As East and Central Africa’s largest economy, holding a strategic position that includes more than 1400 km of coastline and the region’s biggest and busiest port, Kenya represents a critical lifeline for landlocked neighbouring countries. As such, its transportation network plays a significant role in future domestic and regional development. Expansion of infrastructure and transportation networks is a key pillar of the government’s Vision 2030 economic development plan, although the sector does face a number of challenges.
Kenya’s road network is in need of extensive rehabilitation and is under mounting pressure as regional trade, which is heavily dependent on highway transport, continues to expand. At the same time, a fire at Nairobi’s Jomo Kenyatta National Airport (JKIA) exacerbated the already-pressing need for upgrades and renovations, while the country’s dilapidated rail network continues to pose a challenge to efficient freight movement. Port congestion has improved, but increased competition from Tanzania has affected operations at the Port of Mombasa (PoM), while new oil discoveries in the country’s north have put pressure on the government to hasten development of the Lamu Port and South Sudan-Ethiopia Transport Corridor (LAPSSET).
The sector is now poised to undergo enormous change in the next several years, with government expenditure on transportation construction and upgrades showing steady expansion. At the same time the country’s Public-Private Partnership (PPP) Act, enacted in 2013, has opened the door for private investors to help develop high-profile projects including LAPSSET, the standard-gauge railway (SGR) project and the Lamu Port. Coupled with regulatory reforms aimed at reducing non-tariff barriers, these developments should see transportation in Kenya improve dramatically in the medium to long term.
Landscape
Kenya’s major urban centres and agricultural activities are largely concentrated in the south, along corridors linking Nairobi to Mombasa on the eastern coast, and Kisumu in the west, on to Eldoret near the Ugandan border. The transport backbone, including road arteries, is concentrated along these lines, although the arid, sparsely populated northern region is characterised by fragmented road links. Regional connectivity in the transport network also needs extending; while there are relatively well-developed links to Uganda and South Sudan, road connections to Ethiopia, Tanzania and Somalia are poor.
The Ministry of Transport and Infrastructure (MoTI) oversees the sector, with a mandate that includes managing policy in the roads, maritime and rail segments; enforcing road safety standards; managing civil aviation; and overseeing vehicle registration and insurance, among others. A host of institutions fall under the ministry’s supervision, including the Kenya Roads Board (KRB), Kenya Railways Corporation (KRC), the Kenya Ports Authority (KPA), the Kenya Airports Authority, the Kenya National Shipping Line, the Kenya Maritime Authority, the Kenya Civil Aviation Authority, and the National Transport and Safety Authority.
According to a 2011 World Bank report titled “Kenya’s Infrastructure: A Continental Perspective”, infrastructure contributed just 0.5 percentage points to annual per capita GDP growth between 2001 and 2011. The report found that if Kenya were to improve its infrastructure to the same level as other middle-income African countries, the sector would increase its contribution by 3 percentage points. However, due to problems of congestion, delays at Customs and upgrades required for networks across all modes of transport, the report found that Kenya would need to allocate $4bn to infrastructure development annually until 2021.
Development Pillar
Transportation upgrades are a key pillar of the Vision 2030 economic development plan, while President Uhuru Kenyatta’s Jubilee Coalition Manifesto 2013 lists a host of ambitious transportation targets, including: construction of the SGR rail project from Mombasa, through Nairobi and Kisumu to Malaba on the Ugandan border; raising rail’s share of freight transport activities from around 5% to 50%; construction of commuter rail networks in Nairobi, Mombasa and Kisumu, including a link to JKIA; increasing the paved road network to 24,000 km, from current levels of around 14,000 km; implementing the LAPSSET corridor project; transforming JKIA into a regional hub via expansion and modernisation of existing airports, including facilities in Mombasa, Kisumu and Eldoret; and modernising and upgrading the PoM to international standards.
Following the enactment of the PPP Act in 2013, a unit was established within the National Treasury to oversee PPP projects. The government is keen to develop its transport network through PPPs, as evidenced by its list of 47 priority PPP projects, 17 of which are transport initiatives. Transport development is also supported by increasing state expenditure. According to the 2014/15 budget statement, the MoTI will receive KSh154.56bn ($1.76bn), up 23.6% from the 2013/14 budget. Total transport spending is expected to reach KSh250.05bn ($2.85bn) in 2014/15, up 17% over KSh213.72bn ($2.44bn) in the previous year, and representing 22.5% of all programme spending.
