Monday, 24 June 2013

China-Japan Rivalry in Africa hots up

Mombasa's Southern By-pass: Beneficiary of
the Sino-Japanese  financial rivalry
THE EMERGING CHINA –JAPAN RIVALRY in Africa heating up. Both nations have upped their act from being contractors in Africa to being major project financiers. And Africa is relishing every moment of this rivalry for it is gaining in a big way. Her long held development dreams are hedging closer to reality as both countries open their purses to Africa.

The rivalry is not very old just about a year or two in the making but it seem like a game changer. A total of US$72 billion has been offered to Africa as development assistance. Although Japan has been a development partner in several African countries for a long time, she appears to have changed her strategy to a bare knuckled face-off with China.

In the process, Japan which previously operated within the auspices of OECD appears to have shifted gears to BRICS. BRICS, which is emerging as a major economic bloc in the world, has increased its trade with Africa to $340 million in 2011 and is expected to rise to $500 million by 2015.

Thika superhighway in Kenya:
Build by Chinese funded by GOK/AfDB
Africa, the second fastest growing region in the world after East Asia is rich in natural resources. According to the United Nation Economic Commission for Africa, UNECA, Africa is the potential economic pole. Being rich in resources, especially energy related, Africa is attracting lots of interest and its resilient economic growth amidst misery in the west, has investors sitting up to take note.

Apart from its natural wealth, Africa’s population is an asset of envy to the rest. Africa has a young and growing population which also well educated. The continent is lifting an estimated 15 million people from poverty and into middle class every year. That means that it a potential market for everything in the near future. And both Japan and China are setting themselves up for a piece of the action ranging from resource wealth to future market for their products.

Both China and Japan have offered huge chunks of money in development aid to the continent in the last one year. Last year, China offered US$20 billion over the next three-years to fund infrastructure development in the continent. Japan went one better by offering US$32 billion to Africa. And there are indications that China has upped the stakes to US$42 billion.

The money targets development of Africa’s infrastructure -Dams, irrigation systems, water supplies, roads, rail roads, airports, sea ports, etc. And Africa is targeting transport links to ease intra-Africa trade.  Lack of transport links is a major bottle neck to intra-Africa trade which now stands at 11 per cent of the Volume of trade in the continent.

 Africa is readying itself to partake of this largesse. In East Africa for example, several projects are already on the table eyeing this largesse. Among the first projects off the bloc for the Japanese Largesse is the 930km Eldoret-Juba road whose construction is expected to early next in 2014. The road will boost trade between Kenya and South Sudan. 

The road, which is an extension of the northern corridor which runs from the Mombasa Port in Kenya to Bujumbura in Burundi will cost an estimated US$1.03 billion. Studies show that upgrading the road to bitumen standard will ease the cost of transporting cargo from Mombasa to Juba which currently stands at US$4.33 per kilometer and thus make import affordable in South Sudan, Africa’s youngest nation.
Kigamboni Bridge in Dar-Es-Salaam Tanzania:
Build by Chinese Funded by Tanzania government

This link comes hot on the heels of the completion of the Isiolo- Moyale- Addis-a- Baba road which is also an extension of the northern Corridor. This highway was funded by the Africa development Bank at a cost of US$360 million. These roads will also link to the proposed Lamu Port-South Sudan Ethiopia transport corridor, LAPPSET 

LAPSSET is also likely to gain from the Sino-Japanese financial muscle rivalry. Already, japan Toyota Tsusho, has been awarded the contract to build a 200km long oil pipeline from Juba in South Sudan, to the Lamu port in Kenya. The project will cost US$3 billion. Since there are proposals to extend the pipeline to Uganda and Ethiopia the cost could rise to US$5 billion.

China has also offered Africa US$42 billion to finance development project that would enhance economic productivity. Among the projects on the table gunning for the Chinese largesse is the second Mombasa- Nairobi railway line at a cost of US$2 billion. Another potential gainer is the US$650 million green field terminal at Jomo Kenyatta international Airport in Nairobi, Kenya.

Tanzania is also said to be eyeing this money to develop infrastructure. Potential beneficiaries are likely to be the Bagamoyo port and other transport infrastructure.

