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Eastern Africa Premier Supply Chain Magazine

February, 2017 Issue No.: 07/2017



400.00 8,000.00 12,000.00 4,000.00 5.00


Digitally transformed, integrated public transport vital for Africa’s economic growth


What does 2017 hold for supply chains?


British Airways Soaring High With Unrivalled Customer Service Experience


Regulatory reforms across numerous Kenyan sectors stimulate new activity

Editor’s note PUBLISHER Proc & Logistix Consult Limited P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 (0)204404488/(0)2044002479

Welcome to February edition

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Procurement & Logistics Magazine @ LogisticsProc CHIEF EDITOR Okumu S. Biko PRODUCTION GRAPHIC DESIGN Nicholas Amanya BUSINESS DEVELOPMENT Linzy Otulya WRITER/CONTENT DEVELOPER Sandra Dinga, Maureen W. Njeri WRITER Antony Kanja DISTRIBUTION Valentine R. Magai EDITORIAL OFFICES Proc & Logistix Consult Ltd P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 0204404488/0204402479 ADVERTISING For information on advertising in future Issues of the magazine, please contact: OKUMU STEVE BIKO +254 721 986284 SANDRA DINGA +254 713 199012 E-MAIL: SUBSCRIBER CUSTOMER SERVICE

Procurement & Logistics Management Magazine is a monthly publication and circulated to professionals in the Supply Chain industry, members of relevant associations, government bodies and other personnel in the procurement, logistics and finance industries as well as suppliers in Eastern Africa. The editor welcomes articles and photographs for consideration. Material may not be reproduced without prior permission from the publisher. DISCLAIMER: The publisher does not accept responsibility for the accuracy or authenticity of advertisements or contributions contained in the journal. Views expressed by contributors are not necessarily those of the publisher. Š All rights reserved. No part of this publication may be copied or reproduced without prior permission from the publisher.


elcome to February edition. The year 2017 has started and we are on the second month- holiday hangovers are completely out are everyone is back to work. Due to increased activities within the supply chain industry this magazine has shifted publications from bi-monthly to monthly basis. Our media calendar will be more diversified and open to industry contribution from around the world more so within Sub Saharan Africa. Worldwide article contribution is also welcome for consideration. In our online site we have also added various menus from profiles where we will in every edition focus on either a Corporate- Person or Product within Supply chain profession and business men. This will ensure we bring out practical work experience from various sectors. There is also a new column for Tenders and Job placementsthese are open to credible institutions can log in and post to the editorial team for consideration in to the website. Once again with this you will be sure to reach target clients. In this issue we explore facts about marine insurance a USD 290 Million new market for Kenyan underwriters; a policy spreading across East Africa countries- in the next issue our team will dig further on the insurance policy is taking shape in other Sub Saharan countries. The profiles section we have highlighted British Airways foot print in Africa an interview carried out with Mr. Kevin Leung. Amongst other topics are how Nigeria rehabilitating and expanding transport network and how major international companies are reaching out Africa for investment opportunities. This is a detailed issue with value in each page. Enjoy your reading.

Okumu S BIKO Chief Editor

CONTENTS DIGITALLY TRANSFORMED 46 integrated public transport vital for Africa’s economic growth Kenya Importers to buy local insurance policy under new law effective January 2017


German firm awarded $13.4m contract to install Nairobi traffic lights 6. Kidnappings at sea on the rise, maritime agency reveals 7. Kenya’s first MombasaNairobi SGR train to depart in June 7. The RwandAir begins Cotonou, Abidjan flights 8. Jubilee Insurance Kenya unveils marine cargo insurance online portal 8. US firm wins design contract for Uganda-Tanzania oil pipeline 9. Effective Fleet Management Will improve Cash Flow 10. Djibouti officially inaugurates portion of Addis AbabaDjibouti Railway line 12. Air Tanzania to acquire new $67,000 reservation ticketing system 13. Africa Logistics Properties seeking $69million to construct new warehouses 2

2017 TRENDS 18. What does 2017 hold for supply chains? 20. The three hottest trends in transport and logistics 22. Fleet trends for 2017 23. Stepping into the future of global supply chains and logistics 24. Smarter decision-making drives telematics development in 2017 25. Brands can certainly take a page or two from the Ford Kuga saga



INSURANCE 26. Facts about Marine Cargo Insurance



PORTS 28. Government addresses port congestion in Ghana’s transport sector 41. Linking Myanmar’s port and road infrastructure 42. Investment in Ghana’s largest port continues




30. British Airways Soaring High With Unrivalled Customer Service Experience


62. Regulatory reforms across numerous Kenyan sectors stimulate new activity


62 45. Richard Sezibera, Secretary General, East African Community 50. Donald Mahaga, Chairman, Kenya Oil and Gas Association 51. Tim Carstens, Managing Director, Base Resource




German firm awarded $13.4m contract to install Nairobi traffic lights

“The cameras will detect which side of the roads at an intersection has a heavier traffic and automatically allow the vehicles to flow to decongest,” said Kura.


enya has awarded German firm HP Gauff Consultants a $13.4 million (Sh1.4 billion) contract to design and implement a modern traffic signalization system to decongest roads in Nairobi. HP Gauff Consultants will oversee the rollout of the intelligent traffic system (ITS) that involves installation of intelligent traffic lights at major road junctions in the city. The smart lights will allow a longer period of traffic flow from roads with most vehicles as opposed to the current analogue traffic lights that are time-based, restricted to allowing and stopping vehicles at intervals. Cameras at intersections will determine the most clogged roads through vehicle number plates embedded with microchips that Kenya is moving to adopt and


automatically synchronise traffic lights, effectively removing the need for traffic cops.The project will be done in phases and is being implemented by the Kenya Urban Roads Authority (KURA). “Our roads are congested not because capacity is low, but because of conflicts we are having at the junctions, and those are the ones we are trying to eliminate” “The new system is set to transform our roads with the reduction of human interface and helps in the collection of useful data for decision- making,” said KURA “We expect drastic change in driving behaviour among motorists as traffic offence will be captured on camera in realtime.” The project is part of the Nairobi Urban Transport Improvement Programme and will be jointly funded by the World Bank and the government. The first phase will involve construction of the smart traffic system at 100 major road junctions. The city has 400 junctions, blamed for causing traffic jams. The smart lights contract will also involve construction of an operation command centre that will house engineers, system specialists and traffic police officers to monitor traffic in real-time. “The cameras will detect which side of the roads at an intersection has a heavier traffic and automatically allow the vehicles to flow to decongest,” said Kura. Nairobi Traffic Police Boss Leonard Katana lauded the move saying it would ease the role of traffic police and traffic marshals in the city, who are overwhelmed by managing traffic. “We have a lot of expectations when this system becomes a reality, because we shall come up with a control center where we shall monitor the city,” Mr Katana said. KURA expects to install the system within the next fifteen months.





Kidnappings at sea on the rise, maritime agency reveals

Maritime kidnappings have hit a 10-year high according to the latest annual piracy report by the International Chamber of Commerce International Maritime Bureau (IMB).


he report reveals that more crew members were kidnapped at sea in 2016 than in any of the preceding 10 years despite global piracy reaching its lowest levels since 1998. A total of 191 incidents of piracy and armed robbery have been recorded on the world’s seas. Shipping channels around the world remained under threat from pirates, IMB director PottengalMukundan said, despite good gains being made in the combating of piracy. “The continued fall in piracy is good news, but certain shipping routes remain dangerous, and the escalation of crew kidnapping is a worrying trend in some emerging areas,” he said. Kidnappings in the Sulu Seas between eastern Malaysia and the Philippines are a particular concern. In 2016 only, 150 vessels were boarded, 12 vessels were fired upon, seven were hijacked, and 22 attacks were thwarted worldwide while the number of hostages fell to 151. Maritime kidnappings, however, showed a threefold increase from 2015. Pirates kidnapped 62 people for ransom in 15 separate incidents in 2016. Just over half were captured off West Africa, while 28 were kidnapped from tugs, barges, fishing


boats and, more recently, merchant ships around Malaysia and Indonesia. IMB is urging governments to investigate and identify kidnappers and punish them under their laws. The Gulf of Guinea remained a kidnap hotspot in 2016 with 43 crew members taken in nine separate incidents. Three vessels were hijacked in the region. There was also a noticeable increase in attacks reported off Nigeria.



Kenya’s first Mombasa-Nairobi SGR train to depart in June


ransport Cabinet Secretary James Macharia on Wednesday said the railway will be the catalyst for development in Kenya and in East Africa region as he set in motion the fast batch of four freight and two shunting locomotives for the Standard Gauge Railway (SGR) line at the port of Mombasa. The locomotives docked at the port of Mombasa at the weekend from China aboard MV Kota Bistari as the Sh. 372 billion SGR takes shape. The CS said the second batch of six trains is expected to arrive at Mombasa port in February, while the last batch of 44 will be delivered by May ahead of the official commissioning in June. “After receiving all the trains, wagons and coaches we expect President Uhuru Kenyatta to officially commission the railway project on June 1.” He said phase 1 covering 472 Kilometers is essentially complete with Mombasa and Nairobi now linked by a modern high capacity high speed SGR. “We are proud to announce that phase 2 development covering Nairobi-Malaba is on course after the government identified financial resources for the construction of the Nairobi-Naivasha section of the SGR,”

The first standard gauge railway (SGR) train is expected to set off from Mombasa to Nairobi on June 1 2017, boosting transport operations across the borders.

CS James Macharia gives his speech during the official opening of the China-Africa Development fund Kenya Office

he said after flagging-off and inaugurating the locomotive engines. The railway will revolutionise transport in the country, helping in cargo clearance at the port following the commissioning of the second container terminal last year. The railway is expected to reduce transport costs thereby bringing down the cost of doing business in the country. MrMacharia urged the Kenya Ports Authority (KPA) and Kenya Railways

Corporation (KRC) to ensure efficiency in their operations. “The construction of a railway is not an end in itself, it has to be operated to achieve its mandated objective which is to reduce the cost of transportation in the Northern Corridor and by expansion reduce the cost of doing business” he said.




Jubilee Insurance Kenya unveils marine cargo insurance online portal Jubilee Insurance Kenya Chief Executive, Patrick Tumbo said that through the online platform, clients will be able to self-manage their accounts via a user friendly portal, providing ease of access to importers from anywhere in the world


ubilee Insurance yesterday unveiled its new marine cargo insurance online portal that will enable its customers and intermediaries manage their own marine insurance policy. Jubilee Insurance Kenya Chief Executive, Patrick Tumbo said that through the online platform, clients will be able to self-manage their accounts via a user friendly portal, providing ease of access to importers from anywhere in the world. “It is our goal as Jubilee Insurance to continue providing solutions to safeguard our client’s future in the most innovative ways. We would want to be in the forefront of clients’ satisfaction as this new area of growth opens up,” Mr. Tumbo said. The online portal will give clients the ability to set-up accounts, through which they can make declarations as they ship in their goods, obtain instant marine certificates, self-service their policies and report claims as they happen. “This online portal will also enable authorities to verify and validate all certificates issued through the portal, minimizing the risks of fraud.” said Mr. JaideepGoel, Jubilee Insurance General Business Manager. The launch follows a government directive last year that requires all marine cargo to be insured locally. The government in June last year announced that from January 1st, 2017, under the Insurance Act Section 20, an importer must insure his cargo with a registered insurance company in Kenya, as opposed to the current model which importers can choose to insure the cargo with an international insurance company. This is expected to open up the local Marine underwriting business which has in the past been dominated by foreign underwriters who repatriate billions of shillings thus denying the local insurance industry valuable revenue. “This was a great move as the directive provided an avenue to grow the local marine insurance business and in turn grow the economy through investments made in with the premiums collected,” Mr. Tumbo reiterated. For goods to be cleared at the point of arrival, importers will now have to furnish a local certificate of marine insurance to the Kenya Revenue Authority (KRA) or face penalties. The move by the government is expected to boost uptake of marine cargo insurance.


US firm wins design contract for UgandaTanzania oil pipeline


S-based firm Gulf Interstate Engineering has won the contract for designing the Uganda‒Tanzania crude oil pipeline. Uganda and Tanzania last year agreed to jointly build a 1,403-kilometre pipeline to transport crude oil from Hoima in Uganda’s western region to Tanga Port in Tanzania, providing way for export to international markets. The statement by Uganda’s Ministry of Energy and Mineral Development showed the contract for the Front-End Engineering Design (FEED) was awarded to Houston-based Gulf Interstate Engineering last month. Among the tasks, the firm’s contract involves helping with “project construction specifications,” a plan for project execution, the implementation schedule and writing bid documents for a process to select a contractor to develop the pipeline. Gulf is expected to do the work in eight months, paving the way for work on the pipeline to begin, with crude production expected to start in 2020. Uganda estimates overall crude reserves at 6.5 billion barrels, while recoverable reserves are seen at between 1.4 billion and 1.7 billion barrels. French oil major Total, has said it is willing to fund the project but has not stated whether it wants to fully or partially own it. Total owns fields in Uganda alongside China’s CNOOC and London-listed Tullow Oil, which also operates in Kenya. Uganda chose the Tanzanian route to export its crude oil dropping Kenya which also wanted to clinch the deal to transport oil to yet to be constructed Lamu Port in North-Eastern Kenya.



Effective Fleet Management Will improve Cash Flow


leet management includes commercial motor vehicles such as cars, aircraft (planes, helicopters etc.), ships, vans and trucks, as well as rail cars. Fleet (vehicle) management can include a range of functions, such as vehicle financing, vehicle maintenance, vehicle telematics (tracking and diagnostics), driver management, speed management, fuel management and health and safety management. For many organizations and businesses, strong cash flow can be the difference between success and failure, which is why it’s important to closely monitor operations and determine ways to improve cash flow. A fleet of vehicles may represent one of their largest costs. In addition to requiring a significant amount of money upfront, a fleet of vehicles takes a lot of time and resources to manage. Therefore, controlling the costs of owning and running a commercial fleet should be a focus for businesses, which can start by researching and analyzing some of the different alternatives for acquiring fleet vehicles. Outsourcing fleet management can ultimately result in a reduction in operating costs. And by leasing vehicles, which are depreciating assets, you can free up cash flow to be utilized in areas that may increase your organization’s ROI. Fleet leasing can be used as an additional source of capital by establishing a separate line of credit with the fleet management company to acquire vehicles, freeing up current lines of credit. Leasing, which requires a smaller capital expenditure upfront, also allows businesses more funds to invest in their

A fleet of vehicles may represent one of their largest costs. In addition to requiring a significant amount of money upfront, a fleet of vehicles takes a lot of time and resources to manage day-to-day operations, which is still important in this economic environment. In addition to initial cash flow savings, the outsourcing of fleet management activities to a fleet management company can provide businesses with improved cash flow over the life of a vehicle. Outsourcing fleet management can help companies gain operational efficiencies, saving on both the hard and soft costs associated with the administration of fleet purchases, such as the amount of time spent on acquiring and disposing of vehicles, managing maintenance appointments, invoices, vehicle insurance, and vehicle registration. A fleet management company will monitor and ensure regular service checks and help guarantee the most economical, timely, and high-quality

repairs for fleet vehicles, including arranging maximum warranty benefits, rebates, price breaks, and other opportunities to minimize expenses. Outsourcing fleet management and maintenance frees up you and your staff to focus on your organization’s core business functions. You can redirect personnel and financial resources from non-core activities to your organization’s core business. You can also take advantage of a fleet management company’s purchasing power to achieve fleet maintenance group purchasing discounts for vehicles and parts procurement. And, your overall costs may be reduced by paying only for the portion of the asset you intend to use. Businesses, government agencies, municipalities, and private organizations are under increased pressure to cut costs. Outsourcing non-core business functions, such as fleet management and fleet maintenance operations, are ways that numerous organizations are achieving short- and long-term cost efficiencies.




