Bloomberg News

Kenyans Almost Dead on Worst Roads Getting New Highways: Freight

April 10, 2012

Exasperated by a half hour of gridlock in downtown Nairobi last month, a bus driver jumped the median and headed toward oncoming traffic. As cars, trucks and hawkers jostled for space, he raced ahead, almost colliding with a motorcycle courier, before pulling back into his lane.

It’s a frequent scene in the Kenyan capital, where commuters compete with trucks ferrying cargo between East Africa’s biggest port of Mombasa, on the Kenyan coast, and landlocked neighbors Uganda and Rwanda, all on a road that runs through the middle of Nairobi.

To end the jams, Kenya is building more roads than it has since independence half a century ago as the government forecasts the economic growth rate will double over the next two decades, to about 10 percent. At least 80 billion shillings ($970 million) is being spent over five years on more than 500 kilometers of new roads and on widening existing ones.

“The investment committed to roads around Nairobi in the past five years is in multiples of what was invested in Kenya’s history,” Transport Minister Amos Kimunya said in an interview. “The government believes that once you open up infrastructure other investment will follow.”

That may boost profits for the East African franchise of Coca-Cola Co. (KO:US), which is spending $62 million increasing capacity in Kenya; Del Monte Fresh Produce Inc.’s local unit that produces and processes fruit from farms; and Unilever (UNA), whose Kenyan tea plantations turn out 30,000 tons a year.

Infrastructure Bonds

The government’s growing ability to borrow to pay for road and energy projects is fueling the country’s debt market, with almost $1.4 billion infrastructure bonds sold since the first such sale in 2009, said Razia Khan, head of African research for Standard Chartered Bank in London.

Kenya also is securing a $600 million loan, arranged by Citigroup Inc. (C:US), South Africa’s Standard Bank Group Ltd. (SBK) and London-based Standard Chartered Plc (STAN), to finance roadway, energy and irrigation projects in the fiscal year through June.

“One of the main problems holding Kenya from embarking on such an expansive road-building program in the past has been the issue of funding,” Marc Mercer, an Africa analyst with London- based Eurasia Group Ltd., said an e-mailed response to questions. “These projects are now materializing and improved transportation links will be a big plus for the economy.”

Kenya’s B+/B rating was affirmed by Standard & Poor’s in December, with a stable outlook. The central bank’s fight against inflation has pushed up yields: The yield on the five- year benchmark bond rose to 13.9 percent at an auction on August 24, the highest since at least May 2006, compared with 12.5 percent at the previous sale on June 22. Two-year borrowing costs climbed to 22.8 percent on Nov. 23, from 16.5 percent the month earlier, according to central bank data.

Lock in Now?

“Kenyan bonds are high-yielding due to government monetary policy,” said Olivier Vojetta, the London-based head of research at asset managers FM Capital Partners Ltd. “It makes sense to lock in now as high rates won’t persist indefinitely.” He said the new infrastructure bonds “may be of interest.”

A broadening base of taxpayers and greater efforts to tackle tax evasion have helped boost state revenue. Expenditure on highway, railway and power projects have almost doubled in the past three years, to 221 billion shillings in 2011-2012.

While Kenya is starting to show it can spend borrowed money effectively, in the past funds intended for infrastructure have sometimes been lost to corruption, Mercer said.

The World Bank de-barred two companies and a business owner in 2003 after an investigation in Kenya revealed a former World Bank employee and government official were paid kickbacks in a project funded by the Washington-based lender to lay down roads, according to a statement.

Tea and Flowers

Kenya is among the world’s 30-most graft-prone countries, alongside Zimbabwe and Paraguay, according to Transparency International’s latest corruption perception index.

The flagship road project is the 27 billion-shilling upgrade of a route that connects Nairobi to the industrial town of Thika and onward to Kenya’s tea and farming heartland. Kenya is the world’s biggest exporter of black tea and supplies one- third of the flowers sold in the European Union.

The freeway will be expanded to as many as 12 lanes from two. Rehabilitating the road network, which carries 80 percent of Kenya’s cargo and passenger traffic, may also curb the economic damage caused by road accidents, the country’s third- biggest killer after HIV/AIDS and malaria.

At 34.4 deaths per 100,000 people, Kenya’s traffic mortality rate is the 16th highest in the world. Countries including Afghanistan, Egypt and the United Arab Emirates have higher rates, according to 2007 figures from the World Health Organization.

Time and Money

Rob Holtrop, managing director of a 50-hectare (124-acre) calla lily farm near Limuru, 20 kilometers northwest of Nairobi, said a recently built bypass there saves him time and money.

His driver, who ferries 10 metric tons of flowers each day from that farm and three neighboring ones, now spends two hours, instead of six, plying the route from Limuru to Nairobi’s international airport. Even so, he hits the road by 4 a.m. to avoid getting stuck in morning rush hour.

“The improvement is 100 percent; it has really lowered our shipping costs,” Holtrop said in a phone interview.

Road expansion accelerated after President Mwai Kibaki, a former finance minister, was elected in 2002. He pledged to fix transportation bottlenecks, end power shortages and enact changes that have drawn private investment and interest from donors including the African Development Bank, the World Bank, China, Japan and the European Union.

Fewer Breakdowns

“It is difficult to be competitive if you cannot move your goods or raw materials around cheaply,” Bob Okello, a Nairobi- based spokesman for Coca-Cola, said in an e-mailed response to questions. Improvements to Kenya’s transport network over the past seven years reduced vehicle breakdowns by 5 percent and led to a 10 percent savings on fuel costs, he said.

Nairobi, Africa’s 12th-largest city with a population of 3 million, has grown from its founding in 1899 as a supply depot along the railway from Mombasa, on Kenya’s southern coast, to Kampala, the capital of neighboring Uganda.

Rapid urbanization spurred by migrants seeking jobs in a city that generates as much as 60 percent of the country’s gross domestic product may push Nairobi’s population to 5 million by 2020, according to the World Bank. The current road network is only adequate for a city a 10th of its size, according to the United Nations’ Human Settlements Programme.

Improved transport links in and around Nairobi mean “we will be able to reach more of our customers and farmers,” Caesar Mwangi, managing director of Sasini Ltd. (STCL), Kenya’s largest publicly traded tea and coffee grower, said in an interview.

Matatu Drivers

Apart from the central business district, Nairobi has few working traffic lights and police officers direct vehicles at the busy junctions. The city’s mass transit system is comprised mainly of privately owned minibuses, known as matatus, whose drivers routinely flout traffic safety laws.

“Matatu drivers are to blame for most of the traffic jams in Nairobi. They cause problems with their carelessness, overlapping sometimes on the wrong side of the road, and always bumping into us,” George Thuo, a 50-year-old taxi driver whose cab is pockmarked by nicks and dents, said on March 29 as he waited at his regular downtown parking spot for customers. “We would be able to earn twice as much if Nairobi had better roads and there were no matatus slowing us down.”

The Thika freeway, being built by three Chinese engineering contractors, including Sinohydro Group Ltd. (601669), is running a year behind schedule and is expected to be completed in July.

International Business Machines Corp. (IBM:US) expects infrastructure development to help Nairobi improve its ranking on the so-called IBM Global Commuter Pain Survey. The report, which measures the toll traffic takes on work, family and health, showed the city is the world’s fourth-worst for workplace commuting, after Mexico City, Shenzen and Beijing.

“In the next five to 10 years Nairobi will be a completely different city,” said Tony Mwai, general manager for IBM East Africa. “People will spend less time in their cars, and be doing a lot more productive activities.”

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net


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