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September 19, 2018

SGR project is a long-term game changer

Passengers at the Nairobi terminus going to board the SGR passenger train to Mombasa on June 1. /Brian Otieno
Passengers at the Nairobi terminus going to board the SGR passenger train to Mombasa on June 1. /Brian Otieno

The completion of the Mombasa-Nairobi rail system will make it easier to move goods to and from the port of Mombasa. It will save both time and cost and hence increase earnings and efficiency for exporters. Likewise for importers, it reduces the total cost of imports and increases efficiency. This effect is an increase in the volume of exports and imports. The reduced transaction costs also boost the country’s competitiveness in trade and improve its integration in world trade. More potential will be realised as the rail is extended along the so called Northern Corridor – past Malaba to Uganda, Rwanda and beyond to West Africa.

 A good example of the role of infrastructure in economic growth and private sector development is the efficient air logistics system in the country. An efficient air transport through the JKIA and anchored on Kenya Airways connects Kenya to global markets. Tourism and the export of perishables such as flowers and horticulture, all of which are major contributors to the economy, thrive as a result of this efficiency. The cycle from the time a farmer picks French beans in Makueni to the time the beans reach a supermarket in London can take as little as 24 hours. The air transport has attracted increasing private investors that have built a very efficient supply chain and are reaping the benefits of the JKIA. The cargo rates from Kenya to Europe are estimated to be around 50 per cent less than other African countries.

 Similarly, an efficient rail system is a game changer for manufactures and farmers dealing with bulk goods such as grains. As is well known, the road transport took over from rail in 1980s, resulting in high inland transport costs and poor logistics. The poor trade logistics is a bottleneck to trade. This, coupled with the uncertainty of road transportation is a burden to manufacturers and the economy. To give credit where it is due, there is a well organised network of truck transportation. But add the poor state of the roads, traffic congestion, weighbridge restrictions and so on, and rail transport is a better option.

 Locally, the developments of feeder transport services will extent the impact of a Northern Corridor rail to areas beyond the immediate areas. Maize from Kitale can reach Nairobi, Voi and Mombasa efficiently. Likewise, the poultry farmer in western Kenya can supply fresh chicken to Mombasa, and the fresh goat meat from Baringo can be sold in western and coastal region profitably. The improved transport system therefore has the potential to spur growth of exports, manufacturing and agri-processing across the country.

On a wider scale, the new rail is a major steps in making Kenya the industrial and transport hub of East Africa.

 

Kandie is the MD of IDB Capital


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