Djibouti officially inaugurates portion of Addis Ababa-Djibouti Railway line


jibouti has officially marked the completion of the 752km Addis Ababa-Djibouti Railway track linking Ethiopia’s capital with the Port of Djibouti. In the presence of Djibouti’s President Ismail Omar Guelleh and Ethiopia’s Prime Minister HailemariamDesalegn, together with senior officials from across the region, the new railway has officially been inaugurated at a ceremony at Nagad Railway Station in Djibouti. The 1 435 mm gauge line electrified at 25 kV 50 Hz replaces the old metre-gauge railway which was originally built by the French between 1894 and 1917. The new line is designed to China’s specifications for operation at up to 120 km/h, providing a freight transit time of between 10 h and 12 h, compared to two or three days by road. Trial services for the new US$4.2 billion railway began in October 2016, with regular services transporting goods and passengers expected to begin early this year. The railway is a significant milestone for trade in the region given that more than 90 per cent of Ethiopia’s trade passes through Djibouti, accounting for 70 per cent of the overall activity at Djibouti port. Apart from building links with Djibouti’s port facilities, the railway is also expected to support the development of Djibouti’s International Free Trade Zone (DIFTZ), which will help spur the nation’s manufacturing industry and provide employment opportunities for its citizens. “This railway marks a new dawn for Africa’s integration into the global economy. From today, millions


“Djibouti is at the heart of the world’s trade routes, connecting Africa, Asia and Europe. We are proud to play a vital role in developing the region and wider continent,” more Africans are now linked to Djibouti’s world-class port facilities, said Aboubaker Omar Hadi, Djibouti Ports and Free Zones Authority chairman. “Djibouti is at the heart of the world’s trade routes, connecting Africa, Asia and Europe. We are proud to play a vital role in developing the region and wider continent,” he added. The railway was previously inaugurated from Ethiopia’s side on 5 October 2016. With journeys now also possible from Djibouti, the new railway represents the next step in plans for a 2000km long track that will also connect Djibouti and Ethiopia to South Sudan


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Air Tanzania to acquire new $67,000 reservation ticketing system


ir Tanzania Company Limited (ATCL) is set to acquire reservation ticketing system from Turkey as it seeks to end irregularities associated with ticket sales. The company has ordered has ordered a $67,000 (Sh147 million) system installation in its latest turn around plans that includes improving customer service delivery. ATCL managing director LadislausMatindi said: “We signed a contract with an Istanbul-based Hitit Solutions Company over the past two weeks to offer the service. Training on the use of technology has started.”


According to MrMatindi, the system was expected to become operational next month. The airline’s management hopes the technology will leverage in tracing what happens in ticket sales, hence providing no chance for irregularities as it used to be. Tanzania’s Works, Transport and Communications minister MakameMbarawa last year suspended ATCL finance manager Stephen Kasubi over the loss of Sh715 million associated with irregularities in ticket sales. Prof Mbarawa said MrKasubi allegedly


fraudulently facilitated a Comorobased travel agency-Salama World Travel Agency-access to Sh715 million tickets against the law. The law sets Sh15 million as the ceiling for the value of tickets that the company can give to a travel agent, and for which payment must be made before new ones are issued, according to the minister. “We won’t spare unscrupulous workers; we want loss in revenue associated from irregularities in ticket sales to be a thing of the past,” said MrMatindi.


Africa Logistics Properties seeking $69million to construct new warehouses

Nairobi-based commercial property investment firm Africa Logistics Properties (ALP) is seeking to raise $69million (Sh7 billion) in expansion plans that will see it develop three warehouses in Tatu, Tilisi and Embakasi.


he first phase of the project includes raising $65-70 million (between Sh6.5 billion and Sh7 billion) to develop the three key strategic sites around Nairobi. Founded last year by Briton Toby Selman, backed by institutional investor capital and specialist East African investment group Maris, ALP is keen on the emerging logistics and industrial sector across Africa. The company has acquired 71 acres of industrial zone sites to set up grade A warehouses for international companies. ALP plans to start its first construction in the first quarter of next year. Recently, Word Bank’s investment arm IFC announced plans to buy a Sh1 billion stake in ALP. IFC’s proposed injection includes an equity investment of $10 million (Sh1 billion) into ALP.

Increased demand for warehouse has seen property developers turn to the lucrative business of warehouse construction. The key users of warehouses include producers of fast-moving consumer goods and importers of heavy equipment for construction, energy and the nascent oil and gas industry. Major players in the warehouse sector include French firm Bollore Africa, formerly SDV Transami, which has over 100,000 square metre of warehousing space between Nairobi and Mombasa. A number of private developers in the country have taken up the warehousing business and they include Erdemann Properties who have 15 units of go-downs covering a build-up area of 120,000 square feet and Alpha Centre along Mombasa Road has 90 go-downs on 10 acres. Competition in the sector has seen space price stagnate with Knight Frank researchers noting the current prices are not attractive owing to high land cost in areas considered prime for warehouse facilities such as Mombasa Road. Current rental rates for warehouses average Sh45 a square foot. ALP hopes completion of huge infrastructural projects in the country will push up the volume of transit goods in the country, bulking up the demand for storage space. The government-driven Standard Railway Gauge and the Lapsset projects are aimed at ensuring faster movement of goods in the country making logistics an attractive business. In survey by Knight Frank, Kenya was voted the second friendliest market for logistic companies in Sub Saharan, only behind South Africa, making it an attractive destination for investors.




Tanzania’s railway project gains pace

A drive to improve Tanzania’s transport infrastructure is gathering momentum, with billions of dollars of funding being put towards the development of the country’s rail network.

he initiative includes both an upgrade to existing tracks and new rail lines that will be laid along the country’s central transport corridor and beyond, with work slated to begin before the end of the current fiscal year in June. Once completed, the project will provide Tanzania with an extensive standard-gauge railway network, which will not only reduce costs and delays for internal trade, but also have a similar impact on shipments between the Port of Dar es Salaam and neighbouring countries, such as Zambia, Burundi and Rwanda. Developments will be largely financed by China’s Exim Bank, after the government signed a memorandum of understanding with the lender for the $7.6bn Central Corridor Railway (CCR) project, which will modernise 2190 km of the country’s existing rail network. The route is an essential component of Tanzania’s main freight and passenger transport backbone, forming part of the Central Corridor of East and Central Eastern Africa, which connects the Port of Dar es Salaam by road, rail and inland waterways to Burundi, Rwanda, Uganda and the eastern part of the Democratic Republic of Congo (DRC).


invitation for bids at the end of November for the design and construction of the first section of track on the Dar es Salaam-Kigoma line between the port and Morogoro. Bidding closed on December 6, according to press reports. Tanzania’s rail network is currently made up of two systems and 3676 km of track: the bulk of the lines are operated by Tanzania Railways (TR), while the TanzaniaZambia southern line is run by the Tanzania Zambia Railway Authority (TAZARA). According to the Central Corridor Transit Transport Facilitation Agency (CCTTFA) – an intergovernmental organisation established by Tanzania, Uganda, the DRC, Rwanda and Burundi in 2006 to develop transport infrastructure along the corridor – both the CCR and the TAZARA line require major improvements. Turnaround times for trains operating on the TR system currently stand at 18 days, well above the target 10-day schedule, in part due to the poor condition of large sections of the track, which has necessitated the introduction of speed restrictions.

Long overdue

Boosting trade ties

Tanzania’s rail services have long been neglected, resulting in a steady decline of freight volumes. Currently, as is often the case in African markets, road networks handle the vast majority of internal distribution. However, the government has signalled its intention to make the CCR a priority, setting aside $455m for the project in the 2016/17 budget to top up the funding from China. Makame Mbarawa, Tanzania’s minister of works, transport and communications, said work on the project is scheduled to be carried out in four phases over a three-year period.

Upgrade and extend

The initial stage will involve overhauling the existing onemetre-gauge track along the central corridor, which runs from Dar es Salaam to Kigoma Port on Lake Tanganyika in the west of the country and Mwanza on Lake Victoria in the north. Once the upgraded line is operating, 460 km of new track will be constructed, linking the Tanzanian town of Isaka to Kigali in Rwanda. Plans also include a further extension into Burundi. The Reli Assets Holding Company, a domestic firm tasked with developing and maintaining rail infrastructure, issued an


The CCR’S benefits are expected to be far-reaching, particularly as it offers the shortest transport route to the Indian Ocean for the landlocked states of Rwanda, Burundi and the DRC. In addition to increasing market access and creating jobs, the initiative is expected to reduce transport costs by an estimated $10.8bn over a 20-year period. Investment firm UNITY has said that it expects regional GDP growth to increase by 9%, three to four years after full completion of the rail project in Tanzania, Rwanda and Burundi.

Tanzania’s rail network is currently made up of two systems and 3676 km of track: the bulk of the lines are operated by Tanzania Railways (TR), while the Tanzania-Zambia southern line is run by the Tanzania Zambia Railway Authority (TAZARA).



Kenya invests in major infrastructure projects to bring oil to market With first production due to begin next year at Kenya’s newly developed oil fields in the north, plans are under way to put in place the necessary transport infrastructure to ship the country’s crude to the eastern coast. Key to transportation


s of mid-October UK- and Ireland-listed oil and gas producer Tullow Oil was looking to contract trucking companies to transport the crude oil taken from the South Lokichar Basin in Kenya’s Turkana County. In an advertisement in local media, Tullow Oil said it was seeking to lease 100 tankers with a minimum fluid capacity of 25,000 litres to move the early production to storage facilities in Mombasa operated by Kenya Petroleum Refineries. Currently, the South Lokichar Basin in Turkana County has around 750m barrels of recoverable crude oil in reserves, though further exploratory drilling is scheduled in the adjacent North Lokichar Basin, with estimates that total reserves could rise to at least 1bn barrels of recoverable oil. The oil blocks located in both basins are held by Tullow Oil and its partners, Canadian oil and gas company Africa Oil Corporation and Denmark’s Maersk Oil. While the initial flow is expected next year, full production should come on-line by 2020, according to a statement issued by Tullow Oil in early October.

Connecting the dots

The tanker trucks are only a temporary solution, as Kenya is planning to eventually construct a 865-km pipeline linking the Lokichar Basins in Turkana County to a refinery at Lamu Port as part of the larger Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) corridor, a $24.5bn project designed to provide road, rail and pipeline links to countries throughout the region. A new 32-berth deepwater port in Lamu will serve as the anchor of LAPSSET, with an oil export terminal and refinery allowing for the shipping of both crude oil and processed products. Onshore construction work and dredging to deepen Lamu Port’s docking area for ships began in mid-October. The government has also begun work on the pipeline component. Kenya’s National Land Commission issued a notice of intent in October to acquire just over 3760 ha of land as part of the LAPSSET corridor in the counties of Lamu, Garissa, Laikipia, Meru, Isiolo, Baringo, Turkana and Marsabit. While the development of Lamu Port is continuing apace, the LAPSSET project has seen some potential partners opt out, with Uganda and Ethiopia both strik-

ing agreements to ship their oil exports via pipelines passing through Tanzania and Djibouti, respectively, potentially narrowing the scope of the LAPSSET corridor. Rwanda – another country that has decided to step away from the project – recently announced it was looking to develop rail links through Tanzania to the Indian Ocean, rather than connecting with the Kenyan network and Port Lamu. Though there have been some withdrawals, both the energy component of the development programme and the broader projects are still commercially viable and progressing, according to Silvester Kasuku, director-general and CEO of the LAPSSET Corridor Development Authority. “As the pipeline connecting the Lokichar fields to Lamu Port will complement the Djibouti pipeline, Rwanda and Uganda’s pullout of Kenyan infrastructure projects still leaves the LAPSSET Corridor projects very feasible,” he told OBG.

Pipeline potential

Ultimately, Kenyan authorities hope that the LAPSSET project will benefit from exploration and production efforts elsewhere in the country. The results of further exploration in northern Kenya, along with the potential for South Sudan to utilise Kenya as an export route, will support the pipeline project and other downstream facilities, Gabriel Negatu, regional director for East Africa at the African Development Bank (ADB), told local media in late September. However, while initial flow from the Turkana fields is expected in early 2017, global energy prices will need to stabilise before Kenya’s oil exports can be viable in the long term. The price of oil should be at least $50-$55 per barrel to make the exploitation of Kenya’s reserves profitable, according to data issued by the Ministry of Energy and Petroleum in early October. In the medium term, with the ADB forecasting oil prices to stabilise at around $60 per barrel next year, Kenya should see its minimum price clear as production ramps up.




Total buys out Tullow oil to gain controlling stake in Uganda oil fields stake in Uganda oil fields

British oil firm Tullow Oil in January agreed to sell a stake in Uganda’s first ever oil development to its partner Total for $900m.


otal will acquire a 21.6 per cent stake in the Lake Albert Development Project from Tullow at an initial value payment of USD 100 Millionwith a further $50 million due when the final investment decision has been made. Another $50 million will be due when oil starts to be pumped. This new development means thatOwnership of the licence areas that had been evenly split between Tullow, Total and China’s CNOOC has changed and Total will have a 54.9 percent controlling majority followed by 33.3 percent held by China National Offshore Oil Corporation and Tullow 11.8 percent. The giant project on the shores of Lake Albert, where Tullow first discovered oil in 2006, is estimated to contain 1.7bn barrels of oil and forecast to eventually produce 230,000 barrels per day (bpd). Its development is expected to cost $3bn to get to first oil production, and require a further $3.5bn to be spent on a new pipeline to export the oil through Tanzania. Tullow Oil Chief Executive Aidan Heavey said: “the new agreement will allow the Lake Albert Development to move swiftly ahead, increasing the likelihood of FID (final investment decision) in 2017


and first oil by the end of 2020.” He said the deal would secure future cash flow for the group from one of the industry’s few truly low cost development projects without any additional cash requirements expected. The remaining $700 million will be used by Tullow to fund its share of costs of the upstream development project and associated export pipeline project. While Tullow Oil expects to book a €400 million writeoff on the $1.7 billion carrying value of its investment in its full year 2016 results, the group benefits in the near term as the deal allows it to deleverage itself and as analysts cut back their capital expenditure expectations for the company. Tullow Oil previously said it expects to end 2016 with about $4.9 billion of net debt, and prepares to refinance more than $3 billion of bank facilities next year.The firm’s shares rose 2.7 per cent in London to £3.336. The Lake Albert Development is expected to achieve about 230,000 barrels of oil per day when it reaches plateau, according to Tullow. Commercial oil reserves were discovered in Uganda a decade ago, but production has been repeatedly delayed over taxation and field development strategy.



Kenya to launch world’s first mobile-only sovereign bond The government of Kenya is looking to capitalise on high mobile penetration to expand financial inclusion, with plans to offer a new infrastructure bond exclusively via mobile phones, marking the first sale of its kind in the world.


he government has moved away from its traditional focus on institutional investors – who accounted for 98% of uptake in earlier rounds of public fundraising – to target individual retail investors, signalling its intent to reach a broader investor base via a lower entry threshold for investment. The National Treasury hopes to raise KSh5bn ($48.8m) from the fiveyear M-Akiba bond, which will be used to finance road works, alongside a raft of energy, water and telecoms projects. While the bond was initially scheduled to go on sale on October 20, the government announced it would postpone the launch until interest rates are more favourable. A KSh20bn ($197m) one-year sovereign bond sold at a record coupon rate of 22.95% in late October, according to local media reports.

Tapping mobile potential

Expanding the range of financial services available via mobile devices is seen as a particularly viable strategy in Kenya, building on the success of mobile money transfer platforms. According to the latest sector report from the Communications Authority of Kenya, mobile phone penetration stood at 83.9% as of the fourth quarter of FY2014/15, with subscriptions climbing 3.6% quarter-on-quarter (q-o-q) to reach 36.1m for a population of 43m. Meanwhile, mobile money subscriptions rose 3.5% q-o-q to 27.7m. Although unique subscriptions for both mobile and mobile money services are likely to be slightly lower than official estimates, given the number of users that have accounts with multiple providers, according to the World Bank’s “2014 Global Findex” report, issued in June, around 58% of adults in Kenya have mobile money accounts, more than any other country in the world.