On The Road
According to the 2012 Roads Policy, about 93% of all freight and passenger traffic travels by road. In 1963, the last year of colonial rule, the road network stretched over 45,000 km, of which only 2000 km was paved. After independence, Kenya undertook extensive development programmes to upgrade roads. In 2001 what was then the Ministry of Roads partnered with the World Bank to undertake a road inventory and condition survey (RICS), which established a database for classified roads. The extent of unclassified rural and urban roads remains in the 80,000- to 130,000-km range, and the RICS determined that at the time the road network totalled 160,866 km, of which 11,189 km were paved and 149,689 km unpaved. The KRB reported that 17% of roads are classified as good, 51% fair and 31% in poor condition, while unclassified roads are in urgent need of rehabilitation, with 5% classified as good, 22% fair and 72% in poor condition.
The segment is overseen by the KRB, which was established under the KRB Act No. 7 of 1999 and mandated to manage Kenya’s road network, coordinate development and rehabilitation, as well as provide advisory support to other roads entities. The Kenya Roads Act No. 2 of 2007 established three additional authorities: the Kenya National Highways Authority (KNHA), the Kenya Rural Roads Authority (KRRA) and the Kenya Urban Roads Authority (KURA). The government has announced plans to transfer responsibilities for all international, national and primary roads to the KNHA by 2018, abolishing the KRRA and KURA.
As highlighted under the Vision 2030’s second national medium-term plan (MTP), which covers the 2013-17 period, the government hopes to construct and rehabilitate approximately 5500 km of roads, including some 3825 km national trunk roads and 1675 km of county roads, by 2018. Around 1700 km of roads for non-motorised transport, including paths and walkways, will be constructed, and 800 km of new roads will be designed. Some 4257 km and 1735 km of national trunk roads and county roads, respectively, will also be periodically maintained.
Major Pojects
Among the slate of projects just completed is the Thika Road rehabilitation project. Thika Road is one of the most-travelled corridors in the Nairobi Metropolitan Region, carrying over 70,000 passengers daily. The road faced a number of challenges, including heavy congestion, dilapidated infrastructure, poor air quality, and high accident and fatality rates.
The government, in partnership with financiers including the African Development Bank and government of China, broke ground on the Thika Road rehabilitation project in 2009. The $360m undertaking involved the construction of a modern superhighway linking Nairobi to Thika Town, the first of its kind in Kenya, and after delays, the road was inaugurated in 2012, boosting regional connectivity and reducing congestion.
The World Bank has also been instrumental in improving road links, and played a critical role in the rehabilitation of the Northern Corridor Transport System, the country’s most important trade artery, which runs from Mombasa on the coast to Malaba at the border of Uganda and Kenya. In March 2014 the World Bank announced it would invest an additional KSh17bn ($193.8m) in key roads works, including a project linking Bachuma Gate at the eastern Tsavo National Park to Maji ya Chumvi on the coast, as well the 160-km Kisumu-Kakamega-Webuye-Kitale link running across the country’s north-west. The World Bank has invested $460m in the Northern Corridor Transport Improvement Project since 2004, contributing nearly half of the project’s $960m budget. This work has been bolstered by the East African Trade and Transport Facilitation Project, a $150.6m World Bank endeavour that has considerably improved Customs clearance and eased traffic congestion at the Kenya-Uganda border.
These investments will be further consolidated as the bank implements the Transport Sector Support Project, which will upgrade over 220 km of roads in the northern and western corridors, improve air transport and support growth of key economic sectors. Additional financing allocated in March 2014 bumped total funding to the project to $503.5m. Ongoing projects will see Nairobi’s notoriously congested roads undergo extensive improvements. The Nairobi Outer Ring Road, for example, which serves as a major arterial road for the city’s northern and eastern districts, is set to be upgraded to a dual carriageway, raising the road’s average journey speed of 12 km to 15 km per hour. The project is expected to start in October 2014.
