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Will there be a winner in Kenya's economic war with Tanzania?
By Dominic Omondi | Saturday, Jul 8th 2017 at 12:05
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[https://www]Congestion of containers at the port of Mombasa. (Photo: David Maundu/Standard)
The battle for regional supremacy between Kenya and Tanzania has reached a critical point.
Last week, the two East African giants locked horns as diplomatic relations hit yet another low, with Nairobi banning the importation of LPG and wheat from Dar es Salaam.
Tanzania responded furiously by banning exportation of unprocessed food including maize, thus shutting off the key ingredient for making ugali which has gone missing from the dining table of most Kenyan households.
As Kenya continues its desperate search for maize beyond its borders, it has turned to Tanzania’s neighbour Zambia to plug the deficit. Unfortunately, the shortest route for maize from the southern Africa nation is through Tanzania.
Nairobi has played down the tiff, even as Dar es Salaam sought answers from Kenya.
“It is a disappointment that in April this year we learnt through the Kenyan press that Kenya has banned the importation of cooking gas from Tanzania, and that all such imports must pass through the port of Mombasa,” said Tanzania’s Trade Permanent Secretary Adolf Mkenda in a statement.
“Following the decision, Tanzania sought official communication from Kenya as their decision is clearly a breach of the EAC trade and customs regulations. But on May 18, the Kenyan Government effected the ban by blocking the transportation of gas to Kenya at the border.”
The ‘Magufuli effect’ sent shock waves in the region last year, with the new Tanzania President John Magufuli vowing to seal all loopholes of pilferage and nipping graft in the bud. He also promised to institute policies to boost local production.
Indeed, a number of Kenyan companies have been locked out of Tanzania as Magufuli pursues policies aimed at protecting Tanzania’s infant industries.
An economic partnership agreement between the European Union and the East Africa Community has also become contentious, with Tanzania refusing to append its signature to the deal for fear that opening up to European goods will stifle local industries.
Although Kenya has denied ulterior motive in its latest decision — insisting that all imports of cooking gas and wheat be channelled through the port of Mombasa, (Energy Cabinet Secretary Charles Keter says importation of LPG through Namanga is unsafe) — Dar es Salaam sees this as part of Kenya’s bigger plan to continue its dominance of the regional economy through the port, or the Northern Corridor.
A recent report by transport and logistics company A.P. Moller-Maersk has indeed shown Kenya gaining an edge over Tanzania in their battle for ‘swing’ landlocked countries that have to move goods from the Indian Ocean.
Container trade along the Central Corridor (Dares Salaam gateway) has shrunk drastically even as that of the Northern Corridor (Mombasa) has expanded marginally, attributed to President Magufuli’s anti-business policies.
Export and import of goods through Dar es Salaam contracted by 12 per cent, which the report blames on Tanzania’s decision to increase import duties on cement, paper, sugar and furniture to protect local industries.
Tanzania has also recently banned export of locally-extracted minerals, aimed at inhibiting illegal movement of gold from the East African country.
Unfortunately, the policy has had an impact on the mineral industries in DRC, Zambia and Rwanda and contributed to the reduction in movement of containers through the port of Dar es Salaam.
Gerrishon Ikiara, an Economics lecturer at the University of Nairobi, says while President Magufuli’s extreme policies might be for the good of the country, they might be counter-productive, just like founding President Julius Nyerere’s socialist policies were after independence.
Narrow angle
“Most of those people who put up protectionist policies, including (United States President Donald) Trump do not understand the underlying economic principle. They look at something from a narrow angle without realising that investors are not loyal to government policies,” he says.
“While duties are an important source of revenue, companies can, however, shift cargo. Even a consumer who wants a car can decide to get it from the port of Mombasa.”
Ikiara’s colleague, Samuel Nyandemo says Magufuli’s “impromptu decisions” are causing a lot of uncertainty which Kenya can capitalise on.
“During President Benjamin Mkapa’s time, Dar es Salaam port was doing very well — even during Jakaya Kikwete’s time,” says Dr Nyandemo, who fears Magufuli might be returning Tanzania to the dark days.
