The race for regional rail supremacy

East African countries have rushed to build new railroads and faced many problems. Tanzania is now building its own. Will it learn from Kenya’s and Ethiopia’s troubles?

If you have been to Dar es Salaam lately, you must have noticed the striking pillars under construction that will carry Tanzania’s new railway over the 154-year-old coastal city.

The former capital of East Africa’s most populous country is the launch point of a 1,457km railway line that will, if everything goes according to plan, connect Rwanda, Burundi and the Democratic Republic of Congo to the coast line. Tanzania entered this side of the logistics infrastructure race a bit later than her neighbours, Kenya and Ethiopia. Both Nairobi and Addis Ababa are now connected to coastlines by Chinese-built standard gauge railways (SGRs).

While plans for new railway infrastructure in the region go back decades, Dodoma chose to pause and watch her neighbours, as a Kenyan financial journalist wrote in The Standard: “the way a second-born child would do, lurking in the shadows and learning from the mistakes of his elder brother, then retreating to plot how to do a better job when his turn came.”

Kenya’s President Uhuru Kenyatta commissioned the country’s SGR passenger services in mid-2017, followed by its cargo services six months later. The first phase connected the coastal city of Mombasa with the capital, Nairobi, and ran along the older, British-built railway.

The second phase, dubbed “Phase 2A” and launched in late 2019, connects Nairobi to Suswa, an uninhabited expanse of land in the country’s Great Rift Valley. It cost KSh150bn ($1.5bn) and was funded by China, which withheld funding for the rest of the line earlier this year.

Ethiopia had commissioned its 756km railway, which ends in neighbouring Djibouti, in October 2016. These projects were part of a regional master plan, signed in 2008, to build new railways and logistics infrastructure within the next decade.

Different angle

From the outset, Tanzania, which has always gone it alone in the region – by not, for example, signing the region’s railway master plan in 2008 – chose to work on its rail project from a different angle. Unlike Kenya and Ethiopia, both of which ended up heavily indebted to China for their new railway lines, Tanzania sourced part of its railway financing from the Export Credit Bank of Turkey and Standard Chartered Bank.

It also contracted non-Chinese companies: the first two phases are being built by Yapi Merkezi of Turkey and Mota-Engil Africa of Portugal. If it secures financing for the three remaining phases: Makutupora-Tabora (294km), Tabora-Isaka (133km) and Isaka-Mwanza (248km), Tanzania will float separate tenders.

The result, according to Luis Francheschi, dean of Strathmore Law School in Kenya, and other researchers, is a cheaper project that will leave Tanzania far less indebted than her regional counterparts.

“Kenya’s and Ethiopia’s SGR projects impacted significantly the amount of their debt to China and generally their ratio of debt relative to GDP,” researchers wrote in the Daily Nation in December 2019, “As of 2017, Ethiopia and Kenya ranked the second and third highest Chinese debtors on the continent respectively. Their debt relative to GDP has also risen exponentially compared to Tanzania’s.”

Further complicating matters is the fact that, despite accumulating debt and government focus over the past decade, Kenya and Ethiopia’s SGR’s have not delivered what they promised.

One reason was the choices both countries made on the route, financing, and repayment of the loans they took to build the railway. For example, the Kenyan and Ethiopian SGRs force passengers and freighters to seek last-mile connections, because the start and end stations were built away from urban centres.

The plan in both countries failed for many reasons, chief among them being an economic downturn in both Kenya and Ethiopia after a long period of spectacular growth.

Without requisite additional economic incentives to use the new line, for example, the Kenyatta administration has struggled to balance between debt repayments and missed revenue targets. Before and since the launch of the first phase in the lead up to the 2017 general elections, questions have lingered over the entire project’s cost, viability and economic impact.

In Ethiopia, the political upheaval that escalated around the same time the new railway became operational meant it was not the main focus of the ruling party. But unlike Kenya which has road access to the sea, Africa’s second most populous country is landlocked, and worked faster to provide the link roads and other infrastructure needed to make the railway work.

During the second Belt and Road Forum for International Cooperation (BRF) in April 2019, Beijing cancelled all accumulated interest rate repayments owed by Addis Ababa up to 2018. At the same time, it declined to sign funding for the $3.6bn third segment of Kenya’s SGR, which would have brought the line closer to Uganda.

In 2018, China had asked Kenya and Uganda to do a commercial viability study of the entire project, after it became clear that the first phase had not met expectations and was making a loss of $7.4m a month during its first year of operations.

Cheaper alternative
The absence of a funding deal means that Uganda will wait even longer to build its railway. In October 2018, the landlocked East African country suspended its plans to extend the SGR from Malaba, located on its eastern border with Kenya, to Kampala.

Now starved of the capital to complete the railway line, both Kenya and Uganda are seeking funding to revamp their old metre-gauge railways as a short-term solution.

If the new plan works, cargo will have to be transported from Mombasa to Suswa on the new railway, by road to a new inland port in Naivasha, and then onwards on the old railway to the border with Uganda.

