Wednesday, April 17, 2013

Ten things Kenya’s new president can do to make the region richer

President Uhuru Kenyatta with the ceremonial sword, one of the instruments of power, during his inauguration on April 9, 2013.

President Uhuru Kenyatta with the ceremonial sword, one of the instruments of power, during his inauguration on April 9, 2013. Uhuru’s priority will be to make Kenya richer, create jobs, and ensure national security. There is an easy way to do all three in one stroke — grow Kenya’s exports to the EAC.   Nation Media Group
By CHARLES ONYANGO-OBBO
In Summary
  • There are many initiatives that could make East Africa rich. Some of them are still on the drawing board, some got off to a start and stalled, a few others have been worked on but have not been completed.
  • President Uhuru Kenyatta comes to office without regional baggage. Therefore, he can more easily help by breathing life into SEVEN of these projects, and THREE new ones that we propose, that have potential to make the region a much better place to live and work in.
On April 9, Uhuru Kenyatta was sworn in as Kenya’s fourth president, and became a member of the East African Community Summit.
Tanzania’s President Jakaya Kikwete, Rwanda’s President Paul Kagame, and Uganda’s Yoweri Museveni, the chief guest, were in the house for the swearing in.
It would have been an EAC presidential full-house if the inauguration hadn’t been moved because of the Supreme Court petition, hence clashing with Burundi President Pierre Nkurunziza’s trip to Iran.

Uhuru’s priority will be to make Kenya richer, create jobs, and ensure national security. There is an easy way to do all three in one stroke — grow Kenya’s exports to the EAC.
China, India, Europe, the US are all important for Kenya as a source of imported goods and capital. The real money, though, comes from the East African region.
Uganda and Tanzania, the top two importers of Kenyan products, account for over 60 per cent of the country’s exports.
Out of enlightened self-interest, Kenyatta needs to contribute to making the rest of East Africa prosperous, so that it can buy more from Kenya — allowing it to create jobs and growth at home.

1. The biometric id and digital immigration points
The EAC has a population of more than 130 million people and a combined GDP of $74.5 billion. The rules to ease trade that the EAC has put in place have mostly been aimed at the big exporters.
However, the intra-EAC trade that will spread the benefits to all corners of the region is the one involving the medium size and petty traders — who carry a few kilogrammes of product on bicycles or their heads across borders.
More than anything else, the greatest hindrance to these small traders and the other 130 million East Africans moving around the region is the lack of secure personal IDs. What is needed is an East African Biometric ID (e-ID).
The Common Market Protocol provides for common standardised national identification documents, but so far only Kenya and Rwanda have taken some credible action on this.
In September 2012, Kenya and Rwandan immigration announced that possibly as early as this year, citizens from the two nations could start travelling to either country using their national identity cards. That means they would have to fly, not travel by road, because they wouldn’t be able to use their IDs in Uganda or Tanzania.

Part of the problem is that Kenya is still far behind Rwanda. However, because it has an existing ID system, it has the capacity to move faster and create critical mass for the e-ID.
Rwanda started issuing East Africa’s first national e-ID in 2010. It combined data from the existing ID card, passport and driver’s licence, and in some cases health insurance details. As at the beginning of 2013, over 95 per cent of the Rwandan population (including the diaspora) had acquired the new IDs.

With millions of East Africans getting these IDs, it wouldn’t make sense to continue managing border points the way we do today.

East Africa should learn from the United Arab Emirates, which currently has the world’s largest biometric database — at 102 million by September 2012.
The UAE issues categories of expatriates who live and work there with biometric IDs, so they can leave and return freely by swiping the cards at automated gates. East Africans too can swipe the cards and come and go freely into or out of any EAC country any time of the day.

2. Open up regional airports
According to the “State of East Africa Report 2012,” by last year, there were a total of 378 airports and airstrips in the region, the majority in Kenya (191) followed by Tanzania (124), then Uganda (46) and a sprinkling in Rwanda and Burundi, the latter two countries accounting for four per cent of the airports in the region.

However, 90 per cent of the runways in these airports are unpaved, so the EAC needs to identify another 20 “strategic” airports and raise funds to pave them.
The bigger scandal though, is that even with the 30 or so well-paved airports in the EAC, outside the principal ones (Kigali, Entebbe, Dar es Salaam and Nairobi) there are only two other destinations that land international passenger flights regularly — Kilimanjaro in Tanzania, and Mombasa in Kenya! This is disgraceful.