Kenya also ranks as the mostbanked country in sub-Saharan Africa, with approximately 75% of the population holding bank accounts. The figure, which includes both mobile money and conventional bank accounts, is above the global average of 62%, according to the World Bank report, and ahead of Ghana (40%), Nigeria (44%) and South Africa (70%). Mobile transactions are already widely accepted as a standard way of paying for key services, with reports indicating that 55% of Kenyan households settled their utility bills via mobile money payments over the past year, compared to 20% in Nigeria. Kenya’s strong mobile money culture has had a direct impact on financial inclusion, particularly among populations that typically have difficulty accessing such services in other countries. “By providing more convenient and affordable financial services, mobile money accounts offer promise for reaching unbanked adults traditionally excluded from the formal financial system – such as women, the poor, young people and those living in rural areas,” the World Bank reported noted.

Mass appeal

To encourage a wider cross section of society to invest, the government has cut the minimum investment level on the M-Akiba bond from KSh50,000 ($487) to KSh3000 ($29). In addition, the bond is tax-free and is likely to earn a higher interest than fixed deposit accounts at commercial banks, according to the government, although a precise interest rate has yet to be announced. The decision comes on the heels of a public bond offering by neighbouring Ethiopia, which saw denominations as low as $1.22 and raised approximately $341.5m. The Ethiopian government plans to use the funds to finance construction work on the Grand Ethiopian Renaissance Dam, Africa’s largest hydropower project. A similar initiative by

Kenya National Treasury CS Henry Rotich Egypt, which sold savings certificates for retail investors for as little as $1.28 to help fund the Suez Canal expansion, raised more than $8bn.

National savings

In addition to financing critical infrastructure projects, the M-Akiba bond is seen as an innovative means of boosting domestic savings, with the government keen to increase the country’s savings rate, which lags behind many of its regional peers. Indeed, the name of the bond, Akiba, means “savings” in Swahili. As with any pilot project, some practical concerns may still need to be considered, particularly in terms of market liquidity. “The industry generally sees this as a positive development, as it will bring more Kenyans into the government bond market and increase their financial participation,” Patrick Ndonye, managing director of Kingdom Securities, a local brokerage, told OBG. “However, it is difficult to predict the viability of a secondary market for these bonds, as they will be issued in such small denominations.”




What does 2017 hold for supply chains? At the beginning of every new year, it is customary to give an opinion of the trends that are emerging or that are likely to develop further during the course of that year. Supply chain management is no different, as the discipline is constantly evolving in the quest for ever improving service levels through increased efficiency and effectiveness.


ome of the current technology trends attracting a lot of international interest, such as increased automation and robotics, self-driving vehicles and drone deliveries, as well as 3D printing, certainly remain long-term trends, but not necessarily for 2017. Supply chain trends will continue to be driven by the need to support business in meeting customer expectations while continuing to better manage and control costs. As a result, priorities for supply chain executives this year will include:

Supply chain analytics

The use of supply chain analytics and business intelligence will increase as organisations work to improve control and visibility of the extended supply chain. Awareness of the supply chain as a strategic business lever will also continue to grow, while supply chain event management and measurement will provide the fulcrum. Furthermore, accurate reporting and the ability to analyse reports will enable businesses to identify poor performing partners, highlight inefficiencies and weak links in the chain, identify opportunities for efficiency improvement, increase collaboration, as well as better supply chain cost management.

Ongoing e-commerce challenges

The rate of growth of online retail versus bricks and mortar retail is set to continue. This will put pressure on businesses to meet the ever increasing expectation of online shoppers for prompt, on-time delivery of purchases. Couriers and distribution service providers will be expected to be more efficient while under pressure to be cost competitive. As the e-commerce side of a


business grows, more sophisticated warehousing solutions will be required to meet the accuracy and timelines demanded by an online business. This could lead to the outsourcing of e-commerce warehousing to specialist service providers. Supplier/partner integration will be a key success factor, as will accurate tracking and delivery status communication to the customer.

Technology and automation

While significant advances are being made in the use of technology to facilitate supply chain efficiency,


TRENDS in South Africa there is the additional challenge of balancing the level of automation with labour. Augmented reality, can provide improvements in accuracy and efficiency in picking and load planning, as well as packing, but can also be a useful tool to support and train less skilled logistics staff. It will be important to invest wisely in technology to ensure a good return.

Skills and resources

An independent report found that 45% of South African supply chain managers believe they do not have the skills to do their job properly. Further research also suggests that those who do possess strong quantitative abilities often lack equally important interpersonal and leadership skills. Finding and retaining skilled supply chain staff as well as managers will continue to be challenging. Organisations will need to invest in training at all levels to develop the skills necessary to ensure the sustainability of their supply chains.

Increased SCM risk and disruption

As supply chains extend and reliance on global suppliers and partners increases, supply chain risk and disruption can be expected to continue. Rationalisation of suppliers and improved collaboration with preferred suppliers can help mitigate risk, but it is important to identify alternative sources of supply for products, critical components, and materials. Therefore, contingency plans should be put in place to enable quick response to unanticipated disruption and ensure business continuity. It is further important to build resilience and predictability into a supply chain to avoid being the cause of your own disruption. Supply chain planning, visibility, and measurement continue to be key disciplines critical to minimise unnecessary disruption, while collaborative partnerships with reputable, well-established logistics service providers will also make your supply chains more resilient. It’s good to look forward to an exciting year that won’t be without its challenges, but that will also be full of opportunity. I believe that the supply chain is one of the primary keys to the success of an organisation and that if it is robust it will continue to provide a platform for strategic competitive advantage.

Kenya Year in Review 2016


n contrast to many other large African markets, Kenya was less affected by sustained low commodity prices during 2016 and continued to post strong growth throughout the year, despite a slight heating of inflation and tighter credit climate. The Kenyan economy continued to expand well above the global average in 2016, with the IMF projecting year-end growth of 5.98%, up on 5.64% in 2015. The forecast is in line with the 5.7% growth posted in the third quarter, according to data released by the Kenya National Bureau of Statistics (KNBS) in late December. Looking ahead, the economy is expected to maintain its steady growth trajectory, with the IMF forecasting rises of 6.13% in 2017 and 6.46% the following year.

Ups and downs

Some of this coming growth will be fuelled by production starting at oil fields in the South Lokichar Basin in the northern Turkana County. Full production will come on-line in 2020, providing Kenya with export capacity, but initial output starting in the first quarter of 2017 should help meet domestic demand and reduce fuel import costs. The revenues from hydrocarbons production will help to offset lower output from some of Kenya’s traditional commodity earners, with a lack of rainfall in the second half of 2016 reducing expectations of strong growth in tea, and to a lesser extent coffee, output. Year-end targets for tea production will likely be missed after lower-thanaverage rainfall in the second half of the year saw weaker yields in lateseason harvests. The government had set a target of 500m kg of tea output for 2016, but Kenya – the world’s largest tea exporter – is likely to fall well sort of this, with only 308.1m kg picked in the first eight months of the year.

Mixed fiscal messages

While many African economies struggled with a stronger dollar and depreciating currencies over the year, Kenya managed to sidestep much of the volatility. Inflation softened somewhat towards the end of the year, to 6.35% in December, down from 6.68% at the end of November, according to figures issued by the KNBS. November’s nine-month high was itself below the 7.78% rate posted

in January, which had been mainly driven by higher food costs caused by drought conditions late in 2015 and into 2016, and by increases in some tariffs – such as on alcohol and tobacco – that came into effect at the start of the year. Though inflation began to edge up again late in the summer, the Central Bank of Kenya (CBK) decided at the end of November to keep its key rate unchanged at 10% at its final monetary policy committee meeting for 2016. The CBK said inflationary pressures were still mild, but noted that domestic and global uncertainties could affect rates in the new year. In particular, it cited the possible impact of the decision to cap bank-lending rates at 4% above the key central bank rate, and the potential for shifts in US monetary policy to have an effect on capital flows.

Financial fault lines

While the economy continued to expand strongly, there was also an increase in non-performing loans (NPLs) held by Kenya’s commercial banks, with the total value topping KSh207bn ($2.01bn) at the end of the third quarter of 2016 – up KSh17bn ($165.8m) on the previous quarter and KSh82.2bn ($801.8m) on the year-end total in 2015. The swell in NPLs caused the banking sector to become more cautious in 2016: lending growth was down sharply on the previous year, according to CBK data, slowing to 4.6% year-on-year in October. Month-on-month lending had eased from September, when it was 4.8%, a marked fall from the 20.6% expansion from the same month in 2015. Nonetheless, the central bank reported applications for loans had risen by an annualised 14.8%. The rise of bad loans prompted most of Kenya’s listed banks to increase their provisions to cover NPLs, a measure that will have eroded shareholder dividends in 2016. Between them, Kenya’s 11 listed commercial banks had raised their loan-loss provisions to KSh25bn ($243.9m) as of late September, from KSh11bn ($107.3m) in the same month in 2015. The resulting deceleration of credit growth and loss of liquidity could restrict private sector development in the new year, potentially putting projected GDP expansion under pressure.




The three hottest trends in transport and logistics Desert Wolf and Marine Data Solutions install FLIR sensors for Durban’s port Image Source: DefenceWeb - Desert Wolf and Marine Data Solutions install FLIR sensors for Durban’s port

Logistics… winning back the ‘gateway to Africa’ mantle


ith over 3,000 kilometres of coastline, and a number of highly-developed shipping ports, South Africa was once the gateway to shipping trade for the entire continent. But more recently, our dominance has been slipping, with newer ports like Namibia’s Walvis Bay offering attractive alternatives as they access several important trade corridors into the continent. The fastest and most effective way for South Africa to improve its logistics industry, and access more of the global shipping market (which transports 90% of international goods), would be to better integrate the systems used by the various logistics parties. For instance, cargo owners, freight forwarders, logistics operators, and trucking companies could use technology to connect more seamlessly, and improve collaboration at all levels of the value chain. With increased efficiencies, our throughput would increase. So, for professional organisations tasked with evolving our logistics sector, this should be a key priority in 2017, as they look to play a more instrumental role in helping their member organisations. Added to this, sensor-based technology can be applied to start understanding the bottlenecks in our system, inform operators of problems along particular routes and ensure vehicle and driver safety standards are maintained. Durban has been a pioneer in this area, deploying a dizzying array


For instance, cargo owners, freight forwarders, logistics operators, and trucking companies could use technology to connect more seamlessly, and improve collaboration at all levels of the value chain. With increased efficiencies, our throughput would increase. So, for professional organisations tasked with evolving our logistics sector, this should be a key priority in 2017, as they look to play a more instrumental role in helping their member organisations. of sensors, geolocation technology, systems integration, robotics and communication tools, and more. With different stakeholders more organised, more interconnected, the throughput of vessels has dramatically increased – showing just how technology can be used to optimise logistics operations.



Live demonstration of e-ticket system for minibus taxi commuters in Pretoria. Attended by Gauteng MEC for Roads and Transport Ismail Vadi, Philip Taaibosch, president of SANTACO and Fred Baumhardt, CEO of Curve Group

Changing the face of public transport

In many of our major urban metros, as well as some of the smaller towns, formalised public transport infrastructure is finally starting to emerge. The kick-start, it seems, was the 2010 World Cup, which stimulated the right conversations, and reminded us of the harsh reality that we had simply not progressed fast enough in this field. Perhaps the biggest advantage to being ‘slow to develop’ is that we can now integrate the latest technology into our public transport operations, without having to worry about legacy technology. 2017 will see an increased focus on interconnecting the various aspects of public transport technology – starting with the planning systems, the implementation tools, to the scheduling systems which are designed to optimise the way that commuters are taken from A to B, and finally the ticketing systems (including issuing and collecting). We’ll also see more public transport information being surfaced to consumers in the form of online schedules or apps that adjust themselves in real-time and benefit from geolocation capabilities. To get more urban South Africans to the point where they’re willing to abandon the car and opt for the bus or the train instead, we’ll need to intelligently use digital tools to package tailored information to users – about ticketing, routes and schedules, costs, and so on. For authorities, increased use of sensors and tracking technology will mean more information that informs where to deploy buses, and where to

build new rail routes. Using measurement principles like the Transport Development Index, and philosophies like Transit Oriented Development, Big Data can begin to spur meaningful economic inclusion and development.

Evolving the tolling debate

In Gauteng, as the controversial urban tolling system still hangs in the balance, authorities might explore alternative means to collect tolls. We may see a more nuanced and informed conversation emerging, with various stakeholders starting to tout more efficient ways of collecting toll revenues from motorists. These could range from low-tech solutions like increased fuel taxes to higher-tech options like satellite vehicle tracking and digital payments solutions. Using satellites, combined with a small chip embedded into the car’s ‘OBD’ port, negates the need for expensive physical infrastructure like highway gantries, and allows authorities to more easily connect one’s local (urban) travel, with longer-distance travelling across toll routes. In fact, satellite tracking has great application in the logistics space as well, as it enables seamless tracking for freight trucks traveling across African borders.

2017 will see an increased focus on interconnecting the various aspects of public transport technology – starting with the planning systems, the implementation tools, to the scheduling systems which are designed to optimise the way that commuters are taken from A to B, and finally the ticketing systems




Fleet trends for 2017

1. Fuel price fluctuations

The market has indicated clearly that 2017 will not be any easier than 2016. The prices of vehicles are on the increase all the time. Managing the cost of running a cost-effective fleet is essential. Fuel prices are likely to continue to fluctuate and with the significant impact of fuel expenses on the running cost of any fleet, fleet managers will remain focused on managing this closely in any possible manner.

2. Safety

Safety was always an issue for fleets, but in recent times there has been closer scrutiny. Increasingly, measures are being taken to reduce collisions and improve legal compliance. Moreover, safety and sustainability, in terms of adopting safer driving styles, is also impacting on the cost to operate a fleet, resulting in increased focus on this. The RTMS (Road and Traffic Management System) is gaining momentum in South Africa and will contribute towards a safer fleet.

3. Connected Vehicles

Technology has already proved to be a real gamechanger for fleets; empowering them with access to data and metrics, helping to direct the important changes and inform decision-making. This trend is going to continue in the next years with more and more connected vehicles.

4. Disruption and Innovation

The fleet industry is perhaps not the most innovative industry, compared to the IT, technology, and telecommunication sectors, but is known for being an early adopter of new solutions that might bring added value in the longer term. This includes outsourcing of management and vehicle leasing, telematics, reporting tools to manage fleet costs, consideration of hybrid and electric vehicles in fleets, and now mobility options, such as Uber for company staff to move between destinations. The industry didn’t necessarily invent these products or services, but was at the forefront of testing and implementing them. In the future, the industry will be confronted more often with new services and suppliers offering solutions in terms of professional employee mobility. Fleet managers will have to be ready and willing to embrace new solutions and to adopt solutions that will push our businesses towards even greater efficiency. But the solutions that will have the most chance


Dr David Molapo, the head of fleet management at Standard Bank, shares his 2017 fleet trends and offers fleet managers some advice. of being successfully adopted and implemented are those that are not only disruptive but also innovative. With the arrival of the Y-generation into corporates and the fleet management business, we can be sure that innovation will become one of the keywords for future success.

5. IFRS16

The new lease accounting standard that will come into play on 1 January 2019 and defines that all lease assets will appear on the balance sheet of the lessee, will impact the vehicle fleet business. The main impact will not be related to a substantial decrease in popularity of operating leasing (for which the leased assets are currently ‘off balance sheet’ for the lessee) but will effect accountancy complexity, financial reporting, and process management. Businesses will still have a need for leasing as an option due to the advantages but will have to start preparations for this accounting standard.


