Kenya: East Africa Logistics Outperformer

BMI highlights Kenya as the logistics outperformer in East Africa when compared to Tanzania, with the country benefitting from a more developed port sector and stronger transport links than its neighbour. Kenya and Tanzania both offer companies entry and exit points into the East Africa Community (EAC) and other hinterland states and so are set to compete with one another in the logistics sphere. Kenya is taking the lead and has been picked by the EAC as the regional hub for its autos trade. Auto companies are already making inroads into Kenya, with India carmaker Tata choosing the country as its entry point to the region. While Kenya may be our EAC logistics outperformer, the country ranks mid-table in comparison with the seven sub-Saharan African countries (the others are Angola, Botswana, Ghana, Namibia, Nigeria and Tanzania) which we have identified as offering strong opportunities to the automotives sector and which we are analysing from a logistics point of view.

Key Points

  • Better developed than Tanzania for EAC gateway role;

  • Congestion at the port of Mombasa is a major challenge to be overcome, but short and long-term expansion strategies are in the pipeline;

  • Outperforming Tanzania, but has a mid-table ranking when compared to the other sub-Saharan states that we are analysing;

  • Road over rail in internal transport sector, with LAPPSET corridor to boost both transport modes;

  • Imports are costly despite low levels of bureaucracy and relative speed of delivery;

  • Kenya's expanding automotive export role set to benefit from the fact that it is cheaper to export than to import.

Mombasa Feeling The Pressure

Like Tanzania, Kenya is reliant on one port to meet both its domestic import and export needs. It also has to function as a gateway with Kenya - like Tanzania - being a key entry and exit point for goods into the EAC (whose members as well as Kenya and Tanzania are Burundi, Rwanda and Uganda) and also into regional hinterland countries such as South Sudan, Ethiopia, and the Democratic Republic of Congo (DRC).

In Kenya's case the country's main port is Mombasa, while the port of Dar es Salaam is the primary facility in Tanzania. These two ports are responsible for almost all of the region's external trade. Both of these facilities have been plagued by congestion in recent years, as investment in them has not been sufficient to enable them to cope with the growth in demand.

This is underscored by the country's port infrastructure rankings globally, with the World Economic Forum's Global Competitiveness Index placing Kenya's ports in 91st place out of 144 states.

East Africa High Scorer
Global Competitiveness Report Port Infrastructure Rankings.

However, Kenya's port sector scores relatively high in comparison to the seven sub-Saharan African countries that we are analysing, being ranked third out of six states (Angola is not ranked). The country's port infrastructure is considerably above its EAC rival Tanzania, which was last out of the six states and ranked 117 globally.

Kenya's relatively stronger port position is further highlighted by the country's connections on container routes and the port of Mombasa's throughput. According to UNCTADstat's Liner Connectivity Index Kenya is ranked higher than Tanzania, although BMI highlights that when compared to six of its sub-Saharan peers (Botswana is not ranked as it is landlocked) Kenya and Tanzania rank low, in fifth and sixth place respectively.

Outperforming Tanzania, But Lagging The Rest
UNCTADstat Liner Connectivity Ranking

Mombasa also outperforms Tanzania in terms of throughput. In 2011 (last available data for both the port of Mombasa and Dar es Salaam) the Kenyan port handled 770,804 twenty-foot equivalent units (TEUs), 296,804 TEUs above the 475,000 TEUs that Dar es Salaam handled for that year.

BMI also highlights that Kenya, like Tanzania, has experienced strong growth, with box throughput volumes at Mombasa expanding by 195.8% over the last decade from 305,427 TEUs in 2002 to 903,443 TEUs in 2012. Between 2011 and 2012 container throughput at the port increased by 17.2% and we expect this robust growth to continue with a y-o-y increase of 13.2% forecast for 2013 and container throughput growth at the port projected to increase by 79.4% over the medium term (2013-2017).

Mombasa In The Lead
LHC: Port of Dar es Salaam Container Throughput (TEU) and Port of Mombasa Container Throughput (TEU). RHC: Port of Mombasa Container Throughput (TEU) and Port of Mombasa Container Throughput % Change y-o-y

The rapid growth at Mombasa has, like at Dar es Salaam, led to issues of congestion, which has impacted both the reliance of goods deliveries and the cost; shipping lines are regularly adding surcharges on routes calling at Mombasa, a major drawback for firms looking to use the port.

Congestion Being Addressed In Short And Long Term

However, the congestion issue is being addressed, with both short and longer-term tactics in place. A new container terminal is currently under construction at Mombasa, which will ease some of the burden on the port's current facilities.

A longer-term strategy is a move to develop a new port for Kenya, with plans to develop this major facility in the north of the country.

The port of Lamu is being developed with Chinese investment. The new facility, which will cost US$5.3bn, will be spread over 700 acres of land. It will include a 10-berth container terminal, three bulk cargo terminals and an oil terminal. The port will serve as the maritime entry point to the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor, which will include rail, road, oil pipeline and fibre optic cable connections with South Sudan and Ethiopia. The site will also be home to a new international airport.

