Why importers could derail SGR's Kampala journey

The Standard Gauge Railway at Port Reitz Station in Mombasa. [File]

High costs and inefficiencies in clearing cargo at Mombasa port and Embakasi inland depot have put off many regional firms while the jury is still out on project’s overall viability.

Debate on the economic viability of the Nairobi-Naivasha-Kisumu section of the Standard Gauge Railway (SGR) continues to rage amid growing apathy from regional importers for the multi-billion-shilling project.

More worrying is that Kenya’s biggest trade partner in the region - Uganda is blowing hot and cold in developing its end of the railway line from Malaba to Kampala.

Last week, Uganda Minister for Finance Matia Kasaija released a statement, saying his country had suspended the SGR project.

The country, he said, had decided to turn its attention to revamping the old metre-gauge railway network until unresolved funding issues with Kenya and China are concluded.

“It is apparent the SGR is going to take us a lot of time to complete. First, we have to wait for Kenya to reach the Malaba border then we can start,” Mr Kasaija told a local Ugandan daily.

Leading importers

His Works and Transport counterpart Monica Azuba would, however, downplay the reports days later (see separate story). Despite the assertion, the damage had already been done and Uganda’s misgivings about the long-term viability of the project made clear.

The funding of the second phase of the project - a 267km stretch from Naivasha to Kisumu at an estimated cost of Sh380 billion - has also been dogged by funding controversy, with China said to be having second thoughts about its viability.

For it to make business sense, the proposed line has to reach Uganda in order to take over a huge chunk of the haulage business in the landlocked country ahead of the Tanzania-Rwanda SGR line.

In a series of interviews with manufacturers and other leading importers in Uganda and across the region recently, one message echoed across the trading corridors louder than a train engine roaring on SGR rails: it does not make sense for business people in Uganda to import through the SGR; It only makes sense to export through it.

One of the leading manufacturers in Uganda, Mukwano Group of Companies, has set the ball rolling by making it clear that it will only use the line once in place for its exports.

The firm was adamant that it made no economic sense to import its raw materials from the port of Mombasa through SGR.

This coming from such a big player in the regional manufacturing space should pose a reason for worry for either government. Since its formation in the post-dictatorial days of the former despotic leader Idi Amin, It has completely locked out other major manufacturers from Uganda such as Kenya’s Bidco and Tanzania’s Azam.

It is now giving these manufacturers a run for their money in the traditional East African export markets of Pakistan, the Middle East and the United Kingdom.

The company manufactures edible oils, soaps, beverages, among others. It also has interests in other sectors, including banking and insurance.

“When the Kenya Revenue Authority (KRA) approached us with a proposal to ferry our imported raw materials through the SGR, we decided to make a quick study on the costs involved and decided we better stick to our trucks,” said Mukwano General Manager for Sales Sangam Kader in a recent interview in Kampala.

“To begin with, the demurrage charges we were to incur are mind boggling. For example, when we ferry cargo from the port of Mombasa, through the SGR, we have to pay again for that container to be returned empty. Unlike trucks where we are not charged. This is something that is not sustainable.”

A major logistics company in East Africa, Uganda’s Unifreight, is another importer that has openly shunned SGR.

Unifreight happens to be one of the most visible and preferred cargo import agents for a motley of Ugandan companies as well as other companies in Rwanda and Burundi.

The Ugandan logistics firm has a huge presence in Mombasa, having recently acquired a  21,000 square metre site in Changamwe for its cargo handling.

The firm has got an equally enviable presence at the port of Dar es Salaam.

Last year, the East African community included Unifreight among the few top regional firms that enjoy the luxury of being omitted from rigorous border checks by different tax bodies.

The EAC certified Unifreight as an Authorised Economic Operator (AEO), meaning the firm’s standards are held in such high esteem and it can be trusted to import or export without much scrutiny.

Jennifer Mwijukye, the founder and managing director of Unifreight, said in an interview that there was no way the firm would consider ferrying cargo from Mombasa through the SGR.

She said when the SGR was put up, the Kenya Government made a compulsory directive that all hinterland-bound cargo use it.

But the Ugandan importers hit back, threatening that if Kenya compelled them to use the rail, they would boycott the Mombasa port and take their business to Dar.

Demurrage costs

“We were serious and I was in that meeting with Kenyan officials. When they saw we would not back down, they beat a hasty retreat and changed the narrative. They would only compel Kenyan importers and leave the rest of us,” said Ms Mwijukye in an interview in Kampala.

She, however, revealed that she was curious to see how things would pan out if they used the SGR despite the warnings against the idea from her compatriots.

“I decided to try and see how things would turn out. What a mistake! I burned my fingers. The demurrage costs that I faced were unbearable. The general bottlenecks at the Inland Container Depot at Embakasi were too much. And still I had to hire trucks to the border,” said Ms Mwijukye. 

The Unifreight boss said she would not consider using the SGR unless the Kenya Government extended it to Malaba first.

In Rwanda, figures from the Rwanda Revenue Authority (RRA) show that 70 per cent of Rwandan imports passed through Tanzania via the Central Corridor.

Only 30 per cent of the country’s imports passed through the Mombasa port before finding their way into Rwanda through the Northern Corridor.

According to the RRA Deputy Customs Commissioner Alex Mujeru, recent improvements at the Dar es Salaam port had spurred efficiency, coupled with a relatively shorter distance from the Tanzanian port to Kigali.

This has encouraged Rwandan traders to opt for Dar over Mombasa for their imports.

“So many changes have taken place along the Central Corridor since the East African Community (EAC) initiated the Single Customs Territory (SCT) which have led our traders to favour the Dar port,” said Mr Mujeru in an interview with The Standard in Kigali.

“The issue of the SGR does not even bother us since we are committed to the Central Corridor.”

Another neighbouring country, Burundi, imports 90 per cent of its goods through Dar.

Kenya’s SGR is not even a point of discussion in Bujumbura, according to Denis Nshimirimana, secretary general of the Burundi Federal Chamber of Commerce.

While the apathy for SGR among neighbours is apparent, Kenya Railways Acting Managing Director Philip Mainga is quick to dismiss their concerns as illegitimate.

“To begin with, since operations commenced on January 1, 2018, the SGR Freight service has lived up to expectations. We have delivered what we promised by ensuring the cargo transit time of eight hours is adhered to,” said Mr Mainga in an interview.