Not lending us SGR money might be the best thing China has done for us

Daniel K Kalinaki 

In Summary

• What do we want? What kind of economy do we want to have when we grow up? If it is an economy that primarily manufactures stuff, where is our competitive advantage and which are the markets to target?
• Are we more likely to be manufacturing refrigerators in 15 years and exporting them to Europe (in which case we need a railway line to the ocean pronto) or are we going to enter the value chain mid-way by, say, assembling tractors and cars here and selling them into Congo, South Sudan and Central Africa (in which case we need a railway line into Congo.

By Daniel K Kalinaki

When a government delegation visited Beijing last month for the China – Africa lie-in, top of our agenda was a loan for a new standard gauge railway (SGR) from Malaba to Kampala and on to the north and to the border with Rwanda.
People in the know say the Chinese said all the nice things, offered green tea, renewed their assurances of highest consideration, then firmly but politely said no. They would not be cutting us a $14 billion cheque for a new shiny train. The numbers, whether written in algebra or mandarin, simply didn’t add up.

A cynical friend who makes a living in geopolitical analysis told me the other day that the Chinese would have looked the other way and signed the cheque if we had, say, a port on the Indian Ocean. It is easier, in the likely event of default, to take over a seaport and convert it into a naval base. Much harder to do so at Ggaba beach. It says a lot when even the most easy-come, easy-go lender in town looks at your books, offers you green tea, asks about your family, then politely turns you away.

The most obvious reason is that the project cost appeared heavily inflated. If you have the time and the inclination, look at and compare with the (inflated) cost-per-kilometre for the sections already completed or under construction in Kenya, the cost of Tanzania’s renegotiated project on the southern corridor, and comparable projects elsewhere.
But that tells just half the story. There are two perhaps more important questions to ask. One, which is related, is whether the railway would pay for itself. The feasibility study for the SGR, and its business case, have not been made widely available or have only been shown to a select few, including some Members of Parliament.

Some, of course, are men and women of substance capable of asking intelligent questions. Others, bless their hearts, couldn’t read a revenue projection chart if their very re-election depended on it.
Early evidence from the completed Mombasa–Nairobi leg in Kenya shows that while speed is useful, cost is what really matters for the kind of bulky and heavy stuff that trains carry, for instance, clinker made in the manufacture of cement.

In addition, the lack of a last-mile option eroded a lot of the SGR’s price competitiveness; you still need a truck to move your container from the railway yard to your warehouse and vice versa. A lack of visibility on such ‘hidden’ costs always forces either hidden subsidies or legislative penalties to force traffic onto the shiny new tracks. Businesspeople hate being told how to do their business.
This is not to say we do not need better infrastructure: Until a few years ago, it was cheaper and faster to ship a container from Shenzhen to Mombasa (8,500km) than to move it on to Kampala (less than 1,200km). The issue is whether a $14 billion new railway line is the answer to that question. Many disagree.

For a tenth of the cost of the SGR, a few people in the know tell me, we could upgrade the old lunatic line, get in new wagons, sort out turnaround times and reduce the cost of bringing goods in and out. We will still need a new railway line, they say, but we can build it later when we can better afford to pay for it. It is hard to disagree.
But perhaps the most important reason to welcome government’s decision to derail plans for the SGR, at least for the foreseeable future, is that it gives us an opportunity to take our foot off the debt pedal and ask a few commonsense questions.

What kind of economy do we want to have when we grow up? If it is an economy that primarily manufactures stuff, where is our competitive advantage and which are the markets to target? Are we more likely to be manufacturing refrigerators in 15 years and exporting them to Europe (in which case we need a railway line to the ocean pronto) or are we going to enter the value chain mid-way by, say, assembling tractors and cars here and selling them into Congo, South Sudan and Central Africa (in which case we need a railway line into Congo like two months ago, and a lot of skills we currently don’t have).

If we have a comparative advantage in tourism, do we invest in capital-intensive regional and international airline operations, or in last-mile transport (think helicopters and boats) accommodation facilities, and customer care?
Following the herd (“me also me give me a railway line”) is not a very good or competitive business strategy. Not lending us money for the SGR before we do our homework is probably the best thing China has done for Uganda in a long time.

Mr Kalinaki is a journalist and a poor man’s freedom fighter. write2kalinaki@gmail.com
Twitter: @Kalinaki.