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Market Digest Nigeria

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Kenya: Sound Policies, Expansion Key to Realising Full Benefits From SGR

As the country gears up for the commissioning of the Standard Gauge Railway (SGR) at end of the month, it is important to understand that its economic benefits will be fully realised only if we put the necessary supporting infrastructure and policies in place.

This is especially true of the freight component of the business that the SGR is expected to handle. Thus, the ongoing expansion and modernisation of the Inland Container Depot (ICD) at Embakasi, Nairobi, is critical. The works, estimated to cost Sh21 billion, will not only provide a solution to some of the capacity constraints facing Mombasa Port, but will also improve the overall efficiency of cargo transport within the Northern Corridor and optimise the use of the SGR. The numbers tell the story of an increase in capacity. Each freight train will pack a haulage volume of 216 Twenty Foot Equivalent Units or a trailing load of 40,000 tonnes, moving at 80 kilometres an hour. Annually, the SGR is designed to move 22 million tonnes. China Road and Bridge Construction (CRBC) is the project’s EPC (Engineering, Procurement and Construction) contractor. Work at the Embakasi Depot, financed by the Kenya Government and the China Exim Bank, comprises railway and container yards, under Phase I of the SGR, which is 472 kilometers. We are confident that it will be completed by the end of May as planned. Already, the 18 buildings required are 88 per cent complete.

The new gantry cranes are on site, with 85 per cent already assembled. The work required to expand the ICD is 80 per cent done. Equally critical to the efficiency of the ICD and SGR Corridor are the road links. A key component is the construction of two access roads linking the depot through the Southern (Road A-2.122 Km) and Eastern (Road B-3.004 Km) by-passes. The improvement of access into and out of the ICD through the Eastern by-pass is 90 per cent complete. The same pace of progress has not been achieved on the Southern By-pass due to challenges around relocations. This link is critical due to the congestion around the ICD. With the expected increase in cargo traffic from 30,000 TEUs to 450-500,000 TEUs in the next five years, the expanded ICD can only serve the country up to 2023. The government must acquire more land to boost cargo handling capacity. The huge investment in freight handling, storage and transport capacity will only make sense to Kenya and the region if it is fully utilised by importers and exporters. Global best practice is that rail freight costs must be 30 per cent cheaper than the road option to attract freight. Discounts and promotional tariffs are the other tools for use to drive the shift from trucking to SGR. A number of policies are crucial.

They include setting weight bands of containers that must be carried by rail. We could also require that all transit cargo terminate at the ICD, with rail handling. Inter-modality of the SGR and the existing Meter Gauge Railway (MGR) at the ICD should be promoted. There is also a need to reduce cargo dwell time at the port, half of which global research shows, is due to Customs release processes. The Kenya Revenue Authority should consider innovations such as green channels and post-clearance audits. Volumes and early bird discounts are another form of incentive.

For now, SGR capacity is limited to containerised cargo, yet 30 per cent of port traffic is bulk freight. Its capacity to convey bulk freight like clinker and grains must be developed to achieve the target 40 per cent modal share of the freight market. There is potential for bulk freight handling terminals at Makadara, Nairobi, which accounts for 60 per cent of the national milling capacity and Athi River, with its cement plants. With 45 per cent of the cost of doing business in the region accounted for by freight logistics, the SGR will cut transit times from over 30 hours to just eight, making East Africa competitive and sparking economic takeoff.

James Macharia

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