• Spend time investigating what your fleet service provider and bank can offer, thereby improving the way you operate. • Build a relationship with your fleet service provider and banker to ensure that you are kept up to date with any development. • Focus on the running costs of the fleet, as this is a big expense in any concern. This is and has always been a priority for any fleet manager. • Fleet managers need to watch every expense item and really consider their vehicle expenses. Total Cost of Ownership is vital in order to evaluate if a vehicle should be kept or replaced. Companies are keeping vehicles until they fall apart, however, they miss the fact that these vehicles exceed the fuel consumption averages by almost 150%, use copious amounts of oil, cost a fortune to repair and maintain, and downtime of vehicles is also not considered.



Stepping into the future of global supply chains and logistics wider move towards agility and a lean approach to business.

Smart companies collaborating to tackle high costs

In a global environment fraught with political and economic uncertainty, many industries and sectors are being forced to rethink their current strategies and make provisions for the prevailing market fragility. Within logistics, which functions as the backbone of economies worldwide, we are undergoing our own moment of introspection. Ever changing markets and an atmosphere of constant, technology-led disruption has forced our industry to embrace new ways of operating and to learn to change and iterate quickly.


ne major advantage we have is that supply chains are continuing to grow and expand as forward-looking companies look to leverage off their supply chain efficiencies and develop key competitive advantages. This is creating momentum and growth in many markets, some of which sees their supply chain industries actually growing ahead of GDP rates. For savvy businesses within the sector, this is, in fact, creating huge opportunities despite a depressed global economic outlook. In South Africa, our supply chains need to continuously progress, innovate and stay abreast with supply chains across the globe. As a result of our geographic positioning, and the significant distances that need to be covered (from ports to transit hubs in Gauteng, for example), ef-

ficient supply chains are integral to the country’s economic, political and social wellbeing.

Manufacturers moving closer to customers

Notably, one of the major trends that will define the year ahead is a shift back to manufacturing close to the customer base. In the face of global instability, companies are going back to what was once the de facto strategy of establishing manufacturing operations in close proximity to their customers. Added to this, companies are looking to harness the information from their systems to develop greater efficiencies. For example, one strategy is to carry less inventory/stock and use less warehousing space. This is part of a

For supply chain and logistics players worldwide, high costs continue to be a challenge and in some cases, prohibitive to growth and sustainability. In South Africa, there is an urgent need for industries to work more closely with government and state-owned enterprises (SOEs) so that companies can more effectively optimise their supply chains and tackle spiraling costs. Such collaboration needs to involve all industries and all public/private partnerships. Arguably, it is the often-overlooked ‘intangibles’ such as collaboration and communication that can prove most valuable to companies in both the short and long term. When the channels of communication are open, innovative solutions are given the space to emerge and flourish. For example, when a business takes a multipronged approach rather than just focusing on one aspect (such as cost) the company has greater potential to garner longterm profit. For many logistics operators, their biggest investment and liabilities sit with their equipment. Their high-value assets are on the road, and so the risks need to be mitigated by building longterm, trust-based relationships with clients and contractors. Increasingly, outsourcing non-core areas of the business to niche players/specialists is one way to alleviate risk and also to ensure competitiveness.

Taking on a client’s business as your business

In such a competitive and complex ecosystem, it is the companies that can effectively build and nurture great partnerships that will flourish in the coming years. This requires operating as a partner to your client – as opposed to just a service provider. In short, you should ideally view their business as your own and deliver with the same attention to detail and efficiency as you do within your own company.




Smarter decision-making drives telematics development in 2017 Analytics remains essential

2017 will be ever more about the data and how to understand it to make more informed, smarter decisions for the fleet. We believe that fleet managers will expect to find deeper, more actionable intelligence from all of the data created through their fleet management systems in order to improve efficiencies, lower costs and increase driver and vehicle safety. This means that companies and providers are going to get smarter at how they structure their data and how they use it to create profit benefits. Pulling data from multiple sources, analysing the data for actionable outcomes, and being able to create customisable reports, graphs and dashboards – that can be shared - will become a much stronger consideration by fleet managers and demand is set to grow within the telematics market accordingly.

While big data has been the buzzword for the past year within the telematics and fleet management space there is no doubt that, in the year to come, this will be ever more critical as businesses need to make smarter decisions in the aim of driving up productivity and driving down operational expenses. Big data will see an evolution over the next year – by creating easier to digest, bite-sized bits Non-motorised asset tracking priority of data and streams of focused actionable intelligence that becomes Tracking valuable assets like generators, storcan be used to really drive immediate change within the age tanks, pumps and light towers will become more important to fleets in 2017. As fleets look fleet environment.


f we consider that the commercial vehicle telematics market in South Africa is estimated to reach around 840,000 by 2017, then this instant access to such quick, easy to use but comprehensive data sets – across different business aspects - will be key. However, leading into 2017 we are bound to see a number of trends that will not only catapult the market in the year to come, but that will set the benchmark for the years that follow. Pushing the boundaries of innovation within the next year will be critical to continued business success. We have identified four key trends that we believe will demonstrate real returns for the telematics sector, and their fleet clients, into the year to come and beyond.

Integrated in-cab video goes mainstream

In-cab video that is fully integrated with fleet management telematics solutions provides valuable insight when it comes to driver performance and safety. As a result, more fleets will be seeking an integrated full-featured telematics solution that – at its core - supports video to not only assist with accident investigations and claims but, very importantly, to help with identifying driver issues in order to train drivers for improved driving behaviour. For this to work well, having the in-cab video integrated into the telematics system is key. In fact, as video becomes more of the norm for fleets, it will be a must-have tool to protect drivers and the fleets during accident investigations, as well as improve safety on the roads.


to improve asset utilisation and reduce loss, they will turn to technology that can easily capture the whereabouts of these assets, including when they were last spotted. Plotting on maps and/or generating reports with the last-known location, date and time stamp of the tagged asset will help fleets improve their asset utilisation and save money.

Service becomes king

The fact is, as product features across equipment providers become commoditised, what is really going to make a difference is the level of service providers can offer to fleets. For instance, most fleets only utilise approximately 50% of their telematics system, when they can be getting so much more out of their investment. Telematics providers need to continue to show fleets how to get the most out of their systems – whether it’s for safety, efficiency, fuel economy or compliance – ideally all four. In fact, the days of just selling the system and walking away are really over – companies need resources, support, and commitment from their suppliers, real commitment that provides them with a long, profitable and detailed partnership.



Brands can certainly take a page or two from the Ford Kuga saga


ilence can be a good response up until it comes back to bite you in the a** because your silence is much louder than what your initial response could have been. FORD SA, has for a while now, been in the mouths of many consumers and media publications for the Family Kuga SUVs that have burst into flames across the different parts of the country. It goes without saying that this matter should be and needs to be dealt with the outmost of sensitivity, especially where lives have been lost. The unfortunate part, however, is that FORD was a bit too late in its response and could have managed the situation it finds itself in. This from my professional opinion could have been much more smooth and seamless than the reactionary approach they seem to have taken over the last week; and not really addressing the core issue at hand the 4500 consumers have brought to the fore. As has been pointed out by fellow brand professionals and experts, the approach should have been one that acknowledges the faults, recall of the vehicles in question and making the process easier for the customers to return and seek recourse. For years, the brand has been trusted for their tough and resilient product, but this turnout will impact negatively on them and will certainly have ramifications both in the short and long term for the brand. Sales is the most obvious area we start thinking about but there are more emotive areas that need to be considered like the loyalty and trust of the brand. So what are some of the lessons brands can take from this case study and how can they ensure that they do not find themselves in the same conundrum: 1. Silence is not always gold or the best answer to a dire situation like this. Ford should have been prompt in its approach and contacted all their Kuga SUV owners first to ensure none of this turned around to blow up in their face. When brands are faced with such a tough matter, their response needs to match the urgency it comes with. 2. Consumers are an integral part of the success or downfall of a brand. An understanding of this would have meant that FORD’s turnaround time and recourse measures would have been more holistic and prompter.

3. People, Product and Profit. This is a key marketing principle that every brand needs to constantly be reminded of, your people/consumer always come first and should always be the corner stone of your business. The product you put out to the market should be one that is sound, trial and tested to ensure that it delivers to an experience and expectation that has been put out there. And this will ultimately lead to the profits you yearn to see. 4. Trust and loyalty take years to build and minutes to break. There are many brands that put out the same product but what makes consumers loyal to one is the heart and soul that delivers an emotional connection and experience. One that says, you have come to the right brand and will never be disappointed! 5. Reigniting brand love is not always easy to build. When you have an opportunity to please and delight, take it and run with it! It will be interesting to see where the FORD SA brand finds itself over the next couple of months with all the commotion around it now. Moreover, it will be imperative that brands alike take from FORD SA’s chapter and not commit the same mistakes in this lifetime.




Facts about Marine Cargo Insurance What is Marine Cargo Insurance?

Marine Cargo Insurance is a shipper’s insurance policy covering one or multiple cargo shipments by air, rail, land or sea.It’s a policy that protects you in the event of damage or loss to your cargo while being transported.

Should I insure through a local insurance company?

Section 20 of the Insurance Act Cap 487 requires all importers into Kenya to have a marine cover from local underwriter. It has been a silent law but which has since been re-enforced beginning January.

Where can I purchase marine cargo insurance? (Buy Kenya Build Kenya)

Marine cargo insurance is purchased to protect you while importing cargo.This applies to both domestic and international cargo shipments.Marine Cargo Insurance (MCI) regulations place marine business exclusively with locally registered underwriters. When you insure with a local underwriter your risks are not extremely exposed because in case of a claim there is a registered office in Kenya for processing, compared to an international underwriter, whose office location you do not know.

What items can I insure?

Regulations require that all imported goods must be insured; typically, items such as cars, jewelry, electronics,


computers, fragile goods, food and plants are all things you can insure. There are other items that may not be listed in this article. It is, therefore, wise to speak with your carrier about the specifics of what you want to insure.

How do I get Marine insurance cover?

Identify your preferred local underwriter, preferably a known insurance company, which has demonstrated its commitment to the marine cargo insurance business. A few have established online portals to necessitate the application process.

What is Marine Cargo Insurance Certificate?

It is a document issued by an insurance company and certifies that an insurance policy has been bought and shows an abstract of the most important provisions of the insurance contract.



Process Description Importer

The importer or their appointed Clearing Agents creates a Unique Consignment Reference (UCR) in the Kenya TradeNet System. The Importer or their appointed Clearing Agents submits an application for MCI to an Insurance company through the Kenya TradeNet System and links the application to the Unique Consignment Reference (UCR).

Insurance Company

Insurance company accesses the application on Kenya TradeNet System and processes it. NOTE: Kentrade is a state agency mandated to facilitate the new government initiative yesterday said importers and insurance firms can now process marine covers online, under the government’s new policy for mandatory local underwriting for all imports

Who is supposed to apply for the MCI?

This is the responsibility of the importer or their appointed Clearing Agent.

Why should the MCI Certificate be submitted to Kenya TradeNet system yet there’s a hardcopy certificate already?

How do I get my local MCI certificate from January 1, 2017?

As a first time user of the system, you will be required to get access credentials by contacting the KenTrade Contact Centre (Visit www.kentrade. for contact information). • You will then procure the MCI certificate from your preferred insurance company. This process will be done outside the system (National Electronic Single Window System), also known as the Kenya TradeNet System. • Upon issuance of the MCI , the trader/insurance company will be required to submit to the KRA and any other Partner Government Agencies (PGAs)the certificate through the Kenya TradeNet System by doing the following:

The MCI application through Kenya TradeNet system is intended to enable Kenya Revenue Authority and other government agencies like Kenya Bureau of Standards, Kenya Ports Authority to access MCI certificate electronically in the course of cargo clearance. The MCI will appear in the Unique Consignment Reference (URC) link. It is intended to reduce manual delivery of MCI’s which is time consuming.

Components of Marine Cargo Insurance Certificate • • • • •

Underwriter’s details Details of importer of appointed clearing agent Policy number/ certificate number, paid premiums and other duty charges including stamp duty. Port of loading/ transshipment/ discharge Description of insured items- in-

cluding value, quantity Authorisation from the underwriter.

What information is needed by the underwriters to put together a precise quote?

To help the underwriters provide you with a competitive rate you need to make available information such as: • The business operation details of the Insured Information about the destinations and ports including the inland transits before loading and after clearance, especially if the distance is long and transportation is inferior. • Information about the factors to which the freight might be susceptible to, such leakage, breakage, wetting, sweating, theft, pilferage etc. • Importers or exporters who wish to arrange their own insurance, need to supply underwriters with the details about tonnage, age and ownership of the vessel, packaging methods involved ,extent of the journey, and the time of the year the journey is to begin.

What happens if a shipment is under-valued for insurance purposes?

The cost of the cargo announced for coverage must reflect its true value or the claim settlement may be prorated to a much lesser value. Then the insured might have to act as a co-insurer to provide an optimum coverage for the shipment.

What needs to be done on the discovery of damage to a cargo?

When the damage or the loss of the shipment is discovered, follow the instructions printed on the insurance certificate and immediately report the loss to service providers and notify intentions to claim a loss. Also contact the surveyors to visit the destination to investigate the cause and extent of the losses. Brokers will also assist in starting the process of establishing claims.

What should be the insured role while establishing a claim for a loss?

The insured should act truthfully keeping nothing concealed while making his claims. They must act as a far-sighted uninsured.




Government addresses port congestion in Ghana’s transport sector

Increasing efficiency at its ports is key for Ghana’s objective of becoming a regional trade hub. The country currently ranks 154th on the World Bank’s 2017 Doing Business index in the trading across borders category, compared to neighbouring Côte d’ Ivoire at 150th and Togo at 117th. It is estimated that the import clearance process in Ghana takes 165 hours. As the economy continues to grow and trade in West Africa increases, the government and private sector have been prioritising the expansion of port capacity. 28



etween 2008 and 2012 container volumes at the Tema Port grew by 48%. Tema hosts five off-dock container handling terminals, one operated by the Ghana Ports and Harbours Authority (GPHA) and the other four managed by private companies, allowing cargo to be processed outside of the port area in order to decrease congestion. Despite these facilities, the port continues to operate over capacity. In February 2016 a new off-dock reefer terminal with capacity of 850 twentyfoot equivalent units (TEUs) was commissioned to meet rising demand for refrigerated storage imports. In 2015 the GPHA and local consortium Meridian Port Services (MPS) formed a $1.5bn public-private partnership to build a new port facility, increasing Tema’s capacity from 1m TEUs per year to 3.5m TEUs, making it the largest port in West Africa. The project is expected to employ up to 5000 people, and construction is due to be completed in 2020. “This massive investment highlights investors’ confidence in the country. It is a sign that Ghana is moving in the right direction and that the journey will not end there,” Mohamed Samara, CEO of MPS, told OBG. Annually, Abidjan in Côte d’Ivoire takes in 1.5m TEUs and Lomé in Togo handles about 2m. “Expanding the yard space with this new facil-


INSIGHT BRIEFS BRIEF ity will decrease congestion and allow ships to bring in more containers without being charged for taking up additional space,” Amy Bonsu, a trade officer for Maersk, told OBG.

The professional Supply Chain practitioners


Beyond physical infrastructure, logistics backups often occur from inefficient processing systems. According to the GPHA, Ghana has implemented a number of new technology systems to address this issue, including an automatic ship identification system, container scanning and electronic cargo tracking. These improvements are part of the Ghana National Single Window Policy (GNSWP) — potentially the most significant technological innovation — which aims at improving efficiency and reducing double charges. This policy was initiated in 2015 to streamline the trade process. It uses an electronic data system, Ghana Community Network (GCNET), to create one portal through which all regulatory agencies involved with imports and exports can interact to expedite the process.


