East Africa Economic Report

Soldiers guarding a crude oil storage Tank in South Sudan   In November 2020, we ran a story on the risk facing the fossil fuels industry, we asked; whither the industry and the economies that depend on it to fund national development?   https://eaers.blogspot.com/2020/11/whither-fossil-fuels-and-dependent.html Now, a recent report on the Ugandan oil industry provides the answer- and it is gloomy. The Ugandan oil industry comprises the upstream wells, the Midstream oil evacuation pipeline, EACOP, and the downstream oil refinery. The crude oil prices, on the other hand, are declining with no prospect of turning north significantly in the future. Developing this industry could thus be spending good money in pursuit of bad. The world is shifting away from fossil fuels due to climate concerns.   The report, “ understanding the impact for a low carbon transition on Uganda’s planned oil industry” by Climate Policy Initiative, CPI, suggests that the industry is stillborn.   Although the r

Presidents Museveni and Magufuli This bromance almost derailed a  major development project  According to a report in Uganda’s Daily Monitor , the government of Uganda will construct 2700 KM of Standard Gauge Railway regardless of whether Kenya extends its section to the border or not. The work, says the report, quoting the Coordinator of the Project, Eng. Perez Wamburu will begin in the financial year 2021/2022. This is good news for the project that was almost derailed by populist, Zombie ideas. Wamburu expressed confidence that the Chinese Exim Bank will approve its loan application, perhaps early next year. Uganda’s decision adds the pressure on Kenya to extend the line to Malaba, on the Kenya-Uganda border. The China Exim Bank withheld funding for the whole project after a tiff between Kenya and Uganda forced Kenya to redesign the line to terminate in the Kisumu City of Kenya, on the shores of Lake Victoria.   Trouble for the line began in 2016 due to meddling by the Tanzani

 ETHIO- DJIBOUTI RAILWAY SUFFERS FROM THEFT AND VANDALISM, LEADING TO HEAVY REVENUE LOSS. Workers building embankments on the Kenyan SGR This headline, in an Ethiopian publication, Addis Standard of December7th, 2020, dismayed me. It reported about a meeting held by the Management of Ethiopia Railways Corporation and local residents of the Amhara Region. The purpose was to educate the local people on the benefits of the Railway line and to motivate them to protect it.   The Corporation, said the Managers, had lost 114 million Ethiopian Birr (US$2.961 million), in the quarter ending September 31, 2020, due to vandalism and theft of Railway infrastructure. This crime, said the Managers had forced the train, an electric train, to slow its speed from 80Kph to 50 Kph thus slowing freight movement between Addis-Ababa and Djibouti port, by six hours. The 705 MK journey would normally take 12 hours but now extends to 18 hours.   The Addis-Djibouti Railway line is the first electricity pr

The Electric train: underperforming  The race to modernize East Africa’s railways has triggered a hail of confusing false reports. So diffuse is the crap that, one could be forgiven for thinking our governments are run by buffoons who just sunk some US$ 20 billion down the drain.  The crap ranges from the absurd to the foolish. Here we intend to rubbish the crap. The root of this misinformation is twofold: the anti-Chinese sentiment in the West and propaganda by Tanzanian President Magufuli. Magufuli once lied that the Tanzanian Railway line will cost a million dollars a Kilometre. Most commentators on social media do not appear to have learned anything new since then.  Of course, government opacity on the projects also fed the misinformation. They should have answered such questions as; when was the decision to invest in high-speed railway lines made? Why? How and why were the contractors chosen? How were the costs determined, and by whom? How were the financiers chosen and why? Desp

Geothermal Plant: A reliable, cheap, and clean energy  source Technological advances in renewable sources of energy, coupled with policy-shift in favor of cheap energy, are putting the fossil fuels sector in jeopardy.  It is not just the industry whose future is bleak, but also economies that depend on Fossils fuels. The threat is compounded by the rapidly growing investment in green energy sources. The entry of electric or hybrid vehicles in the transport sector makes a bad situation worse. A number of reports reviewed by this publication show that Wind, Solar, and geothermal in that order, will play a significant role in electricity generation in the next 30 years. Experts say that fossil fuels, particularly Coal, will cease being an energy generation source in the next 30 years. In fact, projections show that by 2050, renewables- Wind, geothermal, and Solar- will have increased significantly to replace fossils as sources of energy. This is because, renewable energy sources are now

A geothermal Steam Gathering System  The stage is now set for Kenya’s 105MW geothermal electricity generation to take off. The US$108 million at the Menengai geothermal station is now complete, announced Africa Development Bank. The project involved well-drilling and construction of the Steam Gathering System (SGS). The bank, the co-financier of the development phase, says the project met all targets. These include drilling 50 Wells and construction of the steam gathering system.  It drilled 49 Wells producing enough steam to generate 170 MW against the initial target of 150MW. The report says that completion of the phase1 was a drawback to the financial closure of the IPP contract due to conditions attached to the deal.   Among the conditions were; approved PPA contracts and, Proof of Steam Supply Agreement, PISSA. These conditions could not be met before the completion of phase 1 since Menengai geothermal was a greenfield project.   However, the completion of this phase has met a

