Enter Magufuli, and Kenya’s control of region is now history

My first column this year, “What Magufuli presidency means for Uhuru’s reign” seems to have wounded the egos of many a patriotic Kenyan who evidently cannot contemplate that Kenya could lose its pre-eminent economic perch in the region.

The article holds the record of the number of comments that this column has elicited on the Nation website at 215 (the “cruel marriage” column is a close second at 204).

My principal objective, demonstrating the economic cost of our cycles of political violence, was lost to many of these patriots. They went off on several tangents, many of them denigrating Tanzanians, none more hubristic and vociferous than citizen Anne Waiguru.

The desperate helter-skelter we have been treated to since losing the Uganda oil-pipeline project to Tanzania now confirms that Jubilee administration has become the victim of its own propaganda. They have over-indulged the Kool-aid.

The LAPPSET project of which the pipeline is part, has three fundamental problems.

First, the project is not financed. All along, the government has maintained that it would finance LAPPSET using public-private partnerships. To date, the project has not secured any investors. The key to attracting private investment, a public project must show a revenue stream from which the private investors will get their return on investment. The main reason why the project has not secured any private investors is because it has not been able to show bankable revenue streams.

The only component of the project with a bankable revenue is the oil pipeline. The other component with revenue potential is the port. However, for this revenue to be realised, the port needs transport infrastructure to evacuate the cargo to its destinations. But the government has for reasons best known to itself failed to prioritise this infrastructure.

The second problem is high political risk. As has been pointed out, the project traverses a historically marginalised region with flammable political grievances. Oil pipelines are vulnerable to sabotage. Should these grievances escalate — the pipeline would provide a very easy target.

And as this column has observed recently, the turn that our politics has taken in recent years does not inspire confidence in the long-term stability of this country.

The third problem is corruption. LAPPSET corruption began from day one, with the speculative grabbing of land in Lamu. It is one of the grievances underlying the Mpeketoni terror attacks. This is not limited to Lamu.

Land has been grabbed all along the corridor and the speculators, who are of course powerful people, are waiting patiently to reap big time on compensation. There is more. I read in the newspapers recently that companies fronted by Arabs and Chinese had already been set up to take stakes for Kenyan and Ugandan big men, respectively in the pipeline venture.

This is the project terrain that the pipeline investors have been looking at. It should not surprise that they were motivated to seek an alternative — the Tanzania route. We may want to ask the question as to why the investors had not made the decision before? The answer in my view is, Magufuli happened.

I observed in my previous article that: “Whether by design or happenstance, Magufuli’s crusade is signalling zero-corruption tolerance. What’s more, his signalling is credible, as it is backed by his record of integrity and performance.

Investors can come to Tanzania with the confidence that when they encounter the corruption and bureaucratic obstacles, the man at the helm can be relied on to deal with it.” The investors were weighing their options. Magufuli’s zero-corruption tolerance tipped the balance.

Two years ago, I argued in this column that LAPPSET should have been prioritised over the Standard Gauge Railway (SGR).

If you put together the $4 billion that we are spending on the Mombasa- Nairobi leg of the SGR and the $2.2 billion Eurobond money that has been stolen and squandered, it would have been enough to finance the construction of the Lamu port and both the pipeline and the highway from Lamu to Lokichar.

I also argued that the better project would have been to route a new railway from Lamu to Thika and then onward to Nanyuki where there is an already existing line, thereby connecting the Lamu Port to Nairobi so that it can serve both the “Northern Corridor” and the envisaged South Sudan/Ethiopia markets.

Before my Northern Kenya friends object, they should consider that the LAPPSET infrastructure only passes through the region. What Northern Kenya needs more is infrastructure connecting it to the rest of Kenya — for example, a branch line from Kitui to Garissa on my proposed routing would connect Garissa to Nairobi by rail. I have asked several government officials involved in these decisions about these alternatives and drawn a blank on every occasion.

EXISTING METRE GAUGE

It stands to reason that if we had put the SGR on the Lamu-Thika-Nanyuki routing, a pipeline on the route, with a railway line under construction to boot, would have been a much stronger proposition than the proposed LAPPSET routing further north.

Why did the government not put this alternative routing on the table? My take? What to do with all the land that speculators have acquired on the LAPPSET route.

Talking railways, Tanzania is also fast-tracking the central line railway project, also known as the Dar-es-alaam-Isaka-Kigali/Keza-Musongani project. The central line is an existing metre gauge railway that runs from Dar-es-alaam to Isaka, a town just about 100km south of Mwanza. For Rwanda, Burundi and the eastern DRC, the route is 25 per cent shorter than the Mombasa route.

Unlike our SGR, there is good publicly available information on the project. The project even has a website (www.dikkmrail.com). Traffic forecast is the core of any transport project. The traffic forecast for the central line is posted on the website. It makes for interesting reading. As is good practice, it gives three scenarios a “conservative case” “base case” and “optimistic case”.

A project is considered low risk if it breaks even at the conservative or low case, acceptable risk if it only achieves break even with the base (or realistic) case, and high risk if it only breaks even in the optimistic case. The conservative case the freight traffic is projected at 8.5 million tonnes per year. This rises by 4.4 million tonnes to 12.9 million tonnes in the base case. Included in the increase is diversion of 50 percent of the transit cargo from Mombasa. Where will that leave our SGR?

For starters, the SGR is not financially viable. A dishonest feasibility submitted by the contractor, the shoddiest I have ever seen, posited that the Mombasa-Nairobi line would break even with 5.5 million tonnes of freight at a tariff of 8.3 US cents per kilometre per tonne. This is hogwash.

PAYING FOR EUROBOND

The figure works out to an annual revenue of $230 million. At $ 4 billion, the cost of capital alone calculated at the rate we are paying for the Eurobond (6.75 per cent), is in the order of $270 million, more than the entire so-called break-even revenue. Moreover, even the tariff is unrealistic. The Rift Valley Railway’s revenue figures for last year work out to an average tariff of 5 US cents per tonne per kilometre.

As part of the central line project, the existing Mwanza-Isaka section, which connects Uganda to Dar-es-Salaam through the Lake Victoria, is also being upgraded.

The question Uganda has to contemplate is whether to invest in our overpriced SGR with its doubtful financial viability or to sit back and let Tanzania to complete the central line project.

Uganda has invested more heavily in the RVR concession. With transit freight to Rwanda, Burundi and DRC more or less off the table, the economics of Uganda investing in our SGR does not look good. If Ugandan cargo is not guaranteed either, does it make sense to progress the SGR beyond Nairobi?

In the larger scheme of things, President Magufuli is good for the East Africa Community. The Uganda pipeline and the central railway line project will integrate Tanzania into the EAC in a way that it has not been in the past. By so doing, President Magufuli is reconfiguring the EAC’s political and economic architecture.

Our economic dominance in the bloc has not been built on superiority of any kind, but on the historical misfortunes of our partners —Tanzania’s socialist policies and Uganda’s political troubles — undermining their economic capabilities. But they have rebuilt these capabilities. The weakening of our exports to Uganda in recent years, for instance, is a reflection of Uganda’s growing manufacturing capability.

Above all, East Africa and indeed Africa as a whole needs honest, capable leaders, leaders who will raise the bar, not least by demonstrating to citizens what the cost of mediocre, corrupt, tribalist leadership actually is.

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