Nairobi’s Southern Bypass, meanwhile, is now expected to be opened to motorists in 2015. The project entails construction of a 28.6-km international trunk road, running from Mombasa Road in southern Nairobi to Limuru Road in Kikuyu Town. The KSh17.2bn ($196.08m) project was awarded to the China Roads and Bridge Corporation (CRBC), a major player in Kenyan infrastructure, in 2010 and broke ground in 2012.
Other major projects are under way. The Uhuru Highway, or JKIA-Rironi project, expected to wrap up in 2015, was still in its planning stages in January 2014. The project includes construction of a highway overpass and southern bypass linking JKIA to metro Nairobi as part of a 30-year concession to be financed by tolls.
The Nairobi Motorway Group, which was formed by a consortium of international investors led by Austrian multinational Strabag, was awarded a tender for the KSh67bn ($763.8m) project in 2009. However, the government later cancelled the contract, after the World Bank refused financing, citing integrity issues with a Russian investor who had previously been blacklisted, as well as unfair levels of compensation to households and businesses that were expected to be displaced by the project. Revised budget estimates put the project’s total cost at KSh25.5bn ($290.7m), although no new tendering dates had been set as of mid-2014.
Private Sector Participation
Other than levies and donor funding, PPPs may be the most promising way of expanding roads in a timely fashion. PPPs under build-operate-transfer, design-build-operate, and design-and-build models are targeted for road construction projects. Projects highlighted under the second MTP and PPP priority list include several Nairobi bypasses, as well as highways linking Mombasa to Nairobi and Malaba, and Mau to Summit, Kisumu and Busia.
The KNHA plans to outsource the management of two such projects, the Nairobi Southern Bypass and the Nairobi-Thika Road, to private contractors under long-term operation and maintenance concessions. The concession arrangements will be funded via toll stations.
Maintenance
Public funding for road rehabilitation is sourced from government expenditures and the Kenya Roads Board Fund (KRBF), which draws its revenues from the Roads Maintenance Levy Fund (RMLF), a tax of KSh9 ($0.10) per litre of fuel sold, as well as toll collections. In the 2013/14 budget, roads were allocated a total of KSh25.52bn ($290.93m): the KRB received KSh3.02bn ($34.43m), while the KNHA got KSh10.47bn ($119.36m), the KRRA took KSh5.52bn ($62.93m) and the KURA received KSh3.76bn ($42.86m). The majority of this is derived from the RMLF, with an additional KSh450m ($5.13m) generated by transit tolls. According to the KRB’s 2012/13 annual report, the country needs at least KSh40bn ($456m) annually just to maintain its existing network of roads, significantly more than what the RMLF provides.
In January 2014 the KRB recommended measures that could enhance the KRBF, including raising funds through an infrastructure bond, and doubling the RMLF to KSh18 ($0.20.) “In the rush to move forward on new roads projects, people often fail to realise that for every 1 km of new road we build, 3 km of existing roads fall into disrepair,” Benjamin Maingi, technical compliance manager at the KRB, told OBG.
Rail
Kenya’s rail corridor holds significant strategic regional importance. Linking the PoM to Nairobi and stretching onwards into Uganda, the network could be a key conduit for bulk freight, easing pressure on the road network and providing additional capacity along the northern corridor. Unfortunately, as with so many railways in Africa, its infrastructure has deteriorated over the years, and the World Bank reported in 2011 that freight traffic on the network has declined to less than 1m tonnes annually, or less than 6% of cargo passing through the northern corridor linking Kenya to Uganda, Rwanda, Burundi, the Democratic Republic of Congo (DRC), South Sudan and Ethiopia.
Railways offer a promising alternative to choked road networks. Road cargo deliveries from Mombasa to the Ugandan border town of Malaba, an 800-km journey, currently take an average of 18 days, despite President Kenyatta ordering the KPA to reduce this to five days in June 2013. In contrast, the sea journey for a container from Singapore to Mombasa, a distance of more than 7500 km, takes only a day longer, according to Wolfgang Fengler, the World Bank’s lead economist for Kenya. Opening the country’s ports to well-developed rail lines could have a dramatic impact on transit times.