A Kenyan in Kisumu who wants to travel to Soroti in eastern Uganda, a morning’s drive away, but prefers to fly there, has to catch a flight from Kisumu Airport, land at JKIA in Nairobi, catch a flight to Entebbe International, then drive for over four hours over 400 kilometres (by the shortest route) to get there.
East African countries urgently need to open up the regional airspace, upgrade their smaller airports, to allow for flights between Kisumu and Mwanza in Tanzania or Soroti, or Mbarara in western Uganda and Kigali, for example.

Apart from saving business people time and money, it will open up a growth market for the small airline companies in East Africa — more jobs, more money in the regional pot.
Someone needs to pop the regional airspace question. Kenyatta, who hasn’t been sitting at the EAC Summit, is best suited to do so. The others have been there and haven’t.

3. Help ‘Little Brother’ Burundi out
In terms of the economy and institutional development, Burundi, is the straggler. The primary reason for that is that Burundi has only recently emerged from a destructive 12-year civil war.
Unlike Rwanda, which joined the EAC after nearly 15 years of reconstruction following the 1994 genocide, Burundi was like a Third Division team thrown into the Premier League.
For these reasons, Burundi has mostly been left out in the cold with respect to the EAC.
Therefore, Kenyatta’s first foreign trip should be to Burundi. Then, he should campaign for Kenyan and other East African companies to invest there.
It is not well known, but Burundi offers wonderful incentives for investors. To name a few:
• Deduction of 37 per cent as tax credit on the amount of depreciable invested good
• Tax credit during the implementation of investments for new businesses or for the extension of existing businesses

• Reduction of two and five per cent in the rate of tax credit on the profits of companies that respectively employ 50-200 employees and over 200 employees.
One way the new Kenya government can nudge firms in the region to help uplift Burundi’s economy would be to persuade other EAC leaders to offer companies tax rebates back home on every dollar they invest in Burundi.
How would the companies gain? Burundi has a population of nine million. Rapid growth could bring several million consumers with new money in their pockets to the East African market, and regional companies would increase their profits selling to them.

4. It is the East African railway stupid
There have been efforts to revive the “East African” railway system in recent years. The total railway system in East Africa is 7,000km.
Most of this is in Kenya and Uganda, with the Rift Valley railway line (what used to be the Kenya-Uganda Railway) being the longest and carrying the most load.
The network runs from Mombasa port in Kenya to the Ugandan capital in Kampala, with a branch to Pakwach in northern Uganda. The railway, though, is today mostly rickety. A recent $40m loan from AfDB — not EADB — will go towards the rehabilitation, operation and maintenance of the network and related facilities in Kenya and Uganda.

However, last year the Lamu Port-South Sudan-Ethiopia Transport corridor (LAPSSET) was also launched.
LAPSSET is conceived as a 32-berth port at Kenya’s northern coastal town of Lamu; a high-speed railway line connecting Kenya, South Sudan and Ethiopia; a parallel highway; and a 1,260m crude oil pipeline.
However, there is something old-fashioned about the thinking behind LAPSSET. For Kenya, it is building away from its key export markets.
Secondly, the greater need today is a proper East African railway that links Burundi, Kenya, Tanzania, Rwanda and Uganda.
Kenya is the EAC’s most water and food-stressed country. Tanzania and Uganda produce the region’s largest food surpluses. To bring Kenya’s cost of food down, and remove the insecurity in the region associated with food crises, President Kenyatta should push to link food-surplus regions in southern and western Tanzania with food-deficit regions in northern Kenya, Somalia and Ethiopia.
Just one illustration: The Kenya-Uganda Railway was built when central Uganda was the food basket of Uganda and Central Africa.
Today that role has shifted to western Uganda. Extending the railway to Rwanda and Burundi will not only unlock the western Uganda food market, but could have a tremendous stabilising influence on eastern DR Congo.
While LAPSSET is crucial, Kenyatta needs to talk up a new idea of a true East African Railway that would eventually link up with it.
Thousands of East African businesspeople and farmers will have lots of new money simply falling out of their ears from that.
The railway would also be a panacea for the bureaucratic nightmare and punitive costs that those who transport by road in East Africa today have to endure.
For example, in bad periods, traders have to go through 47 roadblocks and weighbridges between Mombasa and Kigali. These Customs delays cost the region about $8 million per year.

5. Re-invent the East African Development Bank
It's easy to forget but, yes, East Africa has a regional development bank — the East African Development Bank (EADB). It is worth noting that it, and the East African University Council, were the only two institutions that did not die out when the first EAC collapsed in 1977.
However, EADB has been groping for relevance. It is still involved in small fish and chips projects, leaving Comesa’s PTA Bank, the World Bank and, particularly, the African Development Bank (AfDB), to grab all the sweet headlines as the funders of big infrastructure in East Africa.