Too Many Ports Or Just Enough?
East Africa Ports

This transport corridor will enable Kenya to be an even more effective entry point for new and used cars for South Sudan and Ethiopia, in addition to the onwards transport of any vehicles assembled in Kenya. Indian autos maker Tata has chosen Kenya to be its regional assembly hub over Tanzania as a result of its better infrastructure. This transport corridor, once completed, will give Kenya even more of an advantage in catering for the rapidly growing new country; South Sudan's trade through Mombasa has already risen from 7.5% of volumes in 2011 to 11.6% in 2012. With regard to the autos sector, the development of South Sudan's industries, in particular the oil sector, has given rise to an increasing demand for commercial vehicles, which are entering the country from Kenya.

Internal Network Also Being Upgraded

Developments such as the LAPPSET Corridor will also help improve Kenya's internal road and rail networks. Improving the ports sector through new container terminals at Mombasa and the new port at Lamu are all very well, but without effective ongoing connections these are useless. A decent internal network is vital to transporting autos onward to hinterland countries, and to enable companies to develop assembly plants in Kenya itself. Kenya's road and rail networks are mid-table according the Global Competitiveness Index, coming in third and fourth place respectively from the six states measured (with Angola once again not ranked).

Road Over Rail
LHC: Global Competitiveness Report Road Infrastructure Rankings. RHC: Global Competitiveness Report Rail Infrastructure Rankings

Road is therefore the outperformer in Kenya's internal transport network, with rail surprisingly ranked lower than that of Tanzania considering that Kenya boasts a larger rail network. Kenya's railway network stretches for 2,066km compared to Tanzania's 969km rail road. Like Tanzania, Kenya operates on the narrow gauge rail system linking it with its neighbours.

We believe that Kenya has the potential to get the first-mover advantage with regards to autos production, becoming the first country to manufacture vehicles, rather than simply being an assembly hub, reliant on imports of kit parts in containers, or else of new or used vehicles. Should Kenya wish to fulfil this role, however, the country needs to improve its internal transport networks in addition to the ongoing investment in its ports.

Imports Costly

The ease by which autos and logistics companies are able to import vehicles and goods into Kenya is vital to their potential success. Too expensive or excessively bureaucratic a system will result in unnecessary costs and delays which could mean that the companies look to other African countries to use as a base. Just as with its ports, road and rail sectors, Kenya is a mid-table country of our seven, though importantly we note that it does place above neighbouring Tanzania.

In terms of the lead time to import goods (a measurement of how long it takes goods from the port of discharge to arrive at the consignee), Kenya scores relatively well according to data from the World Bank. The four days it takes to import goods (median case) puts Kenya in joint second place from six of our seven countries (landlocked Botswana is not ranked), drawing with Nigeria and behind only our outperformer Namibia.

Quicker And Less Bureaucratic...
LHC: Lead Time To Import (Median Case Days). RHC: Documents To Import (Number)

The competitive speed by which imports can be brought into Kenya is aided by its relatively low level of bureaucracy. The seven documents needed to import into the country puts it in joint first place (along with Botswana, Ghana and Namibia), and easily beats Tanzania's burdensome 10 documents needed to import.

However, despite the relative speed of imports and the competitive nature of Kenya's import bureaucracy, the country's ease of imports is let down on the cost front. The World Bank records that it costs to import, on average US$2,350 per container.

...But Tanzania Still Cheaper
LHC: Cost to Import (US$ Per Container) and Global Average. RHC: Kenya and Tanzania Cost to Import (US$ Per Container)

This places Kenya considerably above the global average of US$1,747 per container (measured across 184 countries) and also makes it less competitive regionally. Out of the seven sub-Saharan states that we are analysing, the cost to import a container places Kenya in fifth place, with the cost to import a container cheaper in all but Angola and Botswana. Tanzania is cheaper to import by US$785 a container, though we believe that shippers could be happy to pay the extra for the more competitive infrastructure network and ease of access to rapidly growing markets such as South Sudan.

Export Opportunities With Kenya's Auto Manufacturing Potential

As noted above, Kenya already plays a key role in the re-export of autos to other regional countries lacking their own ports, either new or used vehicles imported from abroad or those assembled at Kenyan assembly plants. Should Kenya become the first country to develop its own autos manufacturing sector the ease with which exports can be made will become even more important than it is already.

Indeed, a number of carmakers are investing in Kenyan production plants, with an eye to exporting to the wider EAC region. Toyota Motor is not only building a production plant but has also opened a warehouse and logistics centre to store and process parts for sale in east and Central Africa. Rival General Motors East Africa has expanded its existing plant to increase sales in East Africa.

In terms of the lead time to export, Kenya is already competitive, coming joint first at just two days, along with Ghana and Kenya, and ahead of Tanzania (3.2 days). This is half the time it takes to export.

Kenya requires eight documents to export, putting it in fourth place behind Botswana, Tanzania (one of the few instances in which Kenya is outperformed by its regional competitor on the measures we have been looking at) and Ghana.

Cheaper To Export
LHC: Cost To Export (US$ per Container). RHC: Kenya Cost To Export (US$ per Container) and Cost to Import (US$ Per Container)

However, once again Kenya does not score well in terms of cost. At US$2,255, the country is cheaper only than landlocked Botswana to export a container, and is more than twice as expensive as Tanzania. Kenya will have to hope that companies are content to pay the extra for the better infrastructure it can offer if it is to secure its place as the autos logistics hub for the East Africa region.

This article is tagged to:
Sector: Autos, Freight Transport, Shipping
Geography: Kenya, Kenya, Kenya, Kenya

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