The new Largesse is an addition to funds that have already been committed for various other infrastructure projects. For instance, Kenya has already bagged a US$20 million to dualise Nairobi’s Ngong Road. There are also funds to build the Mombasa Southern by-pass also from Japan.

China has not lagged behind and has already committed US$200 million for the Nairobi’s Southern by-pass.
China has in the past five years or so been a contractor building projects funded by such financiers as the Africa development bank or the governments in Africa. By the year 2011 Chinese Contractors had business worth US$45 billion in Africa. Some of the projects in east Africa include; the Thika Super highway in Kenya and the eastern and northern by-passes also in Kenya.

 In Tanzania Chinese contractors are building the Kigamboni Bridge In Dar-Es-salaam the commercial city. The bridge over the Indian Ocean connects Kigamboni, a Dar-es salaam suburb which has the potential to become a resort city. The project is funded by the Tanzanian Government and its social security arm, NSSF.


In Uganda, a Chinese contractor has won a US$ 600 million tender to construct the 750 MW Karuma Hydro power dam. The project is funded by the Uganda government.

Tuesday, 18 June 2013

Toyota wins Juba Lamu pipeline contract

A Pipeline under construction
 TOYOTA TSUSHO, the investment arm of the Toyota Motor Corporation will construct the 2,000 km long Juba -Lamu oil Pipeline. Sources indicate that the Firm was approached by the South Sudan Government to build the Pipeline.

Toyota had earlier placed an unsolicited bid for the construction of the Pipelines and other accessories. The US$3 billion project is to be built on a PPP basis under a 20 year concession. For more info go to http://eaers.blogspot.com/2012/08/toyota-bids-for-africas-largest-ppp_20.html

 The pipeline will initially transport some 700,000 to one million barrels per day (bpd) of Sudanese crude to the Lamu Port in Kenya. Eventually it is expected to transport crude from Kenya and Uganda to the Lamu port for export. Uganda is said to be considering using the same pipeline to transport her crude oil.

Apart from the 2000Km Pipeline, the contract also includes the construction “of an oil refinery, power stations, jetties and other infrastructure facilities” said Dennis Awori, Chairman-Toyota Kenya Ltd last year.

The contract is the largest PPP project in Africa. The construction is expected to last 18 months to the end of 2014 though some analysts say that such projects last three years citing logistical and security concerns in the general area on which the pipeline is to be constructed.

The Lapsset Corridor from Lamu in
Kenya to Juba in South Sudan
The contract was awarded a few months after Kenya awarded the contract to build the first three berth of the 32-berth Lamu Port. See http://eaers.blogspot.com/2013/04/lapsset-corridorus500million-down.html
 This is the second time Sudan has Chosen Kenya as her gateway to the world. Last year South Sudan chose to route her communications infrastructure through Kenya. 

South Sudan, the newest nation in Africa, has been embroiled in what could be termed as sibling rivalry with the republic of Sudan. South Sudan split from the greater Sudan about two years ago.

The split caused immediate economic hardship to the Sudan as the South took with her 75 per cent of the crude oil produce in the then Republic of Sudan. Both countries depend on oil exports to support 80 per cent of their budget.

The dispute with her Northern neighbour, through who all oil export infrastructure is routed, has the latter block oil exports of oil from South Sudan over transit fees. See http://eaers.blogspot.com/2011/12/revealed-why-frequent-spats-among.html.

This move effectively mark s the end of economic co-operation between South Sudan and her norther neighbour. The North is a temperamental state that results to arm twisting tactics to get her way.

 The move by South Sudan is the second volley on what seems to be an East-East Rivalry for influence and business in east Africa. Although Japan was the first to express interest in building the oil pipeline, which is a component of the Lapsset. Lapsset, is an acronym for Lamu Port South Sudan Ethiopia transport corridor. The US$23 billion corridor will link Kenya-Ethiopia and South Sudan by road, rail and oil pipeline.

China has also expressed interest in financing the corridor. Already a Chines firm has been contracted by the Kenya government to build three-berths in the Port. The construction is expected to start in the second half of this year.