However, Kenya is far from winning the port war.
“While conditions in the East Africa region have continued to be challenging due to political instability, ongoing macro-economic headwinds and drought affecting certain countries, we’re seeing healthy competition between the two corridors, both jostling for positions in terms of the ‘swing’ countries that could export or import cargo through either corridor, specifically Rwanda, Burundi and Uganda,” says Maersk Line Eastern Africa Managing Director Steve Felder.
And with the World Bank approving Sh36 billion for the expansion of the port of Mombasa (supposed to be port of Dar es salaam), the war is far from over. Besides the gaffe from Magufuli, improvements of the port of Mombasa might have worked in favour of the Northern Corridor.
Mombasa handled 13.8 million tonnes of cargo in 2016 — an increase from 10.4 million in 2011 — reflecting an average growth of nine per cent per year, according to the World Bank.
Tanzania wants to raise its capacity to 28 million tonnes a year by 2020.
The completion of the second terminal at the port of Mombasa and dredging have enabled the facility to receive more ships. Time taken to move a container from the port to Rwanda has also reduced by 60 per cent.
Reduced duty
Moreover, the Government’s decision to reduce import duty on some items has given Kenya an edge to become “one of Africa’s great success stories,” according to the authors of a report by Maersk titled, Healthy Corridor Competition, Tentative Signs of Recovery amid Policy Uncertainty.
“An important factor impacting largely in a positive way (is) import duty changes from the most recent budget. For example, the reduction in corporate tax for vehicle assembly companies, duty exemptions on goods exported to Special Economic Zones (SEZ) and imports by enterprises licensed under the SEZ Act,” says Mr Felder.
Both countries have put in place elaborate plans to ensure they win the battle of economic supremacy. And even as Kenya embarks on building a 32-berth port at Lamu under the Lamu Port South Sudan Ethiopia Transport (LAPSSET) Corridor, Tanzania has also inked a deal with the Chinese that will see Dar es Salaam develop one at Bagamoyo, which is expected to handle about 20 million containers.
It has been billed as East Africa’s race for the biggest port.
Mr Felder does not believe that Tanzania’s objective in increasing import duty is solely aimed at discouraging imports into the country.
“Part of this (policy to increase import duty) is to stimulate local industry, such as sugar production, but there is also a definite drive for increased tax collection in the country,” he says.
If anything, says Maersk, Kenya’s policy environment has not been all that good. As such, while imports through the Northern Corridor improved by six per cent in the first quarter of 2017 compared to the first quarter of 2016, exports plunged by 10 per cent.
Drought contributed to the significant drop in the export of tea — the biggest containerised export by volume saw a market reduction of 20 to 25 per cent during the first quarter. Export of soda ash, used in the manufacture of glass, and fish from Lake Victoria also declined.
Kenya’s decision to cap bank interest rates has also hurt business, with credit extension to the private sector at its lowest.
“In Kenya, liquidity is still very tight, caused by last year’s interest rate capping on the bank lending rate,” says Mr Felder.
In addition, as the construction of the Standard Gauge Railway (SGR) has come to an end — at least for the first phase — there will be less ships docking at Mombasa with SGR materials.
“Activities of the Chinese here have contributed to a lot of the cargo coming through Mombasa for the SGR,” says Dr Ikiara.
Tanzania is also in the process of building a similar rail, perhaps better as it will be electric-driven while Kenya’s is diesel-driven.
“The concept of this development is very similar to that in Mombasa, and will ultimately link Tanzania to a number of hinterland countries,” says the report by Maersk.
Kenya’s competitiveness in the short run will depend on how the upcoming elections end, it adds. “Looking forward, the development along the Northern Corridor will very much depend on the Kenyan elections, and the extent to which they are peaceful.”
Already, Ugandan traders are said to have opted for the Central Corridor, fearing the outcome of Kenya’s General Election on August 8.
Will there be a winner in Kenya's economic war with Tanzania?
