process, Ethiopia has now become the leader in wind power generation in Africa beating Kenya, to a poor second- at least for the time being.

 Kenya has very ambitious plans, including being home to Africa’s largest wind power project, the Lake Turkana Wind power Project, which is just crawling off the ground.  Other projects include the proposed 100MW Kipeto Energy sponsored by the American multinational GE in the Ngong area at a cost of US$ 300 million; Aeolus (Kinangop and Ngong Hills) and Isiolo Wind farm. 

The Ashegoda project in Ethiopia cost US$ 290 million was built by French firm Vergnet SA was funded by concessional loans from BNP Paribas and the French Development Agency (AFD). The Ethiopian government contributed 9 percent of the cost.

 This follows the commissioning of 51MW Adamia1 wind farm in 2011. The project was built by Hydro China and CGOC also of China at a cost of US$117 million. It was funded by the Chinese Export Import Bank and the Ethiopian government.

The progress of Ethiopian power development is an important lesson for African countries. Power generation is still the preserve of the government owing to its large capital outlay. All Ethiopian Power projects enjoyed a significant (9-15 per cent of the project cost) financial input from the government. The government, through a bond meant for Ethiopians will fund the US$4.8 billion 6,000MW Grand Ethiopian Renaissance Dam GERD, currently under construction at the Blue Nile.

This is the lesson Kenya appears to have learnt in the development of geothermal. The private sector has no stomach for the drilling risk nor does the financial sector appear ready to finance such a risky venture. Therefore, where the energy sector is liberalized as in Kenya, the government has to bear the drilling risk and then allow the private sector to generate power from the capped wells. That has resulted in a rapid expansion of geothermal power generation in Kenya, which could reach at least 1000MW by 2016.

Participation of the government is a confidence builder especially for the private sector financiers. Refusal by the Kenya government to provide sovereign risk on the Lake Turkana wind power project, which will generate 300MW thus being the largest such project in Africa, has resulted in its lengthy delays.


 However, the project is back on track after the Africa development Bank issued guarantees for the construction of the 400kv, 428km high voltage transmission line to deliver electricity from the site to Suswa station. Lack of sovereign guarantees was one of the causes for the delay. 

The wind farm is located in a very remote area lacking in basic infrastructure. Initially LWTP was expected to build the infrastructure including the transmission line to Sasumua power station 400km away. This is in addition to building roads to transport the generating equipment. 

However, several government interventions have eased the burden on the sponsors, making the project attractive to investors. One of the interventions was the decision by the government to build the transmission line.

Monday, 21 October 2013

Shrinking Oil Prices: Whither Africa?

AS NEW OIL discoveries are made almost on a monthly basis, it is time to face hard questions and seek answers. Among these are question as whither oil supply in the next decade and beyond? Whither the price? Who will be the losers and who shall be the winners? What impact on world economic growth? Specifically will Africa gain or lose?

Transport and energy Infrastructure
 are what Africa need to trade with itsel
f
Africa, which is likely to be fastest growing region in the next five years, stands at the threshold of rapid balanced, all inclusive development, experts say. Although some countries could suffer temporary setbacks due to revenue declines, continent is well poised to maintain its development thrust.

This is because some of the fastest growing countries in the continent are just now discovering Fossil fuels such as oil and LNG.  They have not even sold a single barrel and have thus not tasted oil money. To these countries energy prices are the bottle necks.  Consequently any price decline would thus be a welcome relief.  
The same is that case for the non-oil producing Africa countries. They rejoice at any price declines. If the declines are significant and sustained, oil consumers enjoy significant savings which spur growth.
Either way it seems, the prospective price declines need not worry Africa. In fact, it could open another gate valve to development.

East Africa which is just discovering how much wealth she has beneath , stands a better chance of shifting gears to embrace a balanced growth. The region has enjoyed more than a decade of robust economic growth ranging between more than four per cent in Kenya to more than seven per cent in Tanzania. The drivers of growth were tourism, agriculture, trade, transport and communications and some manufacturing.