The GNSWP should make Ghana a more competitive player in trade, keeping pace with forward looking countries that have embarked on similar trade facilitation reform drives. “The next phase will reduce the time and cost spent by importers and exporters in securing documentation, while simplifying and harmonising the transport and logistic processes. It also aims to improve the country’s ranking in the World Bank’s Trading Across Borders category by 50% in 2021,”Valentina Mintah, CEO of West Blue Consulting, the IT company assisting with the implementation of the programme, told OBG. The project is expected to decrease international trading costs by 50% and increase efficiency by 25%, reducing clearance time at Tema from up to 10 days to one or two. According to Albert Akurugu, senior revenue officer at Ghana Customs, they can now process 500 Customs classification and valuation reports per day, as opposed to 200 similar reports in the past. While streamlining processes have reduced bureaucracy, challenges remain. In July 2016 GCN et told the state that delays in issuing permits for freight forwarders remained a major cause of congestion.

Consulting Excellence The Consulting Excellence framework drives our behaviour and resonates throughout our values. The core of the framework sits within 3 pillars, or headings: ethical behaviour; client service and value; and professional development.

We specialize in: 1 Organizing training workshops for procurement, logistics, professionals and stake holders. 2 Develop and design organisation magazines. 3 Market Price Survey for procuring Agencies. 4 Formulation of tender documents and advertisements. 5 Organizing bid bonds and tender security for suppliers. 6 Developing training material for institutional development. 7 Supply Chain Performance Index Research Proc & Logistix Consult Limited

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ritish Airways (BA) has over the years continued to leverage on the best and unrivalled customer service experience and technological innovations to remain top in the lucrative yet competitive aviation industry. Its experienced operational and commercial teams worldwide take pride in delivering high levels of performance and customer care.

BA footprint in Africa

“British Airways is the oldest commercial passenger airline operating in Africa, and a lot is expected of us as it is with other airlines. For decades now, our customers here have stayed with us for the simple reason that we have been committed to listening to them and serving their needs. The future is indeed very bright for us both,” Mr Leung explains 30

Since its inception in 1931,British Airways (BA)has remained one of the world’s most prestigious and trusted airlines, offering best in-breed customer experience, a wide range of products and an extensive route network to cater for the needs of travelers across the globe. Based in Heathrow Airport, London, the airline is a house hold name in the African Airspace. The airline has over 200 fleet and operates daily flights to Nairobi in East Africa, Nigeria and Ghana in West Africa, Johannesburg in South Africa and Egypt to the north. It also operates flights to Luanda in Angola. British Airways has relentlessly continued to develop their expertise in the untapped but promising African airspace and sees the continent as a huge potential for investment opportunities owing to the growing economies. “We can trace our history more than 80 years ago on 8th July 1931 when Nairobi –based Wilson Airways began regular weekly mail and passenger service Nairobi-Kisumu-Nairobi to connect with our predecessor Imperial Airways’ UK-Central Africa services,” says KevinLeung, the Commercial Manager for BA-Kenya. In January 31, 1952, British Overseas Airways Corporation (BOAC), a forerunner of British Airwaysflew Princess Elizabeth to East Africa on the first stage of a Commonwealth tour and flew her back a week later as Her Majesty, Queen Elizabeth II following the death of her father King George VI. In August 1978, British Airways services in Nairobi moved from Embakasi to the newly opened international airport later to be called Jomo Kenyatta where it has operated to date. Mr Leung says the firm’s commitment to offer top notch solutions has continued to give them an edge in the aviation industry. The airline has numerous accolades to its name, among them The Business Traveler Awards 2016 in which it bagged the best short-haul and best airport lounge awards, and the World Travel Awards 2016 where the carrier was crowned Europe’s leading airline.

Best in-flight services

BA has been at the forefront of innovation and progression from the world’s first daily scheduled flights to the first fully flat bed. With over 200 fleet, the carrier offers world class in-flight services tailored to meet the needs of both leisure and the business traveler. The airline presents numerous options for its clients and works to ensure its customers enjoy exclusive service while on board. The airline’s travel classes include First class, Club World (Business Class), World Traveller Plus (Premium Economy) and the Economy Class.


CORPORATE PROFILE “Our daily Nairobi-London flights departs at 11pm offering the utmost convenience to the business traveler who gets time to do their business and travel back on the same plane in the evening. Flights to the USA leave daily in the morning,”Leung says. “We continue to remain committed to our customers in Kenya. A lot is happening here and the country has proved great for business opportunities as well as tourism.” Last year British Airways launched its expansion programme on the Nairobi-London route, increasing its passenger capacity by introducing Boeing 747-400, adding 784 seats a week on the route. Asked about the June 23 vote where United Kingdom voted to exit the European Union, Mr Leung said the firm does not expect Brexit to have a long-term impact on its business. “We introduced Boeing 747-400 on July 1 which was a few days after the Brexit referendum poll,” he notes. However, effects of the Brexit will not immediately be felt since the UK has two years to negotiate terms of the split with the European Union. Mr Leung says: “We are poised to even serve our customers more effectively with our numerous aircraft.” “We have launched plans to acquire bigger aircraft including Boeing and Airbus to complement the ever growing business class as well as boost tourism between Africa and Europe while increasing efficiency and reliability,” he notes.

Oil and Gas boom in East Africa

British Airways is looking to capitalize on the recent oil and gas boom that has placed East Africa as one of the most prolific exploration sites. East Africa comprises of diverse economies among them Kenya, Uganda, South Sudan, Ethiopia, Tanzania and Mozambique. The countries have recently made discoveries, showing the potential to fundamentally transform their economies through investments in road, rail, power and industrial infrastructure. In particular, Kenya is the top most preferred investment destination in East Africa, with the majority of venture hunters attracted to good infrastructure and ease of doing business. The proposed Sh400 billion crude oil pipeline is also a major attraction to investors, who stream in to benefit from Kenya’s impending oil resources.

British Airways Staff “BA is aware of the recent developments and employs the best expertise to traverse these markets and expand its footprint in the budding economies,”says Mr Leung. “The firm has continued to support the SME sector in Kenya,” adds Mr Leung. Last year, the airline entered into a deal with telecommunications giant Safaricom to help the small and medium enterprises to source supplies in the international markets. Dubbed Emerging Enterprises Initiative, the partnership provides international exposure to the SMEs at affordable and competitive rates.

Customer service experience

British Airways train their employees to deliver the best services to its vast clientele. The airline goes beyond the service on board to take care of the immediate needs of their customers. It has developed a portfolio of products that meet customer requirements. For instance, BA has invested in ultra-modern technological solutions to ensure efficiency in their offerings. The British Airways App has made travelling easy and convenient. Customers can easily manage their travel on the move via the mobile phone, iPad or Apple watch which allows them to check-in with only three taps and also download the boarding passes for their flights. In 2015, the carrier changed its in-flight menu to more refined local and international cuisine. The new changes to its on-board catering service introduced in June, include a special good night service for its Club World (Business Class) passengers and an expanded range of entrées on the First Class menu. Mr. Kevin Leung, says the idea was

a success, and the menus are rotated every month to ensure that passengers enjoy a varied range of both local and international cuisine. “British Airways continues to look for opportunities to improve its customers’ experience, as the airline is known for innovation and best value for money.”

Industry competition

Aggressive competition in the aviation sector has seen world airlines compete to offer the best client solutions in order to navigate the landscape and stay ahead. British Airways has moved to invest in the best customer service personnel and the team works round the clock to make sure that things are in place to stem the competition. “British Airways is the oldest commercial passenger airline operating in Africa, and a lot is expected of us as it is with other airlines. For decades now, our customers here have stayed with us for the simple reason that we have been committed to listening to them and serving their needs. The future is indeed very bright for us both,” Mr Leung explains. In its bid to diversify and maintain its position at the top of the industry, British Airways is banking on a strong reputation to help it weather the storm of the industry’s transformation. “Reputation is a key instrument in developing a global hub strategy as well as the global network. We work to ensure the best reputation for the airline.” At British Airways,we focus on maintaining a good name by coming up with innovative products and customer service for our clients as we look to grow our presence in the aviation industry”




Kenyan banks competing for mobile banking customers 27% the year before. As with other mobile money services in the country, such as Airtel Money, Mobikash, Orange, Tangaza Pesa and Equitel, the offerings are diverse, ranging from loan products that allow users to save and borrow small amounts using their mobile phones to emergency payment instruments for electricity.

One- Off Success

Competition between mobile money offerings has meant aggressive marketing by Safaricom, Orange, Airtel, MobiKash, Tangaza Pesa and Equity Bank, as well as by many other banks and service providers that use mobile money to serve their clients


owhere is the ability of Kenyans to turn technology to commercial use better illustrated than in mobile banking. They use their phones to pay for goods and bills, make deposits and withdraw cash from agents, buy insurance, for public transport and to transfer to relatives. According to the Central Bank of Kenya (CBK), the value of transactions carried out through mobile phones rose 24.7% to KSh2.4trn ($26.4bn) in 2014, compared to KSh1.9trn ($20.9bn) in 2013. Growth drivers include rising use by merchants and individuals due to convenience, cost-effectiveness and security. As public transport starts to enforce cashless payments, usage is likely to rise. Competition between mobile money offerings has meant aggressive marketing by Safaricom, Orange, Airtel, MobiKash, Tangaza Pesa and Equity Bank, as well as by many other banks and service providers that use mobile money to serve their clients. In August 2015 Kenya Commercial Bank (KCB) and mobile operator Airtel announced a partnership for Airtel Money customers to deposit or withdraw cash in the bank’s outlets. Airtel Money also issues a visa card.


Telecoms firm Safaricom, which held 67% of the mobile market in the second quarter of 2015, launched its M-Pesa service in 2007. M-Pesa has achieved tremendous growth in Kenya since its launch, and in March 2015 recorded a 14% y-o-y rise in its “30-day active” users to 13.9mm, with total transactional value through M-Pesa up 26% to KSh4.18trn ($46bn). It now plays a major role as a revenue stream for the operator. Mobile money contributed 33% of Safaricom’s total revenue for the year to March 2015, up from


The mobile money success story was a combination of happenstance, smart regulation and market dominance. The programme’s dramatic take-off benefitted from a number of factors, including high demand as a result of limited financial access among the broader population, a light-touch regulatory approach by the Central Bank and Safaricom’s majority market share. The latest FinAccess National Survey 2013 showed that the number of adults who use mobile phone financial services was 11.5m, more than double the 5.4m who use bank accounts. While mobile money products have spread across Africa, few countries have seen the same impressive results as Kenya. Even in neighbouring Tanzania, where the population is roughly the same size, initial results for the launch of M-Pesa were much more modest. Further afield, in countries like Nigeria, Senegal, South Africa and Ghana, mobile money programmes have had only a limited impact.

Broader Trend

Banks will continue to favour technologyfuelled growth, as the lowest cost mechanism for service delivery. By and large, banks favour mobile and agency growth, rather than rolling out automatic teller machines and branches. The EAC aims for low cross-border money transfer rates from the end of 2015, as Kenya, Rwanda, Uganda and South Sudan are now formulating harmonised money-transfer guidelines. It would enable international remittances between M-Pesa, Airtel and Telekom Kenya to MTN mobile-money customers in Uganda, Rwanda and South Sudan. Equity Bank, Kenya’s biggest bank, is taking on the mobile money operators. It launched its telecoms unit, Equitel, after getting a licence in April 2014 from the Communications Authority to launch a mobile virtual network operator using Airtel’s network. At the July 2015 launch James Mwangi, group managing director and CEO, said, “We will be leveraging on the bank’s presence across the region to roll out Equitel.”



Kenya to benefit from newly agreed TFTA After seven years of negotiation, the signing of the Tripartite Free Trade Agreement (TFTA) in June is being heralded by many in Kenya as a turning point in regional integration.


hile there is substantial potential for the TFTA to significantly deepen economic ties across the continent and further boost intra-regional trade – which currently stands at roughly one-tenth of overall trade volumes – the scope and complexity of the undertaking are likely to delay the most meaningful benefits of the TFTA for Kenya and the rest of Africa. While all 26 member states have signed an in principle agreement, implementation will be the next step. The regulatory regimes governing the three participating regional economic communities (RECs) and the different member states will need to be harmonised, which could push the effective start date of the TFTA beyond the anticipated deadline of 2017.

Trade specifications

The TFTA is an economic integration initiative pursued by three of the continent’s RECs – the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC). Once implemented, the agreement will create a 26-member integrated economic entity spanning Egypt to South Africa, covering some 17.3m sq km and creating a market of around 632m people, equivalent to more than half the population of Africa. With a combined GDP of $1.2trn, the new trade bloc would account for around 60% of the continent’s economic activity. Notably, the agreement establishes a framework to incorporate other Central and West African nations that were excluded from the initial agreement at a later date, paving the way for an even larger trading zone. While progress has been made in recent months, the agreement still has several hurdles to overcome. All countries have yet to sign the final agreement, and the TFTA will still need to be ratified by the legislatures of each state. National laws and tariff structures will also need to be adjusted to reflect the terms of the deal, as negotiations continue over rules of origin, trade remedies and dispute settlements.

Deepening ties

The TFTA, which is based on the pillars of market integration, infrastructure expansion and industrial development, is an important step towards the broader goal of economic integration across the continent, as envisaged in the 1994 Abuja Treaty on the Establishment of an African Economic Community, signed under the auspices of the Organisation of African Unity. Africa remains the least economically integrated continent in the world in terms of intra-regional trade flows. While intra-continental trade accounts for around 40% and 60% of total trade in the Americas and Europe, respectively, that figure stands at just 12% for Africa. The EAC has seen greater progress in this regard than other regions on the continent. While intra-regional trade in ECOWAS or the Arab Maghreb Union in West and North Africa, respectively, accounts for one-tenth of overall trade volumes, the EAC averages around 30%. Similarly, Kenya tends to outperform the regional average, with 48% of the country’s exports bound for other African countries in 2014, according to the Kenya National Bureau of Statistics. However, receipts from its African counterparts accounted for just 9% of Kenyan imports, compared to 61.2% from Asia, with India ranking as the primary source country since 2010. With Africa’s share of global trade at around 3%, according to figures from the African Union, expanding intra-regional trade is crucial to improving export revenues and creating jobs, as well as helping to buffer markets from external macroeconomic pressures, such as the current economic slowdown in Asia and the anticipated tightening of credit markets in the US and Europe.

Kenya gains

Overall, Kenya’s trade balance is expected to see substantial gains from the agreement. According to a recent analysis by the Ugandan Ministry of EAC Affairs, Kenya is expected to be one of only five countries in the bloc to see exports increase by more than $100m following full implementation of the TFTA. Moreover, with 41.2% of Kenya’s exports destined for TFTA member states in 2011, compared to the 13.4% share of imports from TFTA participants, Kenya enters the bloc from a position of relative strength. In particular, Kenya’s industrial and manufacturing sector is likely to be reignited by greater access to the broader TFTA market. Manufacturing is one of the priority sectors identified by the government as a key engine for future growth in its Vision 2030 development plan. Importantly, the TFTA gives Kenyan exporters preferential access to six new markets not already covered by the EAC or COMESA, namely Angola, Botswana, Lesotho, Mozambique, Namibia and South Africa.

Continued in our March Issue 2017




Kenya’s insurance sector set to consolidate An expanding middle class, anchored by a young population, is set to support growth in Kenya’s insurance sector, although a regulatory overhaul is likely to increase consolidation pressure in the near term. Growth forecast

Prospects for stronger revenue and deeper penetration for insurers in the Kenyan market are positive, according to a 2016 report released by UK-headquartered services firm EY. According to its survey of sub-Saharan markets, EY forecasts that Kenya’s insurance sector could expand by a 6% compound annual growth rate in premiums through to 2018. Currently, Kenya’s insurance penetration rate stands at 2.9% of GDP. Kenya’s life insurance segment, in particular, represents a significant growth opportunity. With an expanding middle class – 44.9% of the population is now ranked in the middle-income bracket, defined as those spending between $2 and $20 a day, according to the African Development Bank, for a total of nearly 20m people – and rising life expectancy, demand for personal coverage is set to rise. Along with rising household prosperity, Kenya’s relatively young median age – roughly 70% of the population are under the age of 35 – will support growth in the life insurance segment, according to Ezekiel Macharia Mburu, chief actuary at Kenbright Actuarial and Financial Services. According to Mburu, younger Kenyans are likely to become more aware of the benefits of personal insurance, with a shift in culture awareness of life insurance products, especially as this cohort is more risk-oriented. There is strong potential in the life segment, which currently lags


behind other product lines, he noted. “The life insurance segment in Kenya is small, which is out of line with global trends, which suggests that it will grow,” Mburu told OBG.