By Dominic Omondi | Saturday, Jul 8th 2017 at 12:05
Share Tweet
[https://www]Congestion of containers at the port of Mombasa. (Photo: David Maundu/Standard)
The battle for regional supremacy between Kenya and Tanzania has reached a critical point.
Last week, the two East African giants locked horns as diplomatic relations hit yet another low, with Nairobi banning the importation of LPG and wheat from Dar es Salaam.
Tanzania responded furiously by banning exportation of unprocessed food including maize, thus shutting off the key ingredient for making ugali which has gone missing from the dining table of most Kenyan households.
As Kenya continues its desperate search for maize beyond its borders, it has turned to Tanzania’s neighbour Zambia to plug the deficit. Unfortunately, the shortest route for maize from the southern Africa nation is through Tanzania.
Nairobi has played down the tiff, even as Dar es Salaam sought answers from Kenya.
“It is a disappointment that in April this year we learnt through the Kenyan press that Kenya has banned the importation of cooking gas from Tanzania, and that all such imports must pass through the port of Mombasa,” said Tanzania’s Trade Permanent Secretary Adolf Mkenda in a statement.
“Following the decision, Tanzania sought official communication from Kenya as their decision is clearly a breach of the EAC trade and customs regulations. But on May 18, the Kenyan Government effected the ban by blocking the transportation of gas to Kenya at the border.”
The ‘Magufuli effect’ sent shock waves in the region last year, with the new Tanzania President John Magufuli vowing to seal all loopholes of pilferage and nipping graft in the bud. He also promised to institute policies to boost local production.
Indeed, a number of Kenyan companies have been locked out of Tanzania as Magufuli pursues policies aimed at protecting Tanzania’s infant industries.
An economic partnership agreement between the European Union and the East Africa Community has also become contentious, with Tanzania refusing to append its signature to the deal for fear that opening up to European goods will stifle local industries.
Although Kenya has denied ulterior motive in its latest decision — insisting that all imports of cooking gas and wheat be channelled through the port of Mombasa, (Energy Cabinet Secretary Charles Keter says importation of LPG through Namanga is unsafe) — Dar es Salaam sees this as part of Kenya’s bigger plan to continue its dominance of the regional economy through the port, or the Northern Corridor.
A recent report by transport and logistics company A.P. Moller-Maersk has indeed shown Kenya gaining an edge over Tanzania in their battle for ‘swing’ landlocked countries that have to move goods from the Indian Ocean.
Container trade along the Central Corridor (Dares Salaam gateway) has shrunk drastically even as that of the Northern Corridor (Mombasa) has expanded marginally, attributed to President Magufuli’s anti-business policies.
Export and import of goods through Dar es Salaam contracted by 12 per cent, which the report blames on Tanzania’s decision to increase import duties on cement, paper, sugar and furniture to protect local industries.
Tanzania has also recently banned export of locally-extracted minerals, aimed at inhibiting illegal movement of gold from the East African country.
Unfortunately, the policy has had an impact on the mineral industries in DRC, Zambia and Rwanda and contributed to the reduction in movement of containers through the port of Dar es Salaam.
Gerrishon Ikiara, an Economics lecturer at the University of Nairobi, says while President Magufuli’s extreme policies might be for the good of the country, they might be counter-productive, just like founding President Julius Nyerere’s socialist policies were after independence.
Narrow angle
“Most of those people who put up protectionist policies, including (United States President Donald) Trump do not understand the underlying economic principle. They look at something from a narrow angle without realising that investors are not loyal to government policies,” he says.
“While duties are an important source of revenue, companies can, however, shift cargo. Even a consumer who wants a car can decide to get it from the port of Mombasa.”
Ikiara’s colleague, Samuel Nyandemo says Magufuli’s “impromptu decisions” are causing a lot of uncertainty which Kenya can capitalise on.
“During President Benjamin Mkapa’s time, Dar es Salaam port was doing very well — even during Jakaya Kikwete’s time,” says Dr Nyandemo, who fears Magufuli might be returning Tanzania to the dark days.