Under the second MTP, Kenya plans to increase its railway capacity to handle 50% of freight cargo, or 25m tonnes, from the PoM. To achieve this objective, the country has two major railway projects under development. The first will see Kenya’s existing colonial line, built by British engineers more than 100 years ago, extensively upgraded and rehabilitated. The second is the SGR project, which will link Mombasa to Nairobi and into the greater East African Community (EAC). These projects together carry a total price tag of more than $5.6bn, nearly 15% of Kenya’s 2013 GDP.
SGR
With the works starting in September 2014, the SGR project is one of the largest of its kind in subSaharan Africa, and the country’s biggest infrastructure project to date. It includes construction of 700 km of standard-gauge track, 33 stations, and dozens of wagons and locomotives. The first phase of the project, the Nairobi-Mombasa segment, is expected to be completed in 2017 and will create some 30,000 jobs. It will carry freight at 80 km/h and passengers at 120 km/h, reducing travel time between the two cities from 15 hours to four, and making a considerable impact on transport activities. “The benefits are so huge. Kenya is the entry point for three landlocked countries, and what happens here directly affects those countries. This will create efficient regional links, improve business within the EAC and foster strong multilateral relationships,” Felipe Mainga, research and planning manager at the KRC, told OBG.
Earlier estimates pegged the project’s total cost at KSh447.5bn ($4.99bn), the majority of which will be financed by the Export-Import Bank of China, while the Kenyan government is expected to contribute the rest. In May 2014 the government finalised its finance agreement with the Export-Import Bank, inking a KSh327bn ($3.73bn) deal that will see construction commence in October 2014. The government, meanwhile, has allocated KSh26.22bn ($298.91m) to railways in its 2014/15 budget, and moved in October 2013 to introduce a 1.5% levy on all home-use imports to help fund the SGR project, under the Finance Act of 2013.
One important condition of the Chinese loan is that work be carried out by the CRBC, a move that has caused some controversy. Some stakeholders have said that the project’s price tag is excessive compared to a similar rail project under development in Ethiopia, and raised questions about the CRBC’s ability to complete the work, especially since it was blacklisted by the World Bank in 2009 following a failed project in the Philippines. Others have argued that the CRBC’s proven track record makes it a suitable choice; the company’s portfolio includes 23 Kenyan road projects and construction of Berth 19 at the PoM, as well as a high-speed rail project connecting Shanghai to Beijing in China.
RVR
Rift Valley Railways (RVR), which was granted a 25-year concession to run the existing network in 2006, is investing nearly $300m through 2016 to rebuild several sections of its line, which stretches over 2300 km from Mombasa and into Uganda, as well buying new wagons and locomotives. RVR’s recent projects include the rehabilitation of 16 locomotives, as well as the installation of automatic train warranty systems, which were completed in early 2013. The line handled 730,000 tonnes of Uganda-bound freight in 2012/13, according to RVR officials, a figure which is expected to increase to 1.2m tonnes annually by March 2015. The World Bank reported in 2011 that Kenya’s rail concession is distressed, with the firm facing intense competition from road carriers, and the launch of the SGR project could have a further impact on RVR operations. Under its current concession, RVR’s interests are protected by a clause stipulating that the governments of Kenya and Uganda cannot introduce changes that jeopardise its profitability. However, the SGR project will be administered under an open-access arrangement in which multiple firms will be permitted to operate freight business on the SGR system in competition with RVR.
Nairobi Commuter Links
In addition to facilitating smoother regional trade, rail developments within Nairobi are also anticipated to reduce congestion and improve public transport and daily commutes. Kenya’s first urban railway project, the Nairobi Commuter Rail system, was officially launched by the KRC in 2009, and involved rehabilitating 167 km of existing rail systems, as well as the construction of a new line to JKIA.
Although the project has been in the works for five years, as of mid-2014 only the Nairobi to Syokimau link was operational. The route, which was inaugurated in 2012, runs four commuter services daily during peak rush hour traffic. The service has proven so popular that the KRC reported the commuter train’s two passenger cars are periodically filled to nearly double their 150-person capacity, meaning there is a good chance of future expansion. The new station at Makadara is now operational, while the KRC is currently working on opening Imara Daima and hopes to establish similar commuter services in Kisumu and Mombasa before 2018.