 For this region therefore Fossil fuels will be just an additional source of income. Earnings from a barrel of crude oil or a cubic foot of LNG will supplement earnings from a ton of coffee, tea, flowers and vegetables in terms of generating foreign exchange and even taxes.  Consequently the potential for a balanced economic growth which will reduce poverty level significantly is very high.

 Why are we convinced that fossil fuel price will decline? Experts estimate that given the current rate of fossil fuel discoveries in the world, the global supply will rise from the current 73 mbd (Million barrels per day) to 110 mbd in 2020.  This is a 51 per cent growth in just a decade. Demand on the other hand is expected to grow by 8 per cent per year to 96.7 mbpd over the same period.  The question then arises: Are we looking at fuel glut in the next five to seven years?

Basic economic theory teaches that, an increase in supply of a product is a good thing only to the point of equilibrium. That is to the point where demand for the same good equals Supply. At that point, the price is optimal. However, if supply keeps rising against static demand or if supply grows faster than the rate of increase in demand, there is cause to worry.

This is what is going on in fossils fuels sector. Discoveries of Oil and LNG appear to be running ahead of demand. This is both goods news and a cause for caution.  In east Africa, like anywhere else on the globe, It is good news because competition among suppliers will force down the price, and more important eliminate speculators and Cartels. Herein lies the cause for concern. How low will the price of crude go? And how will it affect the world economy? Who shall win and who shall lose?

The price of crude still appears high at slightly over US$100 a barrel. However, experts project that the price will soon decline.  They estimate that nearly 30 per of the price of a barrel of oil is “fear premium.” That is the price we pay due to instability in the Middle East. This is because traders, mainly derivative traders, bid up prices at any slight sign of trouble in the Middle East.  However, with advances in oil exploration technologies coupled with more fresh oil discoveries worldwide, this risk factor is being hedged out. 

Another factor that could also be hedged soon is the Monopoly of OPEC. OPEC controls 40 per cent of world output. This has given it a monopoly to set the world prices. Consequently, the world market price for crude oil simply scatters around OPEC price. OPEC controls prices by controlling output. So that if prices rise sharply OPEC increases output: when the price is low she reduces output.

The new discoveries of crude oil and LNG including the shale oil and gas are threatening OPEC’s monopoly. The US for instance is tending towards self-sufficiency. The US is the largest consumer of fossil fuels uses 18.9 million bpd. By June this year, the US was produced 7.4 million barrels of shale oil per day.  This figure is expected to rise to 9 million bpd by 2018. This coupled with the current production of crude could see the US being near self-sufficient in fossil fuels by 2020. 

The continued discovery of oil in the eastern Africa coast and  parts of China only adds to OPEC headaches. It means that 60 per cent of world output of oil will be outside OPEC. Since this will have become a buyers’ market, competition will force prices down the cliff. How far will it shrink? That remains to be seen. But days of US $80-100 a barrel appear to be headed in the direction of history.

The Upshot of this analysis is; African oil producers face a huge oil price decline just when many have entered the market. This will stymie the anticipation of a windfall gain and the resultant economic benefits to a country. However, the good news is low crude oil prices lead  to low prices of almost all other goods resulting in significant  decline in inflation. Low consumer goods spur further economic growth.


But east Africa and Africa generally will need to continue opening itself up for trade with itself. This means that as the region opens up new oil and LNG wells, it should also continue to build pipelines, railway lines and roads to connect itself with Africa in order to open new markets for their goods, say experts.


Tuesday, 15 October 2013

Assertive Africa? Brace for more



FOUR MONTHS AGO, when the African Union raised issues with the ICC, we asked whether Africa’s assertiveness can be ignored http://eaers.blogspot.com/2013/05/assertive-africa-can-it-be-ignored.html.  At that time we focused on economic causes for Africa’s confidence saying the world must take note.