Tuesday, 11 June 2013

East Africa’s economic giants

 KENYAN BORN companies are the economic giants East Africa, we can report.   A survey of the 2012 financial reports of listed companies has confirmed that the firms, some of them cross-listed in east African bourses, have outgunned their competition in the region. In some cases, upstarts have elbowed out the TNCs that previously dominated such sectors as finance and consumer goods. The upstarts are the most profitable in the region and also have amassed huge capital bases.
Rift Valley Railways: Being rescued by an upstart

The growth, our survey established, is well distributed covering all sectors of the economy such as Manufacturing, transport, consumer’s goods, financial services and communications.

 Leading the pack is Safaricom, the mobile telephony firm which posted a whopping US$303 million in gross profits last year. Hot on its heels was the youngest bank in East Africa, Equity bank which grossed US$207 million. In the third place is Kenya commercial bank which grossed US$207 million. East African Breweries was fourth $176.2 million followed by Kenya Power and lighting, an electricity distribution company, and Bamburi Cement tie in fifth place having grossed US$100 million. KenGen, the electricity generation company was sixth at $48 million. An Upstart, Athi River cement grossed US$21 million

The survey established that a majority of the firms are younger than 40 years old; some were born hardly a decade ago but have grown into mega corps with presence in the entire east Africa and beyond. Among these is Equity bank. Equity converted into a commercial bank from a building society in 2005. It has revolutionized and demystified banking in east Africa. The 8 year old bank now boasts of almost 200 branches in East Africa including Kenya, South Sudan, Uganda, Tanzania and Rwanda.  The bank has 8 million account holders making it the largest bank in Africa in terms of customer base.

 Another 8 year old that stomping the continent is Trans Century, an investment firm that has grown from an investor’s club to one of the largest holding companies in east Africa.  The firm specializes in acquiring firms suffering from financial and management deficiencies, it removes them and builds a profitable business. Its flagship Company East Africa Cables has grown from a small struggling firm to the largest cable manufacturing outfit in East Africa. Trans-century now owns profitable companies in Engineering Transport and infrastructure sectors in 12 countries in Africa. Among these is Rift Valley railways, the privatized Railways services operator in east Africa, and Civicon engineering.

Although Safaricom is 12 years old, it is in still in its pre-teens and in the league of the 8 year olds when it comes shaking things up.  It is the largest Mobile phone company in east African with a subscriber base of 19 million in Kenya alone. It is the leader in technological innovation, using its strength to create a huge number of small businesses. Safaricom is the leader in the world in money transfer platform with its M-Pesa money transfer system.

Kenya commercial Bank is definitely not a pre-teen. It can be viewed as a grand old man of Kenyan banking. It will be 116 years next year in east Africa. However, in the Moi era, the Bank was mismanaged and almost driven to its knees. By 2003 the bank was insolvent.  A new prudent management was put together in 2004 that turned the bank around. Now the bank has grown in stature and is now among the top performers in the economy. It has a total 251 branches in east Africa.

Bidco Plant : An Upstart that upstaged TNCs e
 In addition to large profits, the companies also lead in terms of growth of physical assets, such as land, plant and equipment. KCB here is a clear leader with physical assets valued at US$4.318 billion. KenGen is second with assets valued at US$1.42 billion. Kengen is the power generation company in Kenya. Its assets include hydro-dams and geothermal steam wells. Its asset base it expected to grow rapidly as the firm is on top gear investing to generate 10,000MW by 2030.

Third in line is Kenya power with assets valued at $1.242 billion. The company is also under pressure to expand its customer base as demand for power grows. This growth will result growth in  has seen its asset base grow five- fold in just about 8 years to $1.242 billion from US$292 million in 2005.
Kenya Airways is in fourth position with its asset base valued at US$653 million. This is also expected to grow rapidly as the airline grows its fleet . It plans to expand its fleet to 107 aircraft by 2020 from the current 37.
Vimal Shah :CEO Bidco
Kenya-Airways has been flying over  rough skies due to the economic meltdown in Eurozone. However, it is expected to weather the storm by turning its attention away from Europe to the east and Africa. It should however be noted that, this list is not exhaustive as there are Kenyan born mega corps that are family businesses that do not publish their accounts. Among these is the consumer goods manufacturer, BIDCO limited which is rumoured to be worth US$2.5 billion. It has subsidiaries in all east Africa countries and distributes her products in 15 more countries in the region.