However, Kenya is far from winning the port war.
“While conditions in the East Africa region have continued to be challenging due to political instability, ongoing macro-economic headwinds and drought affecting certain countries, we’re seeing healthy competition between the two corridors, both jostling for positions in terms of the ‘swing’ countries that could export or import cargo through either corridor, specifically Rwanda, Burundi and Uganda,” says Maersk Line Eastern Africa Managing Director Steve Felder.
And with the World Bank approving Sh36 billion for the expansion of the port of Mombasa (supposed to be port of Dar es salaam), the war is far from over. Besides the gaffe from Magufuli, improvements of the port of Mombasa might have worked in favour of the Northern Corridor.
Mombasa handled 13.8 million tonnes of cargo in 2016 — an increase from 10.4 million in 2011 — reflecting an average growth of nine per cent per year, according to the World Bank.
Tanzania wants to raise its capacity to 28 million tonnes a year by 2020.
The completion of the second terminal at the port of Mombasa and dredging have enabled the facility to receive more ships. Time taken to move a container from the port to Rwanda has also reduced by 60 per cent.
Reduced duty
Moreover, the Government’s decision to reduce import duty on some items has given Kenya an edge to become “one of Africa’s great success stories,” according to the authors of a report by Maersk titled, Healthy Corridor Competition, Tentative Signs of Recovery amid Policy Uncertainty.
“An important factor impacting largely in a positive way (is) import duty changes from the most recent budget. For example, the reduction in corporate tax for vehicle assembly companies, duty exemptions on goods exported to Special Economic Zones (SEZ) and imports by enterprises licensed under the SEZ Act,” says Mr Felder.
Both countries have put in place elaborate plans to ensure they win the battle of economic supremacy. And even as Kenya embarks on building a 32-berth port at Lamu under the Lamu Port South Sudan Ethiopia Transport (LAPSSET) Corridor, Tanzania has also inked a deal with the Chinese that will see Dar es Salaam develop one at Bagamoyo, which is expected to handle about 20 million containers.
It has been billed as East Africa’s race for the biggest port.
Mr Felder does not believe that Tanzania’s objective in increasing import duty is solely aimed at discouraging imports into the country.
“Part of this (policy to increase import duty) is to stimulate local industry, such as sugar production, but there is also a definite drive for increased tax collection in the country,” he says.
If anything, says Maersk, Kenya’s policy environment has not been all that good. As such, while imports through the Northern Corridor improved by six per cent in the first quarter of 2017 compared to the first quarter of 2016, exports plunged by 10 per cent.
Drought contributed to the significant drop in the export of tea — the biggest containerised export by volume saw a market reduction of 20 to 25 per cent during the first quarter. Export of soda ash, used in the manufacture of glass, and fish from Lake Victoria also declined.
Kenya’s decision to cap bank interest rates has also hurt business, with credit extension to the private sector at its lowest.
“In Kenya, liquidity is still very tight, caused by last year’s interest rate capping on the bank lending rate,” says Mr Felder.
In addition, as the construction of the Standard Gauge Railway (SGR) has come to an end — at least for the first phase — there will be less ships docking at Mombasa with SGR materials.
“Activities of the Chinese here have contributed to a lot of the cargo coming through Mombasa for the SGR,” says Dr Ikiara.
Tanzania is also in the process of building a similar rail, perhaps better as it will be electric-driven while Kenya’s is diesel-driven.
“The concept of this development is very similar to that in Mombasa, and will ultimately link Tanzania to a number of hinterland countries,” says the report by Maersk.
Kenya’s competitiveness in the short run will depend on how the upcoming elections end, it adds. “Looking forward, the development along the Northern Corridor will very much depend on the Kenyan elections, and the extent to which they are peaceful.”
Already, Ugandan traders are said to have opted for the Central Corridor, fearing the outcome of Kenya’s General Election on August 8.
Will there be a winner in Kenya's economic war with Tanzania?