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The East African : June 23rd 2014
The EastAfrican 42 BUSINESS JUNE 21-27,2014 E∞cient logistics is key fo≥ Kenya’s Fa≥ East pa≥tne≥ship to impact the economy A n efficient logistics chain is one of the key tools to create competitive advantage in a growing economy. Every thriving economy relies on an efficient supply chain that nurtures global trade and embraces global competitiveness. Singapore boasts of being the most efficient country in logistics. In the 2011 World Bank Ease of Doing Business Index, Singapore was ranked as the best country in the world to do business in. Kenya, seeking diversity among its trade partners, has set its sights on the East. Asia is the fastest growing economic region and the largest continental economy by GDP in the world. China is the largest economy in Asia and the second largest economy in the world. In addition, Asia has the highest population, with China alone having more than one billion inhabitants. The potential trade and impact on the Kenyan economy as a result of this new trade partnership would be immense. But does Kenya have the ca- pacity to reap the benefits of doing business with this trade giant? On the Kenyan logistics front, key concerns include non-tariff barriers, the state of infrastructure, insecurity and the rising cost of fuel. Thus, the high cost of goods is largely attributed to logistics. These are critical concerns that have directly impacted the cost of doing business in Kenya and threatened its position as the regional business hub in East Africa. Neighbours Tanzania, Ugan- da and Rwanda have identified this gap as well, and they are drawing investors into their markets by embarking on infrastructural developments like the construction of the $11 bil- Kenya loses out on oil, gas ≥iches By KENNEDY SENELWA Special Correspondent KENYA IS losing out on millions of dollars in investments as areas designated for prospecting for oil and gas remain unexplored. The vacant lots are offshore L25, L26, L15, L8 and onshore 10A. Oil and gas prospecting rights for these areas cannot be awarded until a new regulatory framework has been finalised. Edgo Energy, Ophir Energy Plc, Apache Corporation and Tullow Oil Plc in 2013 surrendered block L26, L15, L8 and 10A, respectively. Kenya’s Ministry of Ener- The container port in Singapore. The country is ranked the most efficient in logistics. Picture: File COMMENTARY MESHACK KIPTURGO “Does Kenya have the capacity to reap the benefits of doing business with this trade giant?” lion Bagamoyo Port, $164 million new airport terminal and the Tanga-Musoma railway in Tanzania; Rwanda is investing in the air cargo industry and an airport free trade zone. These initiatives could shift trade away from Kenya. To remain competitive, the Kenyan government is expanding its infrastructure as well as regional partnerships that would ease trade among the East African Community partners. The recently launched single window system, standard gauge railway, infrastructure development and expansion — specifically at the port of Mombasa and Jomo Kenyatta International Airport — have moved in the right direction. To effectively tackle the cur- rent and emerging demands from international markets, Kenya needs to provide a safe and convenient environment for doing business. Some interventions include building a dual carriageway on the Northern Corridor from Mombasa to the Malaba border. Uganda and Rwanda could extend the dual carriage way into their countries. There is also a need to fast- track the construction of the free port to enable Kenya to meet the demands of the growing markets. An airport free trade zone would also greatly boost our air cargo logistics. East African countries should jointly partner and negotiate with global markets. Tackling current trade hin- drances while planning for long term business growth will attract more investments in Kenya and East Africa. In the longer term, innovative ideas should be considered for Kenya’s traditional markets from the West and the Asian markets. Meshack Kiptu≥go is the managing di≥ecto≥ of Siginon G≥oup, a logistics company o≠e≥ing t≥anspo≥t, wa≥ehousing, Customs clea≥ance, g≥ound handling and containe≥ f≥eight stations based in Kenya, Uganda and Tanzania and the chai≥man of the Containe≥ F≥eight Station Association (CFSA) and executive di≥ecto≥ of the Shippe≥s Council of East Af≥ica. Wo≥≥ies that ene≥gy p≥ojects could be too ambitious TURN FROM PAGE 41 office for Eastern Africa based in Kigali. Mr Hailu, who is the lead author of the report, said regional energy market integration will need to be fast-tracked to avert a gradual slip towards greater integration of imported energy sources to generate electricity in the region. The report shows that petroleum consumption is also surging in East Africa with all member states importing petroleum, which exposes the region to global energy markets shocks. “Energy planners need to balance the urgent need to meet expanded energy demand with energy security,” he said, adding that a regional and country level energy security strategy and action plan are urgently needed to address the deficit. Energy demand is growing amid rapid economic growth. In Uganda, for example, demand is growing fast at 7 to 9 per cent per annum while in Tanzania it is increasing at 12 to 15 per cent per annum. Comparison of absolute consumption levels of petroleum from 2000-2011 shows that while $100m consumption at the continental level increased by slightly more than 40 per cent, the rise in East Africa was 67 per cent. This constitutes a significant increase in exposure to global energy markets. Price swings For instance, disruption in the supply of imported energy, particularly hydrocarbons, and sharp swings in their price will introduce macroeconomic impacts that can undermine the momentum of the economic development taking place in the East African region. “Dependence on imported The loan approved for Rwanda’s power projects by the World Bank energy poses a serious risk as many of the factors that determine its supply and price are outside the control of importing states,” the report says. Disruption can also hamper proper functioning of the socioeconomic system just as unaffordability can hold back economic activities, particularly in energy intensive industries. Energy security is, therefore, a component of economic stability, the report notes. “The most direct impact of dependence on imported oil is price hikes in global markets. Increases in oil prices in recent years (post 2008) have led to a drift in the current account balance of sub regional member states,” says the report. Additional reporting by Peterson Thiong’o Energy demand is growing amid rapid consumption. Picture: File gy said crude oil and natural gas prospecting rights will be awarded to firms interested in undertaking exploration after the Petroleum Bill is debated by parliament and new legislation is enacted. Collapsed talks Negotiations between the ministry and Statoil for deep offshore area L25 collapsed in 2012. Kenya wanted at least $11.7 million spent in three years on various activities, but the Norwegian firm asked for a downward review of the terms. Statoil would have paid $300,000 as a one-off payment as signature bonus, surface fees of $5 per square kilometre, training fees of $175,000, and spent $50,000 on community development projects. Oil and Energy Services Ltd said Kenya will benefit if competitive licensing is implemented. “Proposed licensing rounds will give the true value of acreage as Kenya will select the company that submits the highest bid and offers the best deal,” said the consulting firm’s chief executive, Mwendia Nyagah.
June 16th 2014
June 30th 2014