Also included here is Nakumatt chain stores. It has 39 branches in east Africa and is still growing. Nakumatt is said to be worth US$3 billion or thereabouts.So how did upstarts grow so fast and to dominate East Africa.

 Three things: The companies are run by aggressive and creative entreprenuers who make their decisions standing. Two Liberalization of the Kenyan economy in the mid 1980s gave them an elbow room in the market, while  the re-birth of the east African community broadened their horizons, our study established. These factors combined has catalyzed the rapid growth of these giants. According to Vimal Shah, the CEO of Bidco-one of the upstarts that has grown into a regional TNC- the TNCs that existed in Kenya then were used to protection. “Consequently, they were not creative.  The Local upstarts then exploited the weaknesses among TNCs to curve a niche for themselves and eventually elbow out the TNCs. In the process the upstarts grew into TNCs themselves.

Wednesday, 5 June 2013

Why Africa must industrialize

Hydro power dam under construction: 
Investments to remove bottlenecks 
HERE IS A PARADOX: Africa has posted robust economic growth over the last decade. Her growth now is higher than the western world and is projected to post robust rates in the next five years. Yet Youth unemployment remains high and so is inequality in income distribution. What is wrong?

According to experts, this growth is not well diversified so that its benefits reach a large segment of Africans, hence growth with high unemployment rates.

According to the economic report on Africa, era 2013 Africa must industrialize to diversify and consolidate the benefits of the robust economic growth of the last decade.   It is rich in commodities and other resources. However, the continent’s resources are extracted and sold raw in the world. The resources thus do not have a forward linkage with the domestic economy.

This is why continent must industrialize, beginning with commodity based industrialization.  This means that Africa must start processing its raw materials into finished goods or semi-finished goods. Manufacturing commodities will: increase their links to the domestic economy, create more jobs, transform our economies, distribute wealth more equitably and finally, stabilize growth.

Sea port: Also under going improvements in Africa
 Commodity exports, say experts, are subject to vagaries of the market demand: When demand on the world Market is high; the prices are high when demand falls prices fall. High commodity prices lead to faster economic growth while lower prices lead to depression. In the past decade commodity prices have been high becoming one of the drivers of Africa’s robust growth.

However, it is time to move to the next level: Industrialize. The continent has in place all the ingredients needed to industrialize: It has a young and well educated population; its middle class is growing with a per capita GDP growth above three per cent a year and, finally the continent is edging closer to integrating its market.

COMESA, for instance, is likely to be one large FTA in 2017. This will bring together a population of 600million with a GDP per capita above US$1700. Once operational, COMESA will be the largest market bloc in Africa covering 60 per cent of its population.

There are two or so missing links however; transport and energy infrastructure. Energy and transport contribute to the cost of doing business in Africa.  The continent depends on the unreliable hydropower which is not even enough to meet domestic demand. This makes it vulnerable to shortages of electricity especially during drought.  To ensure continuity the region relies on expensive thermal power to keep the economy running. The result is expensive products and stagnant manufacturing units.

Economics theory teaches that, low cost of production attracts investment into a location. Africa is set to cut the cost of energy and transport, given the amount of investment into both. In fact investment is infrastructure is one of the drivers of economic growth says Era 2013.  

Africa is investing in an energy mix that includes, Hydro, wind and geothermal power which is expected to be fully operational in the next five to ten years. In addition, there is a flurry of discoveries of LNG, which could also add to the mix. Consequently, the cost of energy is expected to decline in the next five years. Both Geothermal and Wind power cost an estimated US$0.07 per Kilowatt hour.

There is also increased investment on Sea Port and road linking regions in a country and countries in a region.  Also plans are at an advanced stage to for construction of new railway lines. The idea is to link Africa with itself thus creating a large market for African industrial goods.

Given its large and relatively prosperous population, Africa is potentially a large market for manufactures. But its current structure is that it is a source of raw materials for industries in Europe.  Consequently, its infrastructure is directly linked to the former colonizers.  For instance, to fly from Anglo-phone Africa to a country in the Franco-phone Africa one has to be routed through Europe. Even the railway lines and roads link directly to sea port serving the former colonizers.

This increases the cost of doing business in Africa. The development of intra-Africa road and railway lines will remove this wall and open the continent for business.