As part of its public transport reforms, the Ministry of Transport and the National Transport and Safety Authority are also streamlining the matatus, privately owned minibuses, industry and are requiring public service vehicles to operate cashless payment systems for all fares. The July 2014 deadline was extended until further notice to give matatus operators more time to adopt the new system. “One of the greatest challenges facing public transport is that no singular institution and curriculum exist to train new drivers under a standardised framework, although we expect to have one finalised by the end of 2014,” Edwins Mukabanah, managing director of Kenya Bus Service, told OBG.
Ports
The PoM is Kenya’s principal seaport, comprising Kilindini Harbour and Port Reitz on the eastern side of Mombasa Island, and the Old Port and Port Tudor north of the island. The PoM also serves landlocked EAC countries, including Uganda, Rwanda, Burundi, DRC and South Sudan. The PoM is managed and operated by the KPA, a semi-autonomous government entity which is also responsible for management of small sea ports in Kiunga, Lamu, Malindi, Kilifi, Mtwapa, Funzi, Shimoni and Vanga. Kilindini is a naturally deep and well-sheltered harbour where most shipping activities take place, holding 16 deepwater berths with 13.25-metre draughts, two oil terminals and anchorages for sea-going ships. The Old Port is used by dhows and small coastal vessels, while a cement loading facility is located opposite the Old Port jetty at Ras Kidomoni, with an eight-metre draught and capacity for 150-metre-long cement carriers. The multipurpose port can handle all types of cargo, and offers deepwater anchorage for ships with draughts greater than 13.25 metres. KPA envisions transforming the PoM into one of the world’s top 20 ports, launching a 25-year Master and Strategic Plan in 2005 which aimed to transform Mombasa into a landlord port and develop the port’s e-services network to better facilitate trade (see analysis).
Capacity Increases
Year-on-year growth in port traffic between 2008 and 2012 reached 8% annually, according to trade promotion agency TradeMark East Africa. In 2012 Mombasa handled a total of 21.92m tonnes, up 9.9% from 19.95m tonnes in 2011, while container traffic rose to 903,443 twenty-foot equivalent units (TEUs), from 770,804 TEUs handled in 2011, an increase of 17.2%. In the same period, transit traffic grew by 18.4%, registering 6.6m tonnes, up from 5.6m tonnes in 2011. Similarly, in the first six months of 2014 the KPA recorded a total cargo throughput of 11.9m tonnes compared to 10.5m tonnes in the same period in 2013, a 13.3% jump. Thanks to efficiency improvements, an extra berth, efficiency in handling cargo and removal of non-tariff barriers, the volume of cargo passing through the port to other regional markets also rose by 120% in the January-June period of 2014, while transshipment business more than doubled to 158,085 tonnes. “Mombasa is doing well compared to two years ago. We’ve seen significant improvements to efficiency; in 2011 we saw efficiency in the range of nine to 11 moves per hour, whereas today it’s closer to 25 moves per hour, and we attribute this to infrastructure upgrades, dredging works, and the new terminal,” Humphrey Kisembe, an economist at the Shippers Council of Eastern Africa, told OBG.
The Kenyan government inaugurated Berth 19 in August 2013, marking the start of a new era for domestic sea-freight activities. Construction on the KSh5.2bn ($59.28m) berth began in July 2011, and was carried out by the CRBC, the same company which will construct the SGR project. The 240-metre-long berth expanded the Mombasa Container Terminal’s length to a total of 840 metres, enabling three Panamax vessels of up to 250 metres long to berth at once, and expanding handling capacity by 250,000 TEUs.
The government plans to invest an additional $320m to add three more berths at a new container terminal, which will more than double capacity to 2.3m TEUs, the biggest upgrade to the port since 1980. The new terminal is being built on land reclaimed by Japan Ports Consultants, with the first phase expected to be completed before 2016, the second in 2017 and a third in 2020. When the first phase wraps up, Mombasa is likely to see a 50% capacity increase, according to port officials; the KPA expects to handle 27m tonnes of throughput and 2.3m containers by 2016.
