The inauguration of a $3.2-billion Chinese-funded railway, linking the port of Mombasa to the Kenyan capital Nairobi with future extension to the border with Uganda, promises to be a game changer. But only if sticky issues, such as harmonization of procedures and charges, in East Africa are sorted out.
Being part of China’s “One Belt, One Road” initiative that targets to upgrade maritime and land trade routes between China and Europe, Asia and Africa, the potential benefits of the railway are huge – not just for businesses in Kenya but the region as a whole.
With offers of haulage charges of $0.08 per ton per kilometer on Kenya’s new standard gauge railway (SGR), there is hope for bigger returns for businesses. For years they have had to endure the pain of costly road transport and equally expensive and unreliable service on a dilapidated railway system built by British colonialists more than a century ago.
“Today, the cost of transport along the northern corridor accounts for up to 45 percent of the goods and services in the region. The high costs make it hard for businesses to compete effectively on both the global and the local markets. We expect these costs to reduce significantly with the SGR,” the Kenya Private Sector Alliance (KEPSA) says.
Industry estimates show that hauling a 40-foot container from the port of Mombasa to the Ugandan capital, Kampala, by truck costs about $3,030 exclusive of handling and clearing fees – which captures why businesses long for cheaper options, such as an efficient railway.
Neighboring landlocked Uganda and Rwanda also plan similar SGR projects that would boost efficient haulage of cargo to the various sea ports in Mombasa or Tanzania’s Dar es Salaam and Tanga.
Nonetheless, authorities in East Africa must address all bottlenecks being experienced at the various gateway ports to the region if the SGR projects are to succeed. The challenges due to bureaucratic port procedures and conflicting charges have been a thorny issue for businesses and investors in the region.
Kenya and Tanzania that host the gateway ports have been under the spotlight for dragging their feet in the harmonization of their port procedures and charges to ease flow of shipment to landlocked states in East Africa.
A recent audit of operations at the Mombasa and Dar es Salaam ports confirmed hitches for
traders from Burundi, Rwanda and Uganda, which affected the overall performance of trade in the region. The matter was in fact formally tabled to the East Africa Community (EAC) leadership in 2015.
“The two ports could consider harmonizing their port charges, grace period and penalties, in view of the implementation of the EAC single customs territory,” Burundi said in a report to the bloc’s secretariat.
“The two countries should consider allowing clearing and forwarding agencies to go to work at Dar es Salaam and Mombasa ports.”
The two ports are the main gateways to East Africa and also service markets in South Sudan and the Great Lakes Region, handling key items including fuel, consumer goods and other imports as well as exports of tea and coffee from the region.
“Dar es Salaam and Mombasa ports, should establish one terminal for all transit containers for EAC countries. For example, you will see at the Jomo Kenyatta International Airport in Nairobi that there is a window for EAC citizens only,” Burundi further said in its submission.
The effects of these bottlenecks have stirred other challenges for businesses in these landlocked countries in that they often resulted in accruement in storage charges by port authorities.
Uganda traders have particularly expressed their disappointment with the cargo clearance procedures at the port of Mombasa and accused Kenyan authorities of imposing a harmful non-tariff barrier by “selectively auctioning” Ugandan goods held at the key port.
Uganda also raised concern over increased impounding of suspected counterfeit goods, meant for its market, at the port of Mombasa.
“Lengthy, restrictive and unclear administrative procedures of licensing Uganda-owned container freight stations and warehouses in Kenya are non-tariff barriers (NTBs),” Uganda said in a recent audit report to the EAC secretariat.
The availability of key inland infrastructure along the SGR, such as cargo collection and drop-off points will also determine the success of the whole project. The container drop-off or collection points should be located strategically to make the railway competitive. – Written by Allan Akombo