Non-life still dominates

Though the life segment is seen as having the strongest growth potential in the market, as in many African economies, the industry is currently dominated by the non-life component. According to data issued by Kenya’s Insurance Regulatory Authority (IRA) in June, the life segment only accounted for 31.4% of total written premiums valued at KSh55.27bn ($545m) during the first quarter of this year, with non-life representing the remainder. The non-life segment dominates Kenya’s reinsurance sector to even a greater extent, with general business accounting for 81.2% of gross premium income of KSh3.22bn ($31.8m) for reinsurers in the first three months of this year. The industry saw a slowing of growth, with the value of written premiums expanding by 9.6% during the first quarter of this year, compared to 16.4% y-o-y registered in the first quarter of last year. However, the level of growth was well above the 5.9% of the broader economy. The industry’s total asset base at the close of the first quarter was KSh498.5bn ($4.8bn), up 10.1% y-o-y, with 80% of these funds lodged in income generation investments, of which 52.6% were government securities.

Regulatory consolidation

Kenya is also in the final stages of a regulatory overhaul, including establishing a Financial Services


INSURANCE Authority (FSA) to consolidate the fragmented insurance landscape. The FSA will merge four regulators – the IRA, the Retirement Benefits Authority, the Capital Markets Authority and the Sacco Societies Regulatory Authority – under one umbrella to provide a more organised approach to the sector. “The move to a single regulator should bring Kenya in line with global best practices in financial regulation, and help to better coordinate regulatory policy,” Stephen Wandera, principle executive director at Britam, told OBG. Amendments to Kenya’s Insurance Act last year also require insurers to double their capital by 2018 –­ shortterm insurers will be required to increase their capital from KSh300m ($3m) to KSh600m ($6m) while long-term insurers must increase from KSh150m ($1.5m) to KSh400m ($4m). However, many Kenyan insurers missed a June deadline to start building their capital, Tom Gichohi, executive director at the Association of Kenya Insurers, told local media earlier this month. The association is currently lobbying the IRA to lower capital charges – requirements that mandate insurers place 40% of the value of their property investments and 30% of stock holdings with the IRA, according to press reports. “If you have heavily invested in property, for example, land and buildings, these are not things you can sell off tomorrow,” Gichohi said in an interview. “We are telling them that ‘some of these capital charges you have proposed are punitive.’” Meanwhile, Kenya’s insurers’ stocks have dipped while the market may also see a number of stake sales and exits as a result of companies’ ability to comply with the new requirements.

ShowMax partners with Seacom in East Africa Kenyans can now enjoy faster connections with less buffering as ShowMax partnered with Seacom, a data service provider and the first company to launch broadband submarine cables along Africa’s eastern and southern coastlines. Seacom will now host ShowMax caching servers in Nairobi, allowing for peering to take place with local internet service providers (ISPs).


howMax head of distribution Mike Raath said, “The net effect of placing caching servers in Nairobi is that customers can pull video content from much closer to home, which means faster response time and less buffering. This move also lays the groundwork for further expansion in East Africa as we continue to rollout ShowMax in new countries.” In addition to delivering an improved customer experience, this

agreement also brings benefits to local ISPs in the form of lower costs. “By peering with local ISPs, they’ll now be able to get ShowMax content directly rather than having to pay transit costs from servers based thousands of kilometres away. This is yet another way we’re working to make sure that ShowMax is the internet TV service listening to the needs of consumers and partners in Africa,” said Raath.




Nigeria rehabilitating and expanding transport network

From rails and roads to ports and airports, Nigeria’s transport sector is facing an extensive overhaul. The country has long suffered as a result of inadequate investment in infrastructure, constraining the movement of people and goods, and prompting the government to push for the rehabilitation and expansion of the country’s entire transport network. The Plan


n December 2015 Rotimi Amaechi, minister of transport, announced that the government is working on a national transportation master plan. “For a sector that plays a major role in the nation’s development, there is an urgent need to exploit the opportunities that abound within the sector to improve its contribution to the national economy,” Amaechi told the local press. “While reducing dependence on oil revenues, it will also develop the rural economy, and reduce unemployment and urban drift.” While public budgets have been


constrained by economic conditions, the current administration’s budget commitments, coupled with its desire to bring the private sector on board, promises to improve the capacity and quality of the transport network. This will create opportunities for the construction industry and service operators to capitalise on the significant potential of the 184m-strong Nigerian market.


The transport sector currently falls well short of its potential. The network, including rail, aviation, ports and roads, contributes only 1.41% to GDP. Despite this, year-on-year (y-o-y) growth between 2014 and 2015 was positive, according to Central Bank of Nigeria


(CBN) data. The sector contributed N805.5bn ($2.5bn at the time of printing) in 2015 compared to N770.7bn ($2.4bn) in 2014, representing y-o-y growth of 4.5%. This upturn follows a contraction of 17.8% between 2013 and 2014. The current limitations of the country’s transport network hamper trade and increase costs for producers and manufacturers, as well as importers and exporters – Nigeria ranks 182nd out of 189 countries for trading across borders in the World Bank’s 2016 “Doing Business” report. The cost and time it takes to both import and export is well above the average for sub-Saharan Africa and OECD high-income countries. Border compliance in Lagos, for example, takes 298 hours for imports and costs $1077. This compares to an average of 160 hours and $643 in sub-Saharan Africa and nine hours and $123 in OECD high-income countries. Similarly, while the same procedure for exports takes 159 hours and costs $786 in Lagos, this is reduced to 108 hours and $542 in sub-Saharan Africa and 15 hours and $160 in OECD high-income countries. A comparison of the time

ECONOMY and cost of documentary compliance for imports results in a similarly negative result, taking 173 hours in Lagos, 123 hours on average in sub-Saharan Africa and four hours on average in the OECD countries. In terms of export documentary compliance, Lagos stands at 131 hours, sub-Saharan Africa at 97 hours and OECD high-income countries at five hours. This level of performance is also reflected throughout Nigeria’s transport system, resulting in a range of issues, from road congestion and accidents – tailbacks are a frequent occurrence and can extend daily commutes by several hours – to airport and airline delays.


The government is also looking to increase spending prior to the launch of the transport master plan, and as part of its efforts to ramp up rehabilitation and expansion activity. In October 2015 the current administration announced a $25bn national fund for infrastructure. This is also being backed by several line items in the N6trn ($18.9bn) national budget for 2016, which includes N433.4bn ($1.4bn) for the Ministry of Works, Power and Housing and N202bn ($637.7m) for the Ministry of Transport. As the two largest recipients of budget allocations, these ministries are expected to be instrumental in driving spending on improvements to the nation’s transport infrastructure over the coming year.


Nigeria has the largest road network in West Africa. However, although it accounts for 90% of passenger and freight movement in the country, large parts of the network are not wellmaintained, and a high road traffic death rate of 20.5 per 100,000 people remains, according to the World Health Organisation’s “Global Status Report on Road Safety 2015” report. There is increasing pressure on the government to reverse the deterioration of the road network and extend the system to keep pace with economic and population growth. In its current state, the network falls significantly short of global benchmarks for paved road-to-population ratios. To address this, the government has allocated N208bn ($656.7m) for roads projects and pledged to finish 200 roads – currently at various stages of completion due to funding issues – by the end of 2016. It has also planned to build 6000 km of strategic roads by

2018. A number of public-private partnership toll-road concessions are also being rolled out as a way to pay for the maintenance of federal roads.


The government has already made substantial strides in transforming the country’s rail infrastructure, which offers the greatest opportunity for shortterm reductions in shipping costs but which has been largely neglected in recent decades. The current administration is building on the work started by former president Goodluck Jonathan, which laid the groundwork for the network’s rehabilitation and the recommencement of services on existing lines. The Lagos-Kano narrow-gauge line was reopened in late 2012 after a decadelong period of closure. The Jonathan administration invested N24bn ($75.8m) to upgrade tracks and signalling equipment, and purchase new rolling stock, including 25 GE locomotives and 500 wagons and passenger coaches. However, the existing network is narrowgauge, which hampers the ability to run faster trains on the line. Trains navigate the Lagos-Kano route at an average speed of 35 km per hour, taking around 33 hours to complete the 1126-km journey, whereas a high-speed train, which travels up to 200 km per hour, would take six hours to complete the same journey. As such, the current government is committed to overhauling the whole line, introducing standard-gauge tracks and faster rolling stock to the network. In March 2016 the Nigeria Railway Corporation (NRC), the owner and operator of the infrastructure, commenced testing on the new Abuja-Kaduna standard-gauge line. Built at a cost of $874m by the China Civil and Engineering Construction Company (CCECC), the 186.5-km route will have nine stations and run trains at speeds of 150 km per hour. Funding for the project was provided by the federal government and a $500m concessionary loan from China Eximbank, according to local press reports. This is the first step in plans to overhaul the entire north-south line. In its original conception in 2006, the Lagos-Kano standard-gauge modernisation project was awarded in a single $8.3bn project to CCECC. However, after funding problems, the project was reconceived and split into several packages. CCECC was awarded a $1.53bn contract for the next segment

of the line, the 312-km route between Lagos and Ibadan, which is set to be delivered by 2018, according to local press reports. Other packages include the 300-km line between Lagos and Benin City, the 615-km high speed Lagos-Abuja line and the 1675-km Port Harcourt-Maiduguri line.

Private Partners

Given previous funding challenges, it is unsurprising that the government is looking into using a public-private partnership (PPP) model for rail projects. Currently, the state-owned NRC is responsible for all operations on the rails, as per the 1957 Railway Act. In early 2015 the Federal Executive Council approved the Nigerian Railway Authority Bill 2014 in a bid to open up the sector to private investment and operation. The bill still needs final approval by the National Assembly. If passed, it will allow for railway concessioning and establish a regulatory framework for private sector participation. Thus far, contracts have been largely won by Chinese banks and contractors, from general contracting to sub-contracts and rolling stock orders. Given the constrained spending potential of passengers in Nigeria and the need to limit ticket prices, passenger volumes will be crucial. It will, therefore, be critical for the government to package concessions in a way that interests potential bidders. “If you have a concession, it would have to maximise the opportunities coming from passengers and freight. You would have to make sure it has good end-toend connections and give some leeway to the concessionaire to run freight on

Nigeria has the largest road network in West Africa. However, although it accounts for 90% of passenger and freight movement in the country, large parts of the network are not well-maintained, and a high road traffic death rate of 20.5 per 100,000 people remains, according to the World Health Organisation’s “Global Status Report on Road Safety 2015” report




the lines,” Tola Sapara, country director for Alstom Transport, Nigeria, told OBG. There has also been a push to rehabilitate the old narrow-gauge corridors for freight use, with the standard-gauge lines taking over passenger services. “It might be exciting for investors if you have freight concessions on the old corridors,” Sapara told OBG. “An investor can be profitable on the narrow-gauge

Nigerian ports increased by more than 100% to around 1.85m twenty-footequivalent units (TEUs), according to data from the Nigerian Ports Authority (NPA). In its annual report for 2015 the NPA reported a container throughput of 1.54m TEUs, a 20% decrease over 2014 levels. This trend continued into the first quarter of 2016, when the NPA reported a container throughput of 317,731 TEUs compared to 375,729 during the same period the previous year.

Traffic Slowdown Given previous funding challenges, it is unsurprising that the government is looking into using a publicprivate partnership (PPP) model for rail projects. Currently, the state-owned NRC is responsible for all operations on the rails, as per the 1957 Railway Act with freight, and then build a standard-gauge line in the same corridor for higher-speed passenger services,” he said.


The maritime shipping sector has had to grapple with several macroeconomic headwinds which have led to slowing freight volumes, particularly for container traffic. “In 2015 the containerised import market dropped by about 15%, and the first quarter of 2016 looks like another 20% reduction on top of that,” Richard Smith, trade and marketing director at Maersk Nigeria, told OBG. This is a reversal of the upward trend that has persisted since the global financial crisis in 2008. Indeed, between 2008 and 2014, containerised traffic at


The traffic decline is largely attributable to the fall in global oil prices and currency depreciation, which have led to a slowdown in growth and government spending. Laden containerised imports far outnumbered exports in the NPA’s figures, reflecting Nigeria’s position as a consumer country. The authority noted in its 2015 report that over 86% of imported laden containers left Nigeria empty, with non-oil commodities making up less than 10% of the export volume and less than 3% of the total volume of trade in the country. Agricultural products accounted for over 90% of non-oil exports, the bulk of which were cocoa beans and palm kernel. The CBN has also restricted the use of foreign exchange for the payment of 41 different imports to encourage local production. This has limited the ability of companies to purchase foreign-made goods and has curtailed


trade volumes entering the ports. The exchange rate and capital controls also directly complicate payment procedures for shipping firms; most firms are paid in naira, but foreign subsidiaries are unable to access the requisite foreign currency to remit back to their head offices or to pay government firms and agencies that demand dollar payments. The drop in volumes has also led to a fall in prices, with shipping rates on the Lagos route declining. According to the Shanghai Containerised Freight Index, rates between Shanghai and Lagos fell by 36% to $966 per TEU between mid-October 2015 and late March 2016. As such, shipping lines have had to look at ways of adapting to the current environment. “We have to make self-imposed changes to our deployed capacity to reflect the changing demand patterns in West Africa, in particular in Nigeria,” Smith told OBG “Focus remains on effective utilisation of our vessels.” Despite attempts to impose greater efficiencies, for some shippers the challenging environment has become too much. In the four months to the end of February 2016, three shipping lines exited the Nigerian market. Nippon Yusen Kaisha of Japan, Evergreen Line of Taiwan and Messina Line of Italy all withdrew due to difficulties generating adequate revenue. This is perhaps unsurprising, as by September 2015 many terminals in Nigeria were operating at just 30-40% of capacity across all cargo types.

More Efficient

However, there is a silver lining. The drop in trade volumes has had a beneficial, if unintended, impact on operations at the ports. Dwell times for containers at Apapa Port in Lagos have been reduced by up to three days and now stand at around 14 days. This will be welcome news for freight forwarders and businesses familiar with the extensive delays associated with Nigerian ports. Nor is Nigeria losing business to neighbouring countries. “I think Lome in Togo, Tema in Ghana and Apapa in Lagos, are very comparable in terms of efficiency levels,” Smith told OBG. “I don’t believe anyone is currently diverting cargoes as a result of port inefficiencies.”

Capacity Expansion

The government has realised it will need to boost port capacity to be

ECONOMY competitive in the longer term. Indeed, plans for three new deepwater ports are already under way. In 2015 work began on the $1.5bn Badagry Deep Seaport, which is set to be the largest deepwater port in Africa. Another port, in Akwa Ibom State, is still in the planning stages. Once completed, these projects will significantly improve the capacity of the country’s port infrastructure. At the moment, Nigeria’s main port at Apapa in Lagos has a depth of 13.5 metres, meaning it cannot handle the world’s larger container ships, which can have a draft of up to 16 metres. Furthermore, while Apapa is the busiest port in West Africa, handling over 625,000 TEUs each year, its capacity is much less than the busiest ports in the world, and it ranks outside the top 100 globally. Although Nigeria had, until recently, been struggling with port traffic and efficiencies, the government’s current infrastructure plans could lead to a dramatic reversal in the space of a few years. This is particularly the case given similar port aspirations throughout the region. “Along the coast [of the Gulf of Guinea] by 2020, you will have a deepwater port in Nigeria, and probably also in Ghana and Benin, as well as the existing one in Lome,” Smith told OBG. “Clearly terminal capacity for the coast will exceed capacity, whereas currently it is largely in balance. This may change how shipping lines serve the region, with the option of using fewer – but bigger – ships.”


