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| Konza City the Kenyan Dream |
Kenya Airways CEO Titus Naikuni expressed his frustration last month over the controversies bedeviling the construction of a new terminal at Jomo Kenyatta International Airport (JKIA).
Delays to the
$655-million project, dubbed the Greenfield Terminal, were caused by
controversies surrounding the award of the contract to Chinese company Anhui
Construction Engineering Group.
Naikuni said these did not auger well
for the national carrier, which is in the midst of implementing an ambitious
expansion programme, partly as a response to rising competition from other
airlines on the continent. He expressed concern that a possible protracted
interruption could undermine the airline’s growth aspirations.
“The significance of this project to
our continued profitability as an airline cannot be underestimated. Kenya
Airways and its partners in the SkyTeam Alliance will contribute 70% to 80% of
the traffic to this new terminal,” he said.
Such frustrations and lamentations are
not isolated. In many ways, they are represent-ative of broader anxiety –
expressed by both foreign and local investors – over the state of the country’s
infrastructure.
In fact, many argue that Kenya’s
energy, transport, information and communications technology (ICT), and water
and sanitation backlogs are the major constraint to a further acceleration in
private-sector-led growth.
Compared with countries
such as South Africa, Egypt and Ghana, against which Kenya is increasingly
seeking to benchmark itself, the East African nation is facing acute
growth-constraining infrastructure deficits.
For instance, high
energy costs have nearly crippled the manufacturing sector, which, according to
the Economic Survey 2012, contracted to record growth of 3.3% in 2011, compared
with 4.4% the previous year and 9.8% in 2006.
Meanwhile, bottlenecks and
inefficiencies at the Port of Mombasa mean that it takes at least seven days to
clear cargo and another 14 days to transport the same cargo to Rwanda by road
owing to the nonexistence of a properly functioning railway network. The
existing network, which is over a century old, is a relic that is struggling to
remain afloat, even after being concessioned to private operator Rift Valley
Railways (RVR).
It is common cause that low levels of
investment in infrastructure development for four decades have significantly
hampered economic growth in East Africa’s largest economy. According to the
World Bank, infrastructure contributed 0.5 percentage points to Kenya’s annual
per capita gross domestic product (GDP) growth in the past decade. If Kenya
could raise the infrastructure endowment to that of Africa’s middle-income
countries, this would increase contribution by three percentage points.
But to reverse the infrastructure
deficit, the country requires sustained expenditure of about $4-billion a year
(20% of GDP) over the next decade. “Kenya’s infrastructure compares favourably
with that of its neighbours, but it still falls short of what is needed to
reach middle-income status,” comments World Bank country director Johannes
Zutt.
Betting on Infrastructure
The realisation that infrastructure
investments are key to accelerating economic growth and supporting the
development ambitions outlined in the country’s growth blueprint, the Kenya
Vision 2030 master plan, has prompted the authorities to prioritise
infrastructure projects.
“No country has achieved and sustained
a high economic growth rate with poor infrastructure. That is why we have
decided to accelerate the expansion and rehabilitation of our infrastructure to
enhance our efficiency and become globally competitive,” Planning, National
Development and Vision 2030 Minister Wycliffe Oparanya tells Engineering News.
The current thinking in government of
infrastructure being a growth catalyst has been captured in consecutive fiscal
estimates, where Budgetary allocations for infrastructure projects have been
increased yearly. In the 2012/13 financial year, government allocated
$3.2-billion for various projects – a significant amount, compared with the
$914-million allocated seven years ago. The current allocation, however, still
falls short of the $4-billion that the World Bank contends Kenya must spend to
tackle its deficits.
To finance the programmes, the government
of Kenya has been borrowing heavily from both bilateral and multilateral
development institutions, including the World Bank, the International Monetary
Fund and the European Investment Bank. In recent years, Kenya has also floated
at least two inter- national infrastructure bonds that have raised
$466.5-million and increased borrowing from the domestic market.
The authorities have also been pushing
for private-sector participation through public–private partnership (PPPs). To
encourage the private sector to be more actively involved, government has
drafted a PPP Bill, which has already been tabled in Parliament for enactment.
The Bill clearly defines the terms
under which the private sector can be involved in infrastructure projects,
which is a departure from the present situation, whereby the private sector is
uncomfortable with a set of ambiguous regulations. “PPPs offer an opportunity
for Kenya to attract enhanced private- sector participation in infrastructure
projects in order to close this huge funding gap,” observes Oparanya.