President Kenyatta could champion the reinvention of the EADB. First, EAC governments should reduce their shareholding to about 25 per cent.
Then 50 per cent of the shares should be sold to banks that are active in the region like Equity Bank, Kenya Commercial Bank, Barclays, Standard Chartered, DFCU, and so on.
Another 15 per cent could be sold to cash-rich telco companies like Safaricom, MTN, Airtel, Warid, Vodacom because they are in the digital money business and can bring some of their creativity to the EADB boardroom. Then the other 10 per cent can be sold to other international financial institutions.
The critical thing is that the EADB mandate would have to be changed so that it invests the new basket of money it will raise primarily in regional projects (like the Kenya-Uganda railway) or national projects that have significant impact on the regional economy (Mombasa and Dar es Salaam ports).

6. ‘Marketise’ the East African road network to improve trade
There are two road transit corridors on which the regional economy lives… and dies:
1. The Northern Corridor (1,700km long) from the port of Mombasa serving Kenya, Uganda, Rwanda, Burundi and eastern DRC (and lately a few kilometres more to the new nation of South Sudan).
2. The Central Corridor (1,300km long) beginning at the port of Dar es Salaam and serving Tanzania, Zambia, Rwanda, Burundi and eastern DRC.
The Northern Corridor from Mombasa to Bujumbura is also part of the Transport African Highway (Mombasa-Lagos) while the Tunduma-Moyale road is part of the Cape to Cairo Highway.
The development of the regional network has mainly been hampered by insufficient money and, again, incompetent road authorities and corrupt government officials in cahoots with what Kenyans like to call “cowboy contractors.” Partly as a result of these factors, a record 91 per cent of East Africa’s road network is unpaved.
There is no shortage of ideas about what should be done to fix these roads. Kenyatta should seize just two, which retired president Mwai Kibaki’s government spoke about in its early years in 2003 and 2004, but were never implemented.
First, East Africa needs to move to cement roads, thus making them more durable. This will create hundreds of thousands of jobs, and turn the cement companies into giant corporations.
Second, to reduce corruption and political inefficiencies that leave the corridor networks in a prolonged state of disrepair, the management of the roads should be concessioned to private companies that charge road users a modest toll.

To build support across the EAC for this market model, all cement for building the roads should be bought from East African manufacturers.
In turn, the cement firms would have to list on the regional exchanges so that East Africans can share in some of their profits. The same requirement could be made of the firms that win the concessions to manage the roads.

These are desperate times that call for bold measures. Here is why: The traffic forecast for both the Northern and Central Corridors is that they will soon overwhelm current capacity.
According to various studies, demand on the major routes (highways, ports and railways) will increase four-fold from 24 million tonnes in 2015 to 100 million tonnes in 2030.
The Northern Corridor currently needs an investment of $1.87 billion to revamp the infrastructure and make it fully functional. Hard to see how that money will be raised under existing management models.

However, if the fix could be done, the payoff would be huge. According to various numbers out there:
• The price of road transportation would decrease by 25 per cent.
• The price of rail transportation would decrease by 11-14 per cent.
• Shipping time by road would decrease by 21-33 per cent.
• Shipping time by rail would decrease by an average of 53 per cent.
The Central Corridor needs an investment of $1.67 billion to revamp the infrastructure. If this were implemented the following improvements would occur:
• The cost of road transportation would decrease by 9-11 per cent.
• The cost of rail or rail/lake transportation would decrease by 30-36 per cent.
• Shipping time overall would decrease by 40-50 per cent.


7.Sort out Dar es Salaam, Mombasa ports urgently
Perhaps no initiative would benefit the East African economy more than a wave of efficiency at Dar es Salaam and Mombasa ports — but especially Mombasa, as it handles the bulk of East African cargo.
Yet Mombasa is in a shambles. In a year, Mombasa achieves the volume of cargo Shanghai and Singapore handle in about a week. To import a container from Singapore, your goods would spend 19 days at sea (over 7,500 kilometres), but they would need 20 more days just to make it from Mombasa, by road, to Nairobi. Bringing a container from Tokyo to Mombasa would cost you less than bringing it from Mombasa to Kampala.
The revamp or re-imagining of the Kenya-Uganda Railway as a modern regional network would ease both problems, but those are long-term solutions.
In 2011, Kenya repeated its commitment to privatise the port. It also announced that it had arranged a $324 million loan from Japan to help finance the privatisation. Subsequently, it allocated Ksh5.2 billion ($61 million) to dredge the port to allow bigger vessels.
However, Mombasa port has become too emotional and too political an issue for progress to be made quickly enough. We think Kenyatta could push for a “holding solution.”
Don’t sink more taxpayers’ money into Mombasa, and don’t fully privatise it yet. Rather, his government could contract one of the best managers of ports in the world, for example Dubai Ports World, to invest in it and run it for 10 years until it has recouped its money.
At which point, it can keep 25 per cent of Mombasa Port, release the other 75 per cent back to the government, which would flog it on the Nairobi exchange.
That approach will deliver the reform of Mombasa quicker, and bring joy to countries like Uganda and Rwanda sooner.