In recent years, domestic and overseas passenger traffic through Nigeria’s airports has risen steadily, with Murtala Muhammed International Airport (MMIA) in Lagos, accounting for over 60 per cent of the total passenger and aircraft movement. Between 2010 and 2013 total passenger air traffic grew at a compound annual growth rate of around 14.3%, according to the latest available figures from the Federal Airports Authority of Nigeria. In 2013 air passenger numbers increased by 1.37% y-o-y from around 14.08m to 14.3m. Recently, however, the aviation industry has suffered from a reduction in air traffic due to the slowing economy. In the second quarter of 2015 international passenger numbers were down by 27.93% on the previous quarter and 6.55% on the same period in the previous year, according to data from South Africa Airways. In the same quarter, there was a 4.38% fall in cargo

volumes, 1.85% less than the figure for the same period in 2014. Despite these short-term difficulties, the mid- and long-term outlook for the sector is very promising. Domestic travel, which accounts for the majority of all passenger traffic, has excellent growth prospects, thanks to Nigeria’s growing population and rising incomes. More importantly, the government is also making headway with its sectorwide transformation programme, which aims to address infrastructural challenges that, due to a long period of underinvestment, have hindered the sector’s profitability. Conducted by the Federal Ministry of Aviation and backed by a $500m loan from the China-based Eximbank, the work includes the construction of new terminals at all four of Nigeria’s international airports and upgrades to 22 of its federal airports. Indeed, MMIA’s new passenger terminal, set to open by the end of 2016, is expected to increase the airport’s capacity by 1m passengers per year, and will significantly ease passenger flow at times of peak traffic.

Public Transport

The government is currently looking to involve private companies in the funding and operation of the country’s public transport networks. Lagos, Nigeria’s commercial centre, is slated for a transport overhaul in the coming years, offering ample opportunities for private sector involvement and investment. By the beginning of 2017, the first light rail line will become operational, and an

extensive bus rapid transit (BRT) network is currently being rolled out. All of this is detailed in the city’s Strategic Transport Master Plan (STMP), which was released by the Lagos Metropolitan Area Transport Authority (LAMATA) in 2015. The document, which aims to address the chronic traffic problems of the city, calls for seven rail lines, one monorail, 14 BRT routes, 26 water transport routes and three cable car lines. “Under the STMP, we looked at the land use for all of Lagos and the use along each corridor,” Frederic Oladeinde, technical advisor for transport planning at LAMATA, told OBG. For high-volume corridors projected to carry more than 300,000 passengers, the government decided to employ rail. For lighter volumes, BRT was determined the better option. “The consideration between them was done on a cost-benefit analysis,” Oladeinde told OBG. The new system, which will eventually include seven lines, will initially consist of three lines starting at the Marina, in central Lagos. From there, the Blue Line will run to Okokomaiko, the Red Line to Agabo, with a branch to the airport, and the Green Line to Lekki. While the cost of building a light rail system in Lagos is estimated at $30m per km compared to $2.5m per km for BRT, rail is able to carry greater passenger volumes and can also be utilised for business and industry. “The decision to build rail goes beyond passengers,” Oladeinde told OBG. “On some lines we are looking at the move-



ECONOMY ment of freight as well.” The Green Line, for example, has been earmarked for freight transportation at night. The network will also have time-saving and accident-saving cost benefits.

Blue Line

The first two phases of the Blue Line are pegged for completion by the end of 2016, offering a 14-km rail route along one of Lagos’ busiest transit corridors towards Badagry. The line will initially run from Marina to Mile 2 and stop at five stations. In its third phase, the line will extend from Mile 2 to Okokomaiko, along the soon-to-be expanded 10-lane Lagos-Badagry road, incorporating a further six stations. CCECC won the design-build contract for the line and began work in 2009. In 2015 the government also signed a $14.65m deal for 15 Chinese-built electrical multiple units to run on the line. The infrastructure is expected to have a sizeable impact on traffic flows in Lagos. Given that traffic problems cost the state around N250bn ($789.3m) each year, with the country’s so called “go slow” traffic jams a common complaint, the new lines will be warmly welcomed. Unregulated buses or cars conducted 90% of motorised trips in Lagos in 2013. As such, it currently takes up to two hours to traverse the full route of the proposed Blue Line by motor vehicle, due to congestion, but once the rail line is fully operational it will take just 34 minutes. In 2017, after the completion of the first two phases, the Blue Line will carry up to 300,000 passengers a day and create traveltime savings of up to 45 minutes.


The light rail system is a muchneeded addition to the transport network of Lagos, but its construction has not been without challenges. Funding issues for the $1.1bn project have led to serious delays in delivery. Initially, construction was scheduled to be completed by 2011, with financing supplied by the state government of Lagos. However, public funding constraints meant that a $200m loan from the World Bank was necessary to bring the project to completion. The funding and provision of public transport infrastructure remains a thorny issue. “The government funded infrastructure to demonstrate to investors that investing in transport is viable in Lagos,” Oladeinde told OBG. The state hopes to develop the local transport network


Bus Rapid Transit

on a PPP basis moving forward, though this may be difficult. At the time of publication, the government had yet to secure a concessionaire to operate the first segment of the Blue Line. Under the STMP, the government had estimated the payback period for infrastructure and rolling stock across the six rail lines at 13 years, calculated at a cost of $1 per trip. However, in 2011 the government estimated the payback period for the Blue Line alone would be 18 years. Despite its willingness to offer a concession of between 25 and 40 years, the government has yet to conclude a deal for the operation of the line. Eko Rail, a Nigerian company supported by Verod Capital Management, Investec Bank and First Class Partnerships, Britain, was in negotiations with the government for the concession, but these fell through. Oladeinde informed OBG that this was because both parties were unable agree on the estimated minimum guaranteed number of passengers on the system, which, in the event of passenger numbers falling below this number, would result in compensation being paid to the operator by the government. Other potential points of contention include the franchise fee that the operator would have to pay the government as the infrastructure owner, and whether this fee would be fixed or based on passenger volumes; and also who would be responsible for maintaining the infrastructure. Concluding the agreement is vital, as it will ensure that the Blue Line begins operations on schedule and encourage investors to participate in future transport development.

The 22-km pilot route between Mile 12 and Christian Missionary Society in Lagos was initially awarded to First BRT Cooperative, and operations began in 2008. Under the agreement with First BRT Cooperative, the operator paid a fixed franchise fee every year, while the government was responsible for the maintaining the infrastructure and the operator was charged with procuring and maintaining the bus fleet. However, in January 2016 the government terminated the agreement, citing non-compliance as the cause, according to local press reports. At the time of publication, there were no details available about a replacement operator. Despite these issues, the new BRT has largely been a success, and passenger numbers have increased steadily. Average daily ridership has reached 180,000, with the average waiting time estimated at 15 minutes. Journey times have been reduced by 40% and waiting times by 35% compared to conventional buses. Furthermore, travel costs for passengers have fallen by 30% on average. Under the agreement with First BRT Cooperative, the network fare was capped at N70 ($0.22) for travel in one zone and N120 ($0.38) for travel across two zones, with any proposed fare increase to be negotiated with the state government. The payback period on the rolling stock investment for the first BRT route was estimated at three years. The general traffic and revenue performance has also given the banking sector confidence to offer finance. Ecobank, for example, provided a N1bn ($3.2m) loan for procuring 100 buses for the pilot route.

Red Line


Lagos State is already looking into ways of securing funding for the second light rail line, the Red Line, given the funding difficulties experienced with the first route. “The Red Line is going to be a different funding model. Initially, we were looking for a private investor, but we realised there would be a viability gap in terms of revenues. The government will plug that viability gap and there will be a combination of public and private money,” Oladeinde told OBG. The federal government gave the go-ahead for the $2.4bn Red Line in November 2015, following long negotiations over rights of way with the NRC, in light of the route being shared with the national rail network.


The current anticipation and uncertainty in the ports sector is matched across Nigeria’s transport industry. Despite the government’s substantial project pipeline and increased budget allocations, potential issues connected to investment, funding and coordination could limit their implementation. The anticipated overhaul of the industry will only happen if the private sector can be fully engaged. The success of future transport projects also depends on the coordination and integration of the networks to provide intermodal connections and seamless travel for people and goods these ambitious new routes.


Linking Myanmar’s port and road infrastructure The development of Dawei is an ambitious project that, if successful, will enable goods to be shipped to Bangkok without travelling around the Malaysian peninsular through the ports of Singapore and Malaysia. They will instead be shipped directly to or from Dawei and then transported by road to Bangkok.

east of Yangon, and Kyaukphyu, on the Indian Ocean coast. Work on the 2400ha Thilawa SEZ, a joint venture between Japan and Myanmar and driven by Japan’s Mitsubishi, Marubeni and Sumitomo, started in November 2013. The zone became operational in 2015. Investors include clothing companies and manufacturers of electronics components. Kyaukphyu is a joint venture between China and Myanmar. With its $2.5bn oil and gas pipeline to China, Myanmar hopes the port can rival Singapore as a petrochemicals hub.

Understanding Issues

Public Project

The development of Dawei is overseen by a joint company owned by the governments of Myanmar and Thailand: the Dawei Special Economic Zone (SEZ) Development Company. In 2015 Japan, Myanmar and Thailand signed a memorandum of understanding that recognised, according to the statement, “the importance of the three countries in the comprehensive development of the Dawei SEZ project to promote integrated economic development and enhance connectivity in and around Mekong sub-region,” giving momentum to the effort. The following month, Thailand signed a $1.7bn agreement for the first phase of the initiative. That work, to be carried out by an Italian-Thai consortium, will include a 27-squarekm industrial estate and will begin with the construction of a 138-km road from Dawei to Kanchanaburi province at the Myanmar-Thailand border. JICA said it has been asked to undertake a feasibility study for the highway.

Power & Water

The first phase of the project will include a basic port, a small power plant and the provision of water supplies and fixed and mobile telecommunications. Work on the latter was expected to start at the end of the 2015 rainy season. The Myanma Port Authority said the development of a deep sea port will come later, possibly not until 2019, and will take into consideration the structure of maritime trade and the availability of other infrastructure, including roads. “You may think it is far from Yangon and that there is not enough road infrastructure, but, at the same time, Dawei and the SEZ will be very important,” U Kyaw Than Maung of the Myanma Port Authority, told OBG. “Myanmar is part of the Greater Mekong sub-region and Dawei will be its western corridor. If we finish, it will change maritime freight routes and cut out the need for ships to go from Thailand around Malaysia and up the Strait of Malacca.” Dawei will become Myanmar’s third SEZ after Thilawa, which is 23 km south-

With Dawei, there is both greater awareness of the challenges and greater determination to see the development succeed. U Minn Thu Aung, managing director of Helio International, told OBG, “The establishment of the Kyauphyu and Dawei SEZs will increase the potential of Myanmar becoming a trans-shipment hub, but before that happens rules and regulations need to be in line with international standards. Some regulations are outdated and have been used since independence.” Japan, Myanmar’s leading foreign investor, has identified the country as one of the “missing links” in the logistics network across South-east Asia, particularly in the Greater Mekong sub-region. With the greater appreciation of Dawei’s place in the region, it remains an immense project and funding continues to be an issue. ”It is essential to boost infrastructural developments locally to support trade and economic growth,” Dawid Sold, the country manager for Maersk in Myanmar, told OBG, “The project sounds interesting but also challenging. It may be a game changer for the country if it works out and leads to much-improved and wellconnected roads and railways.”




Investment in Ghana’s largest port continues Tema, around 20 km to the east of Accra, is Ghana’s largest port, handling around 70% of its international maritime trade, and most of its imports. It is also an important maritime gateway for the landlocked countries to Ghana’s north, though it faces rising competition from other coastal neighbours. The port is home to one of the country’s most successful publicprivate partnerships (PPPs), often cited as a model for future transport infrastructure projects.


ema entered a new phase of development in 2002, when the Ghana Ports and Harbours Authority (GPHA) launched a port upgrade programme. This involved the authority shifting towards being a landlord of parts of the port instead of the main operator, with private investors encouraged to take the lead in the development and management of a new container terminal. The tender was won in 2004 by Meridian Port Services (MPS), a joint venture between APM Terminals, a Netherlands-based part of shipping giant Maersk Group, and France’s Bolloré Group (each with a 35% stake), also including the GPHA, (30%), with a concession to run the container terminal for 20 years, with operations starting in 2007.

Feeling The Effects

In 2014 Tema felt the effect of Ghana’s economic slowdown, with a dip in volumes on most measurements, though it still handled far more traffic than five years previously, at a time when Ghana was near the peak of its boom. The port had 1504 vessel calls in 2014, down from 1553 in 2013, while cargo volumes slipped to 11.126m tonnes, from 12.181m tonnes; exports dropped from 1.494m to 1.463m, and imports from 10.014m tonnes to 8.923m, according to data from the GPHA. Transit volumes dropped to 577,227 tonnes from 620,668, while trans-shipment rose to 163,305 tonnes, from 51,748.


Tema’s container terminal handled 732,382 twentyfoot equivalent units (TEUs), down from 841,989 in 2013. In 2012 the port handled 1521 vessel calls, 11.469m tonnes of cargo, 1.477m tonnes of exports, 9.383m tonnes of imports, 530,457 tonnes of transit cargo, 50,403 tonnes of trans-shipment cargo and 824,238 TEUs of containerised cargo. The port’s strong medium-term performance over the past five years is expected to continue, despite the dip in 2013-14. Fundamentals are strong: Ghana’s

economy is expected to grow by 6.4% in 2016, 9.2% in 2017 and 6.9% in 2018, according to the IMF. Ghana remains an important trading conduit for countries to the north, particularly Mali and Burkina Faso – though competition from Togo and Côte d’Ivoire is growing, with those countries able to leverage rail networks.

Investment Continues

In June 2015 MPS said it would be investing $1.5bn in a new 3.5m TEU-capacity deepwater port and logistics centre in Tema. The project includes a new, greenfield port development outside the existing port, and upgrades to the surrounding road network. The project is expected to take four years to complete. The new port will include four deepwater berths, a new breakwater, and an access channel with draft of 16 metres – deep enough to handle the world’s biggest container vessels. The investment partners expect to create 5000 jobs in the process. MPS says that its current container terminal at Tema is close to capacity, and that the outlook for Ghana’s growth prospects, its political stability and the outlook for Africa-wide containerised cargo volumes justifies the investment. The investment in Tema is intended in part to strengthen its position as a trading centre for the region. However, the port faces constraints. While red tape and bureaucracy have been eased by greater use of technology, they remain issues. More challenging for a port competing with Abidjan in Côte d’Ivoire is the lack of a fully-functioning inland railway network. Abidjan is connected to Burkina Faso by railway, while Togo has a fairly extensive inland rail network. Still, with Ghana’s economy on the up again, and the current port outgrown, Tema’s expansion seems timely.



Richard Sezibera, Secretary General, East African Community (EAC): INTERVIEW To what extent are non-tariff barriers (NTBs) a concern within the EAC?

RICHARD SEZIBERA: When the EAC Customs union was established, member states pledged to immediately remove NTBs and not to impose any new ones. To spearhead the identification and removal of these barriers, in 2006 the EAC, together with the East African Business Council, established national monitoring committees, as well as the EAC Regional Forum on NTBs. The community now publishes quarterly reports on the status of eliminating NTBs in the region, and it established an inventory of all NTBs affecting intra-EAC trade, with agreed-upon timelines for their abolishment. As of March 2015, 83 NTBs had been eliminated, eight remained unresolved and four were new. In addition, the East African Legislative Assembly passed the Elimination of NTBs Act, which provides a legal mechanism for the government to pursue these efforts.

