Things appear to be looking up for the Kenyan freight industry over the medium term as the country seems to have grasped the importance of investment in order to forge ahead and fulfil its potential. Planned improvements on a major rail line operated by Rift Valley Railways (RVR) have long been regarded as necessary to counter what had become a significant bottleneck for freight and passenger transport in East Africa.
Financing for this will undoubtedly provide the country with a boost as it is the only rail line linking Kenya and Uganda, and has also been one of the main factors behind congestion at the port of Mombasa. Underlining the strategic importance of the infrastructure upgrade is the fact that the improved rail network could reduce transport costs by up to 35%, according to Citadel Capital's chairman, Ahmed Heikal. Citadel has a 51% stake in RVR.
The air freight sector is also set for a boost, with Kenya Airways Cargo continuing to develop its route portfolio since its launch in 2004. It now plans to operate a specialised freighter; until now the airline had used belly-hold space in passenger planes belonging to its parent company, Kenya Airways.
A memorandum of understanding (MoU) was signed in February 2011 between Kenya and Ukraine on cooperation in the maritime sector. Trade between the two nations has grown significantly in recent years, and this MoU will help this to continue. Furthermore, the long-mooted US$5.3bn construction of the Port of Lamu in northern Kenya appears to be on the horizon.
Headline Industry Data
?? 2012 Port of Mombasa tonnage throughput forecast to grow by 3.55%.
?? 2012 air freight tonnage throughput predicted to rise by 7.96%.
?? 2012 rail freight tonnage throughput forecast to increase 1.23%.
?? 2012 total trade set for year-on-year (y-o-y) real-term growth of 4.5%.
Key Industry Trends
RVR Secures Financing For Capacity Improvements A major rail line operated by RVR, which has long been earmarked for redevelopment, has secured financing for a new raft of upgrades, potentially providing a major boost to transport infrastructure in the region, as well as eradicating what has been regarded as a debilitating bottleneck for freight and passenger transport in East Africa.
Kenya Airways Cargo Reaches For The Skies With Freighter Lease Kenya Airways Cargo announced that it has taken on its first freighter in September 2011, a move that we believe makes the company well placed to benefit from the rising export needs of Kenya's horticultural sector.
Shippers Turn To Air As Mombasa Remains Congested BMI believes there is upside potential for air freight volumes in Kenya. Shippers, increasingly frustrated by continuing congestion issues at the primary Kenyan maritime facility of Mombasa, are looking to air freight as a more reliable mode of transport, despite the higher costs. We believe this opens up opportunities for air freight carriers such as Kenya Airways Cargo, which has already committed to an expansion plan.
Key Risks To Outlook
Downside potential arises in the form of political risk, with Kenya is scheduled to hold elections in 2012. The troubling precedent set in 2007 means that the risk of political instability will be elevated over the medium term. The fact that two possible candidates, Uhuru Kenyatta and William Ruto, are facing charges at the International Criminal Court for their alleged involvement in previous violence, introduces additional uncertainty.
Furthermore, although the construction of the Port of Lamu holds many obvious benefits, it is also facing some objections from locals and a lobby group has been established. Financing for the project may also prove to be a stumbling block, with the total US$16bn-23bn price tag particularly prohibitive at a time when liquidity for infrastructure projects is showing signs of tightening due to the looming eurozone crisis.
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