Kenya is also increasingly looking
East, particularly to China, India and Japan, for new funding sources. And in
recent years, Brazil has also been identified as a potential funding partner.
Kenya is a major
beneficiary of the $20- billion loan facility that the Chinese govern- ment has
pledged for the African continent. Today, most of the huge infrastructure
projects are financed and implemented by the Chinese. “We have been comfortable
dealing with China because they don’t have conditionalities like the West,” the
Minister avers.
But this dependence on debt, both
foreign and local, to finance infrastructure projects is generating new
challenges for Kenya.
According to Institute of Economic Affairs
CEO Kwame Owino, the heavy borrowing could eventually lead to a debt crisis.
“Every loan agreement that Kenya signs to finance infrastructure projects
increases the burden of the external debt. This will get to a point whereby the
country will be using a huge chunk of taxes to service the debts instead of
[financing] development projects,” he explains.
A study by the Kenya Debt Relief
Network, a nongovernmental organisation, argues that the country is already
heavily indebted. The study indicates that, in 2011, Kenya’s external debt rose
by 5.2% to $6.5-billion from $6.2-billion in June 2009. Apart from the
worsening burden of the external debt, the substantial domestic borrowing by
government of Kenya is making access for credit for the private sector
expensive.
Powering Up
But the authorities believe that such
leverage is acceptable in the context of the material opportunity loss
associated with the current backlogs. Accelerating investments in
infrastructure, thus, remains a priority.
While the whole spectrum of Kenya’s
infra- structure needs improving and rehabilitating, government is
concentrating on the critical areas first. Emphasis is being placed on energy,
transport and ICT, which, according to Vision 2030, are the foundations of
national transformation.
In the energy sector, where the
country continues to experience recurring challenges owing to low investments
in the past, a staggering $7.2-billion is being invested in generation,
transmission and distribution projects required to solve current problems, meet
demand and drive growth over the next eight years.
According to the energy master plan,
$4.7-billion will be invested in generation projects, $1.9-billion in
transmission facilities and $560-million in distribution facilities.
Kenya currently has a
total installed capacity of 1 359 MW, compared with a peak demand of 1 250 MW.
But, as the economy expands, demand is estimated to grow at an average of 8% a
year. It is, therefore, estimated that Kenya requires at least 7 000 MW by 2020
and 15 000 MW by 2030.
“Kenya has a power
surplus of about 15%, which is extremely low, compared with a world average of
about 40%. For the country to get to that level, new projects must come on
stream,” says Energy permanent secretary Patrick Nyoike.
Among the key projects currently under
way in the energy sector are the 400 MW geothermal power project, being
implemented by the Geothermal Development Company, in Menengai, and the 280 MW
plant, being constructed by the Kenya Electricity Generat-ing Company.
Apart from exploiting its geothermal
potential, estimated at 15 000 MW, Kenya is also seeking to generate
electricity from wind, nuclear, small hydro, coal and solar. Already a 400 MW
wind power plant is nearing completion in northern Kenya, while proposals for
constructing a 1 000 MW nuclear plant and a 400 MW coal-powered plant are at an
advanced stage.
Resources are also being pumped into
transmission and distribution facilities. Key transmission facilities include
the 400 kV, 450 km high-voltage line from Mombasa to Nairobi, the 686 km, 500
kV bipolar line connecting Kenya and Ethiopia and the 400 kV double-circuit
line linking Kenya with Tanzania. “The goal of these transmission lines is to
create an Eastern and Southern power pool to facilitate power trade in the
region,” explains Nyoike, adding that Kenya has already signed an agreement
with Ethiopia to import 400 MW from 2016.
He says the recent discovery of oil in
northern Kenya and the extensive exploration activities in various oil blocks
could save Kenya the billions being spent on oil and oil products importation
in the coming years. Currently, Kenya spends $2.6-billion annually on oil
imports. Kenya is also pushing ahead with other infrastructure priorities,
particularly in the transport sector.
Super Highway
In October, the country will
commission the first super highway in East Africa. Arguably,
the $350-million Thika Super Highway is the embodiment of the massive resources
Kenya is pumping to improve and rehabilitate the road network across the
country. At least $735.2-million has been spent on the road network over the
past five years in tar- macking over 2 700 km and rehabilitating over 4 000 km.
With the road network coming back to
life, focus is now being directed to railways, airports and ports. In 2006,
Kenya concessioned the existing age-old railway network to RVR, hoping the
private investor would upgrade the system to make it efficient. However,
protracted shareholding wrangles in RVR and delays in securing financing have
been crippling. Recently, RVR was able to secure a $168-
million loan from a consortium of financers to facilitate a five-year
turnaround programme.