Increased competition from new port developments in Tanzania will likely affect the long-term viability of Mombasa’s operations. While the PoM reached 8% annual growth between 2008 and 2012, Tanzania’s Dar es Salaam port expanded by 13% annually during the same period, and Tanzania has plans to invest around $10bn in construction of a new port at Bagamoyo, located just north of Dar es Salaam. Dar es Salaam handled 12.1m tonnes of cargo in 2012, 45% less than Mombasa, but Kenya has seen its market share fall since the 2007-08 post-election violence, which disrupted trade flows in the country, including trans-shipment. Dar es Salaam increased its share of Rwanda’s imports and exports to 68% in 2012, from 41% in 2008, according to TradeMark East Africa, while Mombasa’s share of that trans-shipment shrunk to 32% from 59% in 2008. Tanzania-bound also accounted for 89% of Burundi’s cargo at end-2012, up from 76% in 2008, compared to Mombasa’s 11%. Nonetheless, some stakeholders argue that the developments taking place in the neighbouring countries will only enhance regional trade. “We don’t look at it as competition; instead, we see these ports as complementary. For example, should there ever be a problem at Mombasa, cargo can instead be offloaded in Dar es Salaam, and hopefully, one day, delivered to Kenya via rail,” said Kisembe.
LAPSSET
Outside of the SGR project, the LAPSSET development represents Kenya’s largest infrastructure undertaking, and is identified as a critical macro-enabler under Vision 2030. It aims to reduce dependence on the PoM and Northern Corridor road network through creation of a second transport corridor, as well as a new hydrocarbons export channel for Kenya, South Sudan and Ethiopia, while enhancing connectivity between Lamu, Isiolo, Juba and Addis Ababa. The plan was conceived in 1975, but held back for years due to financial and political constraints; however, the establishment of Vision 2030 brought with it a renewed focus on LAPSSET. The project was inaugurated in 2012, and the government reports that some elements, including the Isiolo-Merille and Marsabit-Turbi-Moyale roads linking Kenya to Ethiopia, are now under construction.
The LAPSSET Development Authority was established in April 2013 and tasked with managing the project, which is expected to cost up to KSh2.5trn ($28.5bn). The government is set to contribute 16% of its annual budget when construction ramps up. The project is expected to add 3% to GDP by 2020, which will be critical to meeting Vision 2030’s goals of achieving 10% GDP growth annually by 2030. Nonetheless, substantial outside investment will be required to complete the project, which has a timeline of up to 40 years.
The government is currently seeking outside investors for work on a variety of related projects, including rail links, a new road network, oil transportation and refining facilities, and most importantly, the Lamu deep-sea port. Progress has been promising; the government reported in 2013 that several agencies had already expressed interest, including the Development Bank of Southern Africa, which has said it could contribute as much as $1.5bn to the LAPSSET project. The $5.3bn Lamu Port will contain 32 berths on completion, and with an 18-metre draught, offers greater capacity than both Mombasa and Dar es Salaam. In April 2013 a consortium of companies led by China Communications Construction Company was awarded a KSh41bn ($484m) contract to build the first three berths at the port, which is expected to be complete by 2030, while the first three berths are due to be operational by 2016.
Economic Partnership Agreement
Kenyan exporters are also expected to benefit from the signing of a new Economic Partnership Agreement (EPA) between the EAC and the EU in mid-October 2014. The EPA will give local exporters continued duty-free and quota-free access to markets in the EU. While Kenya had enjoyed such access since January 2008, the rules changed as of October 1, 2014 and it is now only available to nations that have signed an EPA with the EU.
Outlook
Kenya’s efforts to revamp its strained transport network appear to be moving forward, as government expenditure and foreign investment have shown strong growth over the past several years. While increased competition, ongoing delays among roads and ports projects, and a host of non-tariff barriers pose serious challenges to future expansion, the government’s dedication to improving transportation indicators has already witnessed steady growth in the rail, port, road and maritime segments. These developments, coupled with recent changes to the regulatory framework and an ambitious plan to expand and improve the aviation network, should help the country continue to draw in outside investments, rising to become a true regional powerhouse in line with Vision 2030 targets.
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