A Geothermal Power plant According to data deciphered from Kengen and Orpower4, Kenya’s leading geothermal power generators, the country has joined the top five largest producers of geothermal power in the world.   The data shows that Kenya’s total geothermal capacity is well past 1000MW, it now stands at 1125 MW.   It is already in the 1GW club!   This upends the the current global ranking which places Kenya at the seventh slot by ThinkGeoEnergy. The firm ranks Kenya number seven with an installed capacity of 861 MW. However, our analysis shows that, the data on which this ranking is based, is outdated.   But the confusion, our survey reveals, is of the generators’ making for they do not regularly update their data. Kengen’s website www.Kengen.co.ke for instance has two sets of data; one says that its installed capacity is 706 MW, and another that lists seven power stations with a total 975 MW capacity. In addition, the data ignores the 150 MW produced by Orpower4. Even here, t

   Risks of unbridled capitalism : Air pollution  The COVID -19 pandemic has exposed unbridled capitalism as fragile and myopic. It creates income disparities, low pay for essential workers, discrimination,  false hypotheses, state capture, and fragile economies.  Capitalism has been harshly indicted but no one wants it dead.  Instead. experts call for retooling of brutal capitalism.   “The American form of Capitalism is brutal. With very little public investment and very little Social safety nets” says professor Robert Reich of the University Of California Berkeley. In an interview with CNBC TV. https://www.youtube.com/watch?v=FQswOcLFYWg .   “It transfers wealth from the poor sections of the population to the rich,” said Bernie Sanders, a US Senator. "It is designed to favour the White Anglo-Saxon Protestant race which considers itself superior," argues professor Bill Spriggs of Howard University. https://www.marketplace.org/2020/06/18/for-too-long-economists-have-dodged-th

 Instability: Among the results of fragile economies According to the Economist’s broadcast channel, by the end of August 2020, the sovereign debt had hit $258 trillion worldwide. The US borrowed some 3 trillion dollars in the second quarter of this year. Other countries are also on a borrowing binge owing to the public health pandemic CoVID-19, much of it in the second quarter. According to the IMF, emerging markets have so far borrowed some US$125 billion in commercial loans over the same quarter. This has given rise to fears of global debt distress and defaults. Measures enforced to contain the public health crisis caused by COVID19 led to an economic crisis that gave birth to a “debt Pandemic.”       However, there appears to be new thinking about public debt that dispenses with frugality. In fact, some economists disparage frugality as a “Zombie idea” -a bad idea that lacks evidential support but still keeps influencing policy decisions. The former IMF Chief Economist, Oliv

 The COVID-19 Virus Thanks to COVID-19, public health has emerged as the top national security risk everywhere.  And it has triggered off a string of socioeconomic pandemics that no other shock before triggered:  There is rising; national debt; the collapse of economic activity; unemployment and surging incidence of poverty. The demand for governments to spend more to support the economy has never been so high!   In the past politicians and technocrats have treated Public health as a low priority risk. Ranking low after defense and public service salaries in budgetary allocations. They were always wrong! Even when the pandemic came calling, the response was lethargic at first. Torn between averting an economic and a public health disaster, they stuttered. They were unprepared for a sudden shock and bungled the COVID-19 pandemic as they did a hundred years earlier during the Spanish Flu pandemic of 1918-19. The scourge was sudden, extreme, and swift and there was no known cure. Epid

Zombie ideas are as destructive as terrorists  I have always found some economic hypotheses a paradox. They appear to belie the conclusions of the economic theories and their benefits, if any, appear transitory. Among the hypotheses are; higher minimum wages are a sure killer of jobs; tax cuts for the rich pay for themselves;  the private sector is more efficient than the public sector; market efficiency is the best  determinant of the true value of a factor of production.   There is no scientific evidence to back these beautiful sounding hypotheses. For instance, the hypothesis that higher minimum wages are a sure job killer is not persuasive when juxtaposed with factors that drive economic growth. Wealth creation is a function of demand: The higher the demand, the higher the production of goods and services, the higher profits and therefore, wealth.   The theory of demand teaches us that demand is effective when backed by money to buy the goods or services. So demand, call it c

Kenya Airways: Retooling Africa must fast track execution of the World’s largest free trade area agre ement,  AfCTA , experts say. AfCTA, which is expected to come into force in January  2021, is according to the Brookings Institution,  the stimulus needed to jump-start post- COV ID-19 economic recovery in the continent,   given its fiscal constraints. Among the areas that need urgent attention is, pharmaceutical production, where Africa is especially vulnerable, adds the Africa Trade Policy Centre . It should also prioritize intra-Africa trade . The pandemic shocked the entire world because it was “sudden, extreme, and spread rapidly,” says    Daniel Susskind of Oxford University.   Policy measures to contain it disrupt ed the entire economic spectrum of production, supply and demand resulting in the “self-inflicted economic devastation.”  Such devastation also taught some critical lessons and exposed glaring risks . Among these are the vulnerabilities in the current world econom