But delays in improving the network
prompted the Kenya government to invest in a parallel network. In effect,
government is seeking funds to construct a standard-gauge railway line to link
Kenya with Uganda. And to ease transport flow and decongest roads in the
capital, Nairobi, a total of $315-million is being spent to implement a
commuter railway service.
East Africa’s Gateway
According to Zutt, the efforts being
made to improve the internal transport systems are commendable but for Kenya to
become sustainably competitive, it needs an effective and reliable gateway
system. “Kenya depends heavily on imports. This makes it critical to have a
proper functioning gateway,” he reckons.
Despite the controversies involving
the Greenfield Terminal, to be constructed adjacent to JKIA, an elaborate
expansion programme of JKIA has been ongoing since 2006 at a cost of
$208-million. The expansion involves construction of aprons, taxiways, more
parking areas and other associated facilities to enable the airport to handle
increasing passenger numbers. JKIA was originally designed to handle
2.5-million passengers yearly, but is now handling over 4.8-million passengers
and the traffic is expected to grow at a rate of 6% a year. The country has
also completed the expansion of Kisumu International Airport and is
rehabilitating airstrips.
To be an effective
gateway, though, Kenya will need to make major improvements to its ports. For
years, Kenya and several East African countries like Uganda, Rwanda, Burundi
and the Democratic Republic of Congo have depended on the Port of Mombasa for
their imports and exports. The facility has been stretched to a point where it
has become a bottleneck to the economies of the region.
Therefore, a $2-billion expansion
programme has been launched, which involves the dredging and construction of a
second terminal. The investment is designed to improve efficiency and position
the facility for estimated throughput growth of 10% a year.
Besides enhancing the reliability of
the Port of Mombasa, Kenya is also constructing another port in Lamu, which
forms part of the ambitious Lamu Port–South Sudan–Ethiopia Transport (Lapsset)
corridor project, which has a price tag of $24.6-billion.
The project, which has
been termed a ‘game changer’ in terms of pushing the economic development of
Kenya, South Sudan and Ethiopia, involves the construction of the Port of Lamu,
oil pipelines linking the port with South Sudan’s oilfields, a medium-size
refinery, a standard-gauge railway line and two airports, besides other
facilities. “Lapsset will contribute significantly to the economy. It will be a
catalyst for productive economic activities in various sectors,” notes
Oparanya.
Apart from propelling growth, a
critical aspect about Lapsset is the fact that it will open up a largely
neglected area of Kenya, enabling it to participate in economic activities.
This is because, currently, nearly the entire eastern region, which covers the
Lapsset corridor, plays a minimal role in the economy.
Rural Development
The push to open up rural economies is
also being facilitated through investments in ICT and social amenities like
safe and reliable water and sanitation facilities. In ICT, Kenya has invested
in fibre-optic cables like the Eastern Africa Submarine Cable System, the East
Africa Marine System and the Seacom sub-marine fibre-optic network system with
the aim of linking Kenya with the outside world. The cables, which have
facilitated the growth of the ICT sector, have significantly enhanced
communication. Today, over 80% of the Kenyan population has access to mobile
telephony, compared with less than 20% a decade ago.
The next level in ICT, on which Kenya
is set to embark, is investment in hubs that will enable Kenya to compete with
countries like India in business processes outsourcing.
In April 2013, the East African nation
will start implementation of its equivalent of the US’s Silicon Valley, with
the construction of the Konza Technology City. The $7-billion techno city is
aimed at transforming Kenya into a knowledge-based economy. Besides Konza City,
Kenya also plans to invest in at least 47 technology parks that will be located
within special economic zones.
If Kenya maintains the current pace of
infrastructure investments, economists believe its transformation into a
middle-income economy will not remain a deferred aspiration. But for this to be
a reality, the country must find a way to shield the projects from political
transition from one administration to another.
So far, all the ongoing projects have
been conceived and are being implemented by the current regime. But with Kenya
gearing for a transitional general election in March next year, the country can
only hope the new regime will maintain or accelerate infra- structure
investments.
“New governments have a habit of
discarding projects started by their predecessors and this could prove costly
if it happens after the elections,” says Owino. Kenya has attempted to
circumvent such an eventuality by adopting the Vision 2030 master plan as a
national document.
John Muchira Engineering News Magazine