What gains do we expect from SGR?
Passengers disembark upon arrival from Mombasa in a train launched to operate on the Standard Gauge Railway (SGR) on May 31, 2017 in Nairobi. If we are fine with a transport investment that doesn’t generate any revenue (the highway), why are we having problems with the one that is bringing back some money, however little (the railway)? PHOTO | AFP
What you need to know:
- The train carries about 1,000 passengers and each pays Sh700. There are two services daily – one starting from Nairobi and the other from Mombasa. Thus the total revenue generated is Sh1.4 million per day.
- The railway project cost Sh327 billion. So if we divide this figure by the daily revenue collection, we get the number of days it would take to accumulate enough to return the initial investment. The answer is 233,571 days.
- Next, we convert this to years by simply dividing it by 365. The answer is 640 years! Armed with this answer, the conclusion is made that this project was not worth it.
Numbers don't lie; they only confuse! Everybody knows that 1 + 2 = 3 and 2 x 3 = 6. But those sums on their own are meaningless!
They do not answer the most important question of what are the things you are adding or multiplying.
These thoughts came to my mind after seeing very many people on social media trying to demonstrate that the newly launched Madaraka Express train service is not a good investment. The numbers speak for themselves…
The train carries about 1,000 passengers and each pays Sh700. There are two services daily – one starting from Nairobi and the other from Mombasa. Thus the total revenue generated is Sh1.4 million per day.
The railway project cost Sh327 billion. So if we divide this figure by the daily revenue collection, we get the number of days it would take to accumulate enough to return the initial investment. The answer is 233,571 days.
Next, we convert this to years by simply dividing it by 365. The answer is 640 years! Armed with this answer, the conclusion is made that this project was not worth it.
CONFUSING CALCULATIONS
Following the discussions further, I noticed that some people had pointed out a big omission from the revenue numbers – the money to be earned from cargo. About 100 containers are expected to be ferried daily at a cost of Sh50,000 each. That changes the results significantly because the cargo alone brings in another Sh5 million daily!
Re-doing the numbers, the new result is that it would take about 134 years to generate cash equal to the cost of the project. This does not look any better – it is still much longer than the average lifetime of a human being!
Yet others went further to point out that the train has finance and operational costs. Putting these into the calculations, it begins to appear as though the railway line will never pay back!
I am not an economist so I may not have the answer. However, when several readers of this column pushed me to the corner demanding my opinion, this was my response: do a similar calculation for the Thika Superhighway?
We invested Sh36 billion on the superhighway and we inject some Sh3 billion annually for its maintenance (equivalent to operational cost). However, that project brings back zero shillings daily – nobody is charged for using it! This highway will never pay back!
If we are fine with a transport investment that doesn’t generate any revenue (the highway), why are we having problems with the one that is bringing back some money, however little (the railway)?
I invite economists to shed light on that. But I give a word of caution: be careful with numbers – they don’t lie, but they can confuse!