Bujagali Hydro project in Uganda:
We ended our analysis with the question; who shall blink first, Africa or the West?  Following last week’s no nonsense AU summit where Africa gave the UNSC an ultimatum, the West has blinked first. Now western Diplomats are said to be drafting a resolution to be adopted by the UNSC adjourning the ICC trial of President Uhuru Kenyatta and His deputy William Ruto for a year, subject to extension. 

In our analysis mentioned earlier, we advised the west to respect Africa’s new found boldness.  It seems like the west has finally realized that Africa has come of age and will brook no nonsense. It should brace for more of Africa’s fortitude. The continent has tasted blood and is baying for more and will stop at nothing.
 So how and why did Africa develop such confidence? Thanks to Europe’s inability to read the sign of the times. Its apathy towards Africa in the 1990s helped built the continent’s faith in its ability to solve its own problems. 

Picture this: In 1993, the UN sent a peace keeping force in Somalia. It was humiliated by the warlords there.  Two Black Hawk choppers were shot down and 18 servicemen killed.  The bodies of several soldiers were dragged through the streets of Mogadishu. This led to a hasty withdrawal of UN peacekeepers. Somalia was left to its own devices. 

A year later, the UN took its sweet time to intervene in Rwanda. Hutu militias, supported by the government’s security forces massacred nearly a million people in a three- month period of murderous orgy- until the rebels then rebels arrived in Kigali sending the militia and the army fleeing into Congolese jungle. Since then, Rwanda has rebuild itself.

Back to Somalia. After years of lawlessness and refusal by the so-called international community to do something, Africa got tired. Ethiopia invaded Somalia in 2006 and was humbled by the militias. Two years later, Ethiopia withdrew its forces, citing the heavy cost of keeping soldiers in Somalia.  Then followed Amisom which protected the then President of the Federal Transition Authority in Mogadishu. But al-shabaab, a terror group that was now in charge of terror in Somalia, was roaming the larger part of Somalia, including the sea port of Kismayu. From here Al-shabaab was breaching Kenya’s territorial integrity thus inviting Kenya’s big boots across the border into Somalia.  A year later, Al shabaab was all but annihilated. 

These small military, political and economic successes, coupled with decline of the West cumulatively built Africa’s confidence in itself. The growth of China as an economic power house also contributed to Africa’s self-esteem. Now the continent knows what it wants and sets out to get it.

On the economic front, Africa has transformed itself from a “hopeless Case” in the 1990s “a rising continent” in 2012.  Much of this transformation is largely home brewed: Africa tried things that worked for her. Among these is the end of internal wars and strife.  These resulted into a robust and persistent economic growth, now in its second decade. Owing to robust economic growth the per capita domestic revenue mobilization has risen to U$441 shrinking foreign aid to $41 per capita. The continent is lifting an estimated 15 million people out of poverty a year. This means that so far an estimated 90 million have been lifted out of poverty. At this rate of growth, an estimated 120 million people will join the middle class by 2017 and more will follow.

To sustain robust growth, Africa has identified its bottlenecks and prioritized their removal in a clearly defined development agenda. Consequently, it only deals with partners who fit in that agenda. Africa has learnt to choose the right friends and make the right policy-choices and implement them. Therefore economic growth in Africa is sure to be sustained. IT is now the potential growth pole in world.

A growth pole is a region whose growth drives the rate of growth elsewhere in the world. It is a position to be envied and honoured.  The business community everywhere in the world knows this and acts according to dictats of profit making.  The influx of large western multinational corporations into Africa is a clear indication of where the next dollar in profits will come from. 

Thika Super highway in Kenya: 

Only a fool would dare rub such a region the wrong way.  This is the reality Europhiles-those characters that constantly threaten us with sanctions from the West- must wake up to. The West played a major role in under developing Africa. Africa played a major role in developing Africa. Consequently Africa is in no mood to be taken back to Egypt. 

And politicians and bureaucrats in the west are coming to terms with this reality-much as they hate it.

 In fact from the economic standpoint the West is almost irrelevant in Africa. It is no longer the leading market for Africa Produce, nor is it a reliable donor. But Africa now needs a little aid and a lot of trade. And the largest market for Africa is Africa.

