Operationalisation of the Standard Gauge Railway (SGR) in Kenya could ease financing of the rest of the project to Rwanda through Uganda, experts have said.
The project, which was inaugurated by Kenyan President Uhuru Kenyatta yesterday, has boosted confidence among local stakeholders who say it proves feasibility of the grand scheme.
The SGR for cargo was launched on Tuesday and passenger transport facility yesterday.
The section that was inaugurated stretches from the Kenyan port city of Mombasa to the capital Nairobi.
The 380-mile stretch reportedly cost Kenya about $3.2 billion and is expected to eventually connect Rwanda and Uganda to the Mombasa port making it one of the region’s biggest infrastructure projects.
The SGR, which will be about 2,000 kilometres, is part of the Northern Corridor Integration Projects Initiative. It is expected to ease and reduce the cost of movement of people and goods across the region.
The regional project is billed at about $13 billion with external investors such as Chinese financial institutions being sought after to facilitate financing.
In Kenya’s case, China’s Exim Bank provided 90 per cent of the financing.
Local officials say the launch of the Kenyan section will not only bring down the cost of movement of goods but will also ease the implementation in Rwanda.
Among the ways the Mombasa-Nairobi phase could ease the implementation of the Rwandan section is reducing costs to de-risk the investments.
Innocent Safari, the national coordinator of Northern Corridor Integration Projects, told The New Times that the development is proof of the feasibility of the project and could ease aspects such as financing.
“You cannot separate that development from the entire chain. It is now evident that the project is becoming a reality and that the region is ambitious in terms of its infrastructure goals,” he said.
He said the cost of logistics is expected to drastically reduce, consequently the cost of doing business as well.
“It will reduce the cost of transport and doing business. It is part of the SGR project in the region and it is a big achievement and step towards the ultimate goal,” Safari added.
Highlighting Rwanda’s readiness to implement the project, Safari said Rwanda was hoping to finalise the feasibility study in July, which would inform next steps.
“It is a big development for the entire region,” he said.
Others say the completion of the first phase of the initiative could introduce competition in logistics across the corridor, which could see further price reduction on road transport.
Beyond cost of doing business
Patience Mutesi, the country director of TradeMark East Africa, said that other than reducing cost, the development is likely to trigger further price reduction.
“The more competition you have, the better for the end consumer. We have seen good reduction in the cost and time taken to transport a container from Mombasa to Kigali but not as much we would want to see.
“The SGR is cheaper than road and we anticipate that it is going to create some kind of competition for road transport and the cost will go down,” she explained.
The cost of transporting a container from Mombasa to Kigali dropped from $6,500 in 2011 to $4,800 in 2016 largely due to removal of non-tariff barriers.
Mutesi echoed Safari’s comments on reducing costs for rolling out the Rwandan section of the project adding that it will also provide lessons to countries such as Rwanda.
“Since it is tried and tested, it de-risks the investment because the people who are co-investing and expanding it are able to learn some lessons from Kenya. Most of the goods come through Mombasa and Dar-es-Salaam, it makes the latter part easier,” she said.
Cargo charges from the Port of Mombasa to the Inland Container Depot in Nairobi are about $500 per container which is significantly cheaper compared to about $900 by road.
The railroad also significantly reduces goods transit time from about 24 hours to a maximum of 8 hours.
Local importers and exporters who use the Port of Mombasa are mulling on how to take advantage of the development as it presents a cheaper logistics alternative.
Fiston Bayingana, a Kigali-based trader who regularly uses the Kenyan port, said although they were not sure of the cost at the moment, he anticipates the launch of the track could also have an impact on the cost of imported goods due to reduced cost of logistics.