But that plan might also be hard to achieve. After Nairobi decided to go for the cheaper alternative, its first choice of contractor quoted a price triple the government’s original estimate of Shs.21 billion. By February 2020, The Daily Nation reported, the new inland port that was launched in December 2019 remained idle.

One saving grace might be the African Union’s decision in January this year to adopt another of the region’s major plans, the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor project, as a regional project.

While the project is separate from the SGR, it could make Kenya a more attractive route to and for Uganda, and other landlocked Great Lakes countries.

Profitability matters
Another lesson Tanzania will learn from Kenya is how not to try and make its new railway profitable. The Dar es Salaam equivalent in Kenya, the coastal city of Mombasa, has been the hardest hit by Kenyatta’s administration’s attempts to improve the railways’ revenues. It, for example, issued a short-lived directive to have all inbound cargo hauled by the SGR, cutting off primary business for road freighters and others.

Tanzania has also learnt from the financing mistakes of its regional peers. It is, for example, working with the Africa Trade Insurance Agency (ATI) on a plan that would see the insurer provide a ‘credit wrap’ for sovereign bonds and other international financing structures. ATI, already involved in the SGR project and other sectors, has helped Dodoma attract more than $2bn, but said in early February that it wants to do much more.

According to the project manager, Machibya Masanja, the first phase of the new line was 72% finished by early February 2020 and would be completed by April.

The initial plan was to cross into the new decade with the first phase complete, but heavy rains, which caused flooding throughout East Africa, disrupted construction of vital sections in Morogoro. Heavy rainfall is expected again in March and April, and may affect plans to begin formal testing in May.

When it does become operational, it will be the third such project in East Africa. It will also be the cheapest so far, and carry the hope of the region that it will fare better than its peers.



A train arrives at Mai Mahiu station in Kenya/ Zhang Yu/Xinhua/MAXPPP

''Hapa Kazi tu!

Credit: The Africa Report.com

Tanzania’s SGR on track after govt secures $1.46b more for project
Credit: The East African

Tanzania has had a breakthrough in its standard gauge railway (SGR) external financing and the government no longer has to dig into its pockets to complete the $7.6 billion project.
On Thursday, the government signed a facility agreement with Standard Chartered Bank for a $1.46 billion loan to finance the construction of the first and second phases of the project, covering a distance of approximately 550km from Dar es Salaam to Makutupora.

Standard Chartered Tanzania acted as global co-ordinator, bookrunner and mandated lead arranger on the facility agreement that is the largest foreign currency financing raised by the Ministry of Finance to date. Tanzania had resorted to spending money from its coffers to finance the project which up to its completion is estimated to cost about $7.6 billion.

Potential financier

The Minister of Finance and Planning, Dr Philip Mpango said the biggest component of the financing comes from the Export Credit Agency Covered Facility from the Export Credit Agencies of Denmark and Sweden.

According to the Tanzania Railways Corporation’s latest reports on expenditure the project has so far spent an estimated $1.2 billion for two phases. The corporation’s project manager Machibya Kadogosa confirmed to The EastAfrican in an exclusive interview that, the two phases are currently being constructed by a Turkish firm Yapi Merkezi, in partnership with Portuguese firm Mota-Engil Africa. The first phase is completed by 72 per cent.

Incidentally, three months ago, another potential financier, Trade and Development Bank for Eastern and Southern African, had expressed its willingness to grant a soft loan to help facilitate development of mega economic projects currently going on in the country. The bank’s president, Dr Admassu Tadesse, pledged to co-operate with the country when meeting with Finance Minister Dr Phillip Mpango in Dodoma, and the two held talks on the county’s development vision.

Agenda 2063

On Monday, the African Union said it was preparing to implement two cross-border high-speed train projects, the first infrastructure projects of its kind, according to AU’s Commissioner for Infrastructure and Energy Abou-Zedi Amani.

“One flagship project of Agenda 2063 is a high-speed train connecting African capitals,” said Mr Amani, adding that the Bujumbura-Dar es Salaam line is one of the two train projects. The continental high-speed train project is part of the AU’s flagship Programme for Infrastructure Development in Africa (Pida) launched in 2012.

The programme aims to support the overall goal of Agenda 2063 designed to boost socio-economic transformation on the continent in the coming decades. The Pida will focus on smart and integrated corridor approaches, renewable energy, job creation, and digitalisation.
“We are happy to announce that we have finalised the masterplan for the high-speed trains approved by African ministers last year. Once fully implemented, these projects will be among the important achievements of the AU,” said Amani.

Unconditional loans

Tanzania had, in the past year, struggled to get funding from external sources for the project from various international donors and banks. At some point, the government through the Minister for Foreign Affairs and East Africa Co-operation, Prof Palamagamba Kabudi, announced that it was seeking to acquire unconditional loans from the Republic of China to fast track the construction.

But while Prof Kabudi was saying this at the Forum on China-Africa Co-operation in Beijing, the government was also busy mobilising money to fund the project as quick as possible.

Dar’s SGR on track after govt secures $1.46b loan