 If anyone followed the two-day visit by the French president, Francois Hollande, to South Africa Last week, then one would recognize Africa’s power. The president with his entourage were in South Africa to do business and French businessmen walked home with billions of euros worth of business contracts in the transport and energy infrastructure sectors. There are only four regional power houses in Africa Viz; South Africa, Nigeria, Kenya and Egypt. Egypt is in political turmoil that leaves only three. 

So After South Africa where will the French head next? Kenya, perhaps. Now do you expect the business community in the  US and UK, which have economic interests in Africa, to risk falling to a second position owing to some myth called values? Do values create jobs or generate economic growth? Tell me.

Monday, 7 October 2013

Slums in Kenya bastions of enterprise?

 WE ALL KNOW that the informal sector is the leading employer in Kenya. Official data shows that in 2011, the formal sector employed 2.123 million people while the informal sector employed 9.9 million Kenyans. This leads to the question: where do these people live? A majority lives in informal urban settlements, popularly known as slums. Much of what we hear about slums is squalor and debauchery. 
A section Of Kibera: The slum has more TVs than
the affluent neighbourhoods

True, there is poverty, moral decadence and dirt: There are no flash toilets in the slums, nor is there running water and plush homes. But slums are bustling with entreprenuers. Thanks to robust economic growth in Kenya, slums are turning into beacons of enterprise rather than by-words for squalor, Poverty, crime, debauchery. A one week survey by this publication established that slum dwellers are an enterprising lot. Many earn more per day than their peers in the formal sector employment. Perhaps, slums generate more income than the affluent estates in their neighbourhood. At least that is true of the two slums in my neighbourhood in Nairobi, among them Kibera, allegedly Africa’s largest slum.
Kwayas Garage:These cars will soon be back on
the road,sparkling

 Most are manual workers, small scale traders, hawkers, urban farmers, skilled artisans in the informal sector. They provide needed services to the affluent neighbourhoods. These include; general merchandise kiosks, fruit and vegetable stalls, car-repairs and maintenance, and personal care activities as Barbers and salons. This study is stratified into three levels depending on skills level of the slums dweller ranging from those who have very little education and no skill to those with an elementary education and plus a skill. 

We begin with the lowest cadre in the unskilled category, the scavengers. These are people who make their living from collecting and selling waste plastic and metal. Among these is Job Mwai Kimani, alias Jobo, a scavenger. Each morning, the 25 year-old man is out on the streets collecting plastic and metal items discarded by the richer neighbours. He collects 25-30 kilos of waste plastics and metals a day. 

 By ten O'clock, he has filled his bag and is on his way to Mabobo, who buys the merchandise. A kilo of plastics fetches Ksh 10 (11 us cents) and that of metal Is Kshs 20(US$0.22). Jobo earns between $ 2.75 and $3.44 dollars a day. That is the average income for, in some good days, he can earn up to US$5.00 a day. 

 Mabobo, a former street boy, is a vital cog in this business. He stands between the scavengers and the recyclers. He is their market and the reason why they are up early every day of the week. Now married and a father of three school going children, Mabobo has graduated from scavenging to dealing in waste plastics and metals. He is contracted to supply the recycling plants with 1.5 to 2 tons of waste materials every week. He spends Kshs 22,500 (US$ 256) a week to buy the materials from his suppliers-the scavengers like Jobo. He sales his stock for Kshs 36,000 ($ 414), making a cool $158 a week. In a month he makes a total of US$632. 
Mabobo Weighing A customer's wares.

His wife, Meri, runs a business too, in fact three. She runs a kiosk selling general merchandise, a food kiosk, and a mobile money transfer. Her total earning s from all these businesses a day is Kshs 1000(US$12 a day). In short the Mabobo family takes homes nearly US$992 a month from their businesses. This is the kind of salary senior civil servants take home a month. 

