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Kenya Fights Off Port Competition With $13 Billion Plan: Freight

Photographer: Trevor Snapp/Bloomberg

Mombasa is losing regional market share to Tanzania as years of underinvestment in transport infrastructure mean railways and roads can’t cope with the rising volumes moving in and out of the facility. Close

Mombasa is losing regional market share to Tanzania as years of underinvestment in... Read More

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Photographer: Trevor Snapp/Bloomberg

Mombasa is losing regional market share to Tanzania as years of underinvestment in transport infrastructure mean railways and roads can’t cope with the rising volumes moving in and out of the facility.

East Africa’s biggest port at Mombasa in Kenya is fighting off competition from neighboring Tanzania by expanding railways and building new berths to tackle congestion.

Kenyan President Uhuru Kenyatta is spearheading a plan to start constructing a $13 billion railway project in November that will link Mombasa to the capitals of Uganda and Rwanda. The Kenya Ports Authority next week officially opens a 19th docking station and is investing $320 million to add three more at a new container terminal that will more than double capacity to 2.3 million containers, the biggest upgrade to the port since 1980. The government also is building a new facility at Lamu.

Mombasa is losing regional market share to Tanzania as years of underinvestment in transport infrastructure mean railways and roads can’t cope with the rising volumes moving in and out of the facility. The harbor serves land-locked nations including Rwanda, Democratic Republic of Congo, Uganda and South Sudan, which are among the world’s fastest-growing economies.

“Kenya has been slow to expand its port infrastructure,” Anthony Hughes, senior ports adviser at Trademark East Africa, said by phone from Dar es Salaam. “It hasn’t kept pace with transport demand.” The Nairobi-based organization helps promote regional trade.

Cargo deliveries from Mombasa to the Ugandan border town of Malaba, 800 kilometers (500 miles) northwest of the port, currently take an average of 18 days, according to Kenyatta’s office, which in June ordered the harbor to reduce the delay to five days. The journey by sea of a container from Singapore to Mombasa, a distance of more than 7,500 kilometers, takes only a day longer, according to Wolfgang Fengler, the World Bank’s lead economist for Kenya.

New Port

Neighboring Tanzania is spending at least $10 billion constructing a new port at Bagamoyo, 37 miles northwest of Dar es Salaam, where it’s upgrading an existing facility. The commercial capital, Dar es Salaam, handled 12.1 million metric tons of cargo last year, about 45 percent less than Mombasa, according to data compiled by Trademark East Africa.

The Kenyan port’s loss of business to Dar es Salaam has grown since post-election violence in the first two months of 2008 disrupted trade flows. Ethnic clashes across the country hampered traffic by rail and road from the port, causing fuel shortages and a spike in inflation in neighboring nations.

Volume Growth

Volumes at the Dar es Salaam port have increased an average 9.4 percent annually during the past five years, compared with 6 percent in Mombasa, Trademark East Africa data shows.

“Tanzania and Kenya are serving the same landlocked countries,” Janeth Ruzangi, manager of corporate communications for the Tanzania Ports Authority, said in an interview in Dar es Salaam. “Firms are going to choose to use the facilities that will handle the goods with the most speed. It is natural that we have to work towards improving our port in order to attract these firms.”

Dar es Salaam has increased its share of Rwanda’s imports and exports to 68 percent from 41 percent in 2008, according to Trademark East Africa. Mombasa’s share of that trade has shrunk to 32 percent from 59 percent. Tanzania accounted for 89 percent of Burundi’s cargo at the end of that period, up from 76 percent in 2008, compared with Mombasa’s 11 percent.

The shift in regional traffic is a “wake-up call” for the Kenyan authorities, said Gilbert Langat, chief executive officer of the Shippers Council of Eastern Africa. The agency, which represents importers, exporters and organizations including the Petroleum Institute of East Africa and the East African Tea Trade Association, sees Tanzania’s port operations complementing Kenya’s facilities, he said.

Kenya is the world’s biggest shipper of black tea and is set to begin oil exports in 2016.

Lower Costs

“The initiatives by the government are not out of reaction, but out of the demand by users,” Langat said in an e-mailed response to questions. “Efficiency improvements will result in lower transport costs.”

Dar es Salaam is the fourth-largest container port on Africa’s eastern seaboard after Durban in South Africa, Mombasa and Djibouti, according to the International Association of Ports and Harbors’ website. AP Moeller-Maersk A/S (MAERSKB), the world’s largest container line, Mediterranean Shipping Co SA, or MSC, and Mitsui OSK Lines Ltd. (9104) are among companies that use the port.

“We would clearly welcome an improvement in the productivity and efficiency of Dar es Salaam through the upgrading of the port,” Lawrence Matthews, a Geneva-based spokesman for MSC, said in an e-mailed response to questions. “The prime consideration for choosing to use Mombasa or Dar es Salaam remains with the shippers and receivers in the region, and we will follow this pattern and demand accordingly.”

Loan Agreement

Tanzania signed a loan agreement with China Merchant Bank in March to help finance the construction of Bagamoyo, which will have the capacity to handle 20 million containers a year when construction is completed in 2017. Africa’s busiest port at Port Said in Egypt handles 3.71 million containers a year, according to the World Shipping Council’s website.

While there is economic justification for the project because of the prospects for increased imports and exports, implementation will be “a challenge,” said Prosper Honest Ngowi, a Dar es Salaam-based economist who lectures at Mzumbe University.

“Tanzania has very many good plans for economic development, but these have remained on paper because of financial constraint, and sometimes lack of long-term political will,” Ngowi said. “Tanzania does not have enough money to implement these plans, and cannot rely on donors given uncertainty caused by the global economic crisis.”

Constraints

Other constraints include the shallowness of the area in which the port will be built, which may require regular dredging, Hughes at Trademark East Africa said.

Raising financing for the project may be helped by the fact that Tanzania has 41.7 trillion cubic feet of natural gas, said Hannah Waddilove, Africa analyst at Oxford Analytica. The government also has announced plans to sell as much as $2 billion of Eurobonds to help finance infrastructure programs.

The state plans to spend 343 billion Tanzanian shillings ($212 million) this fiscal year renovating Dar es Salaam port, including deepening seven berths and building additional ones, as it seeks to match efficiency levels at Mombasa, according to the Tanzania Ports Authority. The country could generate $1.8 billion of additional annual revenue if productivity were the same as the Kenyan harbor’s, the World Bank said in May.

Competition between the ports in Tanzania and Kenya may improve efficiency, resulting in reduced delays and lower costs, African Development Bank President Donald Kaberuka said in an interview last month. Transport costs associated with logistics in East Africa are higher than in any other region in the world, according to an April study by the Tunis-based bank, which cites customs delays at ports, checkpoints along road networks and hold-ups at national borders.

“It’s good competition,” he said. “It will increase efficiencies.”

To contact the reporter on this story: Sara Jerving in Dar es Salaam via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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