8. Need for new East African standard exams
Perhaps few things make the movement of labour and talent in East Africa more difficult than its disparate and uneven education systems.
The system for recognising qualifications from other EAC countries doesn’t work, so a Kenyan can study in Uganda, get a university degree, return home and find he can’t be recruited even into the police or army with it.
East African public education is in the doldrums. In the last Primary IV leaving exams in Tanzania, a mind-boggling 60 per cent of the students flunked! In Uganda, a few days ago the national examination board found that 75 per cent of the primary students outside the top schools can’t read or do mathematics at the most rudimentary level.
However, while these problems are dealt with at various levels, the real change will come from regional standardisation as that will require some reforms to the basic education systems too
 
Kenya, which sends the most number of students to study in other countries in the region, would benefit the most from the adoption of new standardised East African primary and secondary school exams. This would, naturally, require a similar standardisation of the curriculum, which is why it provides an opening to education reform.
In the fullness of time, a similar standardisation could be provided for some university degrees, e.g medicine and engineering. It would be in the self-interest of Kenya to push for this, but also be good for all of East Africa, especially businesses looking to hire diverse work forces.

9. Medicine and doctors without borders
Whatever initiatives are taken to grow the East African economy, they will still exclude the majority if poverty levels remain as high as they are.
However, Uganda, which has the lowest poverty rates in the EAC — in an 18-year period it lifted 2.3 million of its citizens above the poverty line — demonstrates it can be done.
Uganda’s rich soils and climate mean modest investments in agriculture and reform in the sector bring far greater benefits to the average citizen than in Kenya. However, early reforms by the Yoweri Museveni government that improved conditions for women in the economy, and the region’s earliest and most aggressive immunisation campaigns, also helped.
That said, one of the things that has ensured Uganda and other EAC countries are simply not growing rich fast enough is the disease burden.
Too much money and work hours are still lost to malaria (except in Rwanda, which has dramatically reduced malaria infections), and other diseases. And even for professionals and the middle classes, the biggest sacrifice is the treatment of dear ones when they fall sick.
Each EAC government will have to respond best to the challenges, but opening up the East African health industry could have far-reaching benefits.
The first step could be the introduction of an e-health system in the region, where insurance and health records are available in each country so if you need to go to a public hospital in Tanzania but live in Rwanda, those records can be transferred very quickly. It would save time, would save money (think of all the airtime used to try to find a doctor in one country when you are in an emergency in another).
This could also save lives by making sure there are no mistakes. This is something similar to the requirements of the healthcare Bill in the United States.
However, the only way this would become a reality would be if health insurance companies were able to sell regional health insurance. One should be able to buy health insurance in Kampala or Nairobi, and use it in Kigali or Dar es Salaam seamlessly.
The records part of this project could be taken care of within the biometric IDs. It is the embrace of a single health insurance market that Kenyatta could bring to the EAC Summit table.
With the market expanding to all of East Africa, insurance firms could actually afford to reduce the cost of their services. Along with this, the EAC would have to grant any well-established private hospital the right to open outlets in any EAC state.
Granted, this may not benefit lower-income earners and peasants, but it will definitely save the East African middle class hundreds of millions of dollars that they can invest in their businesses or to buy houses, travel, and pay for their children’s education, all of which will create wealth.

10. Take our eyes off the ground
Right now it seems there is no hole that you can dig with a big rig anywhere in East Africa and not find oil, gas, gold, diamonds, or titanium.
It is the same story all over Africa, which has led to the recent outbreak of giddiness that the continent is heading for a rich future.
In the past five years, for example, there have been 64 major discoveries of potential new fuel supplies in Africa — mostly oil and gas deposits. Of those, 13 were found in the first eight months of 2012 alone.
These new finds of vast resources, one fears, could be Africa’s undoing. East Africa needs to watch out that it doesn’t become lazy and sit back to wait for easy oil and gas pickings. In Uganda, the fight to cream off oil, even before commercial production, sometimes looks likely to descend into civil war.
East Africa can only become globally competitive through innovation, and doing old things in new smart ways.
Kenyatta will do East Africa a lot of good by not talking up its oil and natural gas, and encouraging his colleagues to de-emphasise our “God-given resources” and focus on that which we can create through our industry.
Additional reporting by Ahmed Salim, Lynette Mukami and Christine Mungai.
 
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