 Slum dwellers understand very well economies of large scale production. So they ensure that they capture a large market for whatever they sale, be it roast or boiled maize, boiled eggs, used clothes and shoes. The quantities they sale in a day determine the profitability of their businesses. And they work hard to widen their markets. In terms of earnings, their take home pay per day is higher than their peers employed in the formal sector.
 Others such as Oscar, a car-wash, take home more. During the week, he washes about five cars per day and one or two Carpets. That earns him Kshs 1,600 (US$18.40) a day, enough for him and his three employees. His business peaks over the weekend when he washes 40 cars a day. He takes home Ksh 8,000(US$92) a day. During weekends, he employs six more casual workers.
Jobo: Sorting his wares for weighing

 Apart from the Menial workers named above, there are skilled workers such as Motorcycle taxi riders, mechanics, house helps, traders, hair dressers and other artisans. They repair; fridges, air conditioners, electrical appliances, vehicles, tailor our clothes and repair them, weld our gates, and make metal windows, doors and gates- all service in demand by the affluent. Many own the businesses they operate- in some instances they own more than one business. 

Kawaya (wireman) and his four friends lost their jobs twenty years ago as Mechanics. They set up a jua Kali-Informal -garage at an open space in the neighborhood of affluent estates in Nairobi’s Langata area. They all live in Kibera slum. Their business premises is just about three-kilometres from Kibera. So they walk to work every Morning. Theirs is one of the four informal garages within the same one kilometer radius neighbourhood. Initially, there was a mechanic, a panel beater and the wiring guy. In those days, in the late 1980s, making US$50 equivalent per week was tough. They were unable to meet their bills on time, but they still trudged on. 

To date, thanks to the growth of car owners and the population of estates in the neighbour hood, taking home US$20 day is not a big deal. On very good days they make up to $100 a day. Today the garage has grown from the initial four to at least 100 people direct employees. These range from Panel beaters, to welders to wiring guys to painters. Each takes home on, average Kshs 700-1300 (US $9-15)a day. 

 The garage has spawned the growth of support businesses such as spare part shops where one can buy vehicle consumables as engine Oil, break fluids, ATF, bolts, nuts air cleaners, fuel filters etc. Even Paint shops have cropped up here. These shops have rcut down the time it used to take to repair a vehicle. Initially, motorists had to go the garage for a diagnosis, and then would travel to Nairobi’s city Centre -7 KM away to buy the spare parts then return to get them fixed in their vehicles. 

To date, with all businesses concentrated in the same area, it is easy to get your car serviced in less than an hour and continue with one’s business. These businesses, which are stocked in consultation with the Mechanics, have improved the earning capacity of the garage’s “associates.” 

 More people open an opportunity for further business. This large number of mouths to feed has spawned a large number of food kiosks and hawkers. Not only that, since the garage is patronized by the Middle income group, other businesses that serve the middle class such as Carpenters, Salons and pubs, butcheries, Vegetables and fruit Kiosks, general merchandise Kiosks and hardware stores. 

 For the Upper middle income groups in the neighbouring estates, the growth of slums coupled with their enterprise, has made life easy. The merchandise here is relatively cheap compared to the Shopping Malls and the quality is more or less the same. So for top-up shopping the middle class runs to the Kiosks in the neighbouring slums estates. 

What’s more, the neighbors in the slums offer credit facilities to their customers contrary to the malls where everything is paid for in cash. That is an added attraction for the middle class in the affluent estates. In the evenings, the Kiosks explode into a frenzy of activity, food stalls increase as more traders join in the alleyways selling cooked Fish, Chicken and roast meat to serve customers who find cooking expensive. 

 The larger the slum, our survey established, the bigger the market and therefore the more intense the evening activity as traders jostle to serve office-workers returning the City Centre, and Industrial area. There are cinema halls tucked away inside the slums where they show pirated Movies at Ksh 15(US cents 17) per head. But given the sheer population of TVs and the fact that DVD machines are way cheap, the most popular business here is pirating Music and Movies which sale for as little as US cents 57 apiece. The Movies are pirated from DSTV channels. This accounts for the occasional DSTV dish in the slums.