What lessons are there to be learned from the economic partnership agreement (EPA) negotiations with the EU?

SEZIBERA: One major limitation that EAC countries had in the EPA negotiations was limited sectoral studies and impact assessments to inform their negotiating positions. Hence a major lesson is that capacity building should always involve conducting the relevant sectoral studies and surveys aimed at helping member states understand the sectors and issues under negotiation. There is also a need to continuously build the capacity of trade negotiators, with targeted training to provide them with the right tools for effective engagement during negotiations. Finally, there need to be concerted efforts to sensitise and inform the public on the issues at hand, as the success and benefits for stakeholders will hinge on their ability to translate the gains made in negotiations into economically tangible and exploitable opportunities.

How are talks progressing for the Tripartite Free Trade Agreement (TFTA) with the EAC, the Common Market for Eastern and Southern Africa, and the Southern African Development Community?

SEZIBERA: Negotiations for the TFTA adopted a development approach to integrating the economies of the 26 member or partner states of the three regional economic communities (RECs). There were of course challenges during the negotiation process. Among them was the fear by some countries of losses in trade revenues and employment due to economic adjustments, limits to technical and

Richard Sezibera, Secretary General, East African Community human resource capacity with certain member states, and the slow exchange of tariff liberalisation offers. That said, the benefits will be many, including an enlarged market with a population of 600m and a combined GDP of more than $1trn. Trade liberalisation will be achieved much faster among the RECs, and the arrangement will enable us to facilitate industrial cooperation and value chains across priority manufacturing sectors, including agro-processing, pharmaceuticals, chemicals and minerals. The agreement should also allow us to promote infrastructure development and linkages across the three RECs to reduce the cost of doing business and facilitate increased cross-border investments. The TFTA was signed on 10 June 2015 in Sharm el Sheikh, Egypt. Currently, 16 member or partner states have signed the agreement. It will come into force after ratification by 14 of the 26 member or partner states. In the intervening period, each of the countries is required to undertake sensitization and capacity-building activities to prepare stakeholders for the expected implementation of the agreement. When signing the agreement, the summit of the tripartite heads of state and government also launched phase II negotiations. These negotiations cover trade in services, competition policy, intellectual property rights, trade related investments and development.




Port of call:

Expansion at the two main ports should boost transit traffic The central location, large infrastructural capacity, and extensive road and rail connections of Côte d’Ivoire make it a natural gateway for trade to and from its landlocked neighbours: Niger, Burkina Faso and Mali. A decade of unrest, however, has weakened the country’s role as a transit gateway to the region and has seen the ports of Dakar (Senegal), Tema (Ghana), and Lomé (Togo) increase their share of the West African transit market.

cess, the concession to build and operate the second container terminal for a period of 21 years was awarded in December 2013 to a consortium of APM Terminals (a part of Maersk Group), Bolloré Africa Logistics and Bouygues. The consortium, which runs the port’s existing terminal, has agreed to an initial investment of €120m and a fixed annual revenues payment of €22m. It plans to invest more than €400m in upgrades and new equipment, including six ship-to-shore gantry cranes and 15 yard cranes, according to Bolloré Africa. Scheduled to begin operations in 2018, the new terminal will boost the port’s annual container capacity by 1.5m TEUs, more than double its current potential capacity and nearly triple today’s actual handling capabilities.

et with the return of stability and sizeable expansion projects in the works – both in Abidjan and the western Port of San Pédro, the country’s primary gate for commodities and a portal to Liberia and Guinea – the medium-term outlook is encouraging.

The PAA, for its part, will be responsible for building 1100 metres of quay alongside the 37.5-ha shipyard and for the expansion of the Vridi Canal, the port’s only entrance point. The China Harbour Engineering Company has been chosen to carry out the largescale construction component for the canal work at an estimated cost of €2bn, with partial financing from the China’s Eximbank.


Chief Port

The port at the economic capital of Abidjan remains one of the largest in West Africa by overall traffic, with a throughput of 21.5m tonnes in 2013, down 1% on 2012, according to the Autonomous Port of Abidjan (Port Autonome de Abidjan, PAA). The bulk of this is general merchandise, which at 13.7m tonnes made up 68% of total traffic in 2013, with the rest being shipments of oil and gas. While the general goods figure represents a fall of 6.4% over 2012, this was largely offset by an increase of petroleum products, which rose 10% to 7.7m tonnes (including 1m tonnes of offshore crude) in 2013, the latest for which data were available. Transit traffic grew by 13.3% to 1.8m tonnes, most of it coming from Mali and Burkina Faso.

New Container Terminal

Although the PAA has a potential annual container capacity of 1.1m twenty-foot equivalent units (TEUs), maintenance and productivity constraints limit its actual capacity to 800,000 TEUs, according to a study commissioned by the French Development Agency. A further limitation to throughput is the access point through the Vridi Canal, which is relatively shallow and narrow, permitting the port to accommodate only feeder ships and smaller vessels with a maximum draft of 11.5 metres and a maximum length of 250 metres. With the aim of addressing these challenges and attracting more transit traffic, the PAA has launched a multifaceted expansion project, including the construction of a second container terminal and the widening and deepening of the Vridi Canal. After a lengthy and heavily contested tendering pro-


Lowering Costs

Costs at the port are high, in part due to the requirements of its certification by the International Ship and Port Facility Security (ISPS). Yet these are set to decrease with better coordination between port entities. “The post-electoral crisis caused the suspension of certain exports and reduced calls at port for several months in 2011, which caused prices to climb as service providers sought to compensate for lost revenues,” Jean-Marc Yacé, director-general of shipping firm Eolis and president of the shipper’s union Syndinavi, told OBG. “Previously, shippers’ representatives had to deal separately with Customs, the police department, health inspectors, and so on, causing delays in turnaround times. But we are in the process of implementing an online single window portal to make administrative fees more transparent, to render the system more efficient and reduce costs,” he added. Growing congestion on the port’s access roads, as well as the persistent problem of bribery on its highways, which increases the operational costs for transit traffic, pose other challenges for the port’s operators. Addressing these should unlock further growth potential for the PAA.

Oil & Gas

Significant deep-water oil and gas reserves are believed to exist off of Côte d’Ivoire’s eastern coast, with studies intensifying. As this begins to draw investors’ attention in the energy industry (see Energy chapter), it



will also open up extensive opportunities for maritime shipping. Petrol products currently represent a third of all traffic through the PAA, and oil companies are starting to show interest in further exploration. Abidjan already hosts the Carena shipyard, a largescale maritime repair shop specialising in offshore oil and gas vessels. “Our position is strategic because we are geographically situated in the heart of offshore oil and gas operations, and 60% of our clients are in that sector,” Cynthia Ouattara, chief financial officer of Carena, told OBG. “The volume of demand is very high; there are lots of petroleum vessels, lots of oil rigs, and the numbers are increasing.”

Second Port

The country’s second-largest port, the Autonomous Port of San Pédro (Port Autonome de San Pédro, PASP) about 350 km west of Abidjan, saw roughly 250,000 tonnes of imports, 1.1m tonnes of exports and 2.9m tonnes of total trans-shipment traffic in 2013, this last a rise of 52.6% on 2012. Anticipating a boom in oil and gas exploration, the PASP has announced plans to build a modern refined fuel terminal. With National Petroleum Company of Côte d’Ivoire as its main partner, the project will require an investment of $60m and take three years to complete, starting sometime in 2015. The new terminal will have a storage capacity of 50,000 tonnes, and will serve as a stocking and transit point for petrol products shipped from Abidjan facilities of the Ivorian Refining Company before they are transported to inland markets.

The project is a key component of San Pédro’s drive to diversify away from its primary exports of cocoa and coffee. The port has long been one of the world’s largest handlers of cocoa, of which Côte d’Ivoire grows roughly 40% of global supply. Yet with production of the bean set to slow in the years ahead – output in the 2014/15 season is forecast to fall by 3.5% year-on-year, according to market research – PASP is looking to capitalise on the raft of new activity expected in the extractive sectors.

Regional Presence

San Pédro is also well placed geographically to serve the export markets in neighbouring Liberia, Guinea and Mali. Current highway and rail extension projects in western Côte d’Ivoire will furnish the necessary overland network to facilitate rising traffic (see overview). Besides enabling PASP to tap into regional export markets, the new terminal will expand the port’s role as the economic nexus for western Côte d’Ivoire, where domestic fuel consumption has grown to 3m tonnes a year. The strengthening links between San Pédro and neighbouring markets will enhance Côte d’Ivoire’s status as a regional gateway. Planned rehabilitation of the 1260-km rail connection between Abidjan and Ouagadougou, for example, will be a key factor in developing the country’s transit traffic. The container terminal at Ghana’s Tema port is constrained geographically and has limited potential for expansion in the near term; Abidjan’s increased capacity will thus make it highly attractive by comparison, particularly in turnaround times. All of the projects currently on the books are capital-intensive, yet if they are fully realised, their impact will be significant.




Digitally transformed, integrated public transport vital for Africa’s economic growth The growth of Africa’s middle class is to improving investor confidence, financial inclusion and contribution toward the formal economy and is, therefore, of the utmost importance to economic development. The emergence of this middle class has led to rapid urbanisation, with most seeking a better future and job prospects in the developed cities.


esearch shows that by 2030, more than 50% of Africa’s population will be living in cities. “This mass migration is already placing strain on the existing infrastructure. Available resources and the present modes of transportation are simply not equipped to accommodate the projected volumes. This is a challenge for most emerging countries including South Africa,” commented Lawrence Kandaswami, managing director, SAP South Africa. Cities need to develop and evolve just as rapidly, to accommodate the needs of the new urbanites that trade in the city. Technology has an important role to play, particularly in terms of transporting these urbanites. If the countries in Africa achieve this goal, technological innovation has the potential to bring about sustainable economic advancement with equal opportunity and quality of life for passengers.


What are the driving forces behind the need to transform public transport? • • • •


Rapid urbanisation and changing regulations shifting the risks to industry; Pressure on public cost and subsidies, driving the need for innovative approaches to future revenue streams; Increased emphasis on supporting and evolving existing platforms; Travellers’ need for efficiency and transparency in pricing, including one-stop booking of travel with consistent pricing across various channels;


Clear understanding of the various options for multi-trip or single trips across various providers. The use of innovative technology emerges as an ideal solution to help transform the transportation industry, by driving a world class service through real-time collaboration and monitoring and providing insights to improve service delivery and enable cost reductions. Digitally transformed, integrated public transport vital for Africa’s economic growth

Transformation of transport systems

Recent advances in technology and rapid adoption of smartphones have led to the connected traveler, who has constant access to information via social and other channels. As a result, transport organisations are now able to deliver a personalised engagement, tailored to the needs of the individual passenger. Kandaswami added that “there is a sense of urgency for transportation authorities and cities to transform their business processes in order to accommodate the needs of citizens for a reliable and accessible transport system. Technology has an important role to play in this transformation process by providing the underlying platform that supports the industry with an integrated system connecting all modes transport around the cities.” Pioneering technologies such as the integrated SAP industry software

Recent advances in technology and rapid adoption of smartphones have led to the connected traveler, who has constant access to information via social and other channels. As a result, transport organisations are now able to deliver a personalised engagement, tailored to the needs of the individual passenger

for travel and transportation, for instance, provide a comprehensive, end-to-end solution that allows transport organisations to plan, schedule, predict and react with real-time insights to passenger behavior, travel patterns and transportation network conditions. The benefits of a digitally transformed and integrated public transport system: • A transport provider network that is inclusive of all modes of transport; • Transport is integrated therefore accessible, reliable, affordable and efficient; • Development of new skills with the promise of further job creation; • Provide the passenger with multi-touch points to create a seamless travel experience; • 360-degree view of the passenger to accommodate for varying traveler needs. Technology is already helping the passenger travel industry across the world to deliver safety and a more integrated travel experience. SAP continues to invest in creating innovative solutions, which will enable sustainable economic growth for the continent’s people.




Making room for more:

A national plan to upgrade ports will allow for greater cargo capacity Maritime traffic is of great importance for Morocco’s economy, not only because it represents 98% of all foreign trade, but also because it affords the kingdom a strategic opportunity to tap into global trade flows, in particular those of Europe and the Mediterranean.


hile most of the country’s transport segments are in government hands, management of its ports has been partly privatised. Introduction of Law 15-02 in 2006 facilitated a progressive transition of maritime services to the private sector, in particular the management of container terminals. The improvements in efficiency and transparency standards have led to a reduction of handling costs of some 30%, while turnaround times and capacity usage levels have increased. This has led to an expansion of maritime connectivity. TangerMed opened following the introduction of the law and has been privately run from the outset. Its total number of connections reaches 78, linking Morocco to over 120 international ports.


The high level of dynamism is illustrated by various large-scale projects aimed at the modernisation and expansion of national port infrastructure. Plans are encapsulated in the National Port Strategy (Stratégie Portuaire Nationale, SPN), which maps traffic flows and infrastructure needs until 2030. It has divided the country into specialised maritime clusters around which the relevant maritime infrastructure is being developed. As such, Tanger-Med in the north is positioned for transshipment, the port of Casablanca for domestic cargo, while the eastern ports of Jorf Lasfar and Safi are to become hubs for energy shipments. All ports except Tanger-Med are managed by the National Ports Agency (Agence National des Ports, ANP), under the Ministry of Equipment, Transport and Logistics. The SPN shortlisted modernisation, expansion and greenfield investments amounting to a combined total of nearly Dh75bn (€6.7m), most of which will go towards commercial ports. One such example is the port of Nador in the north, which, besides being a key recipient of traffic from southern Europe, is being prepared to handle petroleum products. Con- struction of the so-called Nador West Med was launched at the start of 2013 and is budgeted at Dh7.5bn (€666m). The facility will include a deepwater port with terminals able to handle large tankers for refined hydrocarbons and crude. FOCAL POINT: The port of Casablanca, which accounts for the largest share of trade by volume, is also undergoing


reform. While essential to the country’s trade flows, its location in the heart of the bustling cosmopolitan area is compounding congestion. As a result, it is now focusing on cargo that can be turned around at an optimal pace. Rail connections between Casablanca and a growing network of logistics platforms and inland dry ports, such as Mita and Zenata, are being ramped up to reduce processing times and free up valuable urban real estate. The connection also links up with the container terminal of Tanger-Med I, which is located near the city of Tangiers in the north and has a capacity to handle up to 4600 twenty-foot equivalent units (TEUs) per day. A new container terminal is under construction by local port authorities and will start operations in 2016 with a full capacity of 5m TEUs at the final stage. Casablanca’s liquid and bulk shipments are gradually being shifted to the nearby port of Mohammedia, which mainly serves the petrochemicals industry, as well as a new facility that is planned for construction close to Kenitra, called Kenitra Atlantique. Details on the project are awaiting a recently launched feasibility study expected for 2015. Kenitra Atlantique would also serve regions such as Gharb Chrarda, Meknès, Taounate and Larache. Finally, the port of Safi is undergoing significant expansion. Initiated by Office National de l‘Energie et des Eaux (ONEE) and the state-owned phosphate producer, Office Chérifien des Phosphates, the facility will be expanded with a coal terminal and phosphate hub able to receive vessels of up to 120,000 tonnes.In April 2013 the first phase of construction, which is budgeted at Dh4bn (€355.2m), was officially launched and work is scheduled for completion in 2017.




The only port outside of the scope of ANP is TangerMed. Established in 2007, the Tanger-Med Port Authority (TMPA) was created with a mandate to oversee the port’s planning, development and management. The TMPA is part of the Tanger-Med Special Agency (TMSA), which operates as a public-private partnership. The master plan for the facility, scheduled for completion by 2016 and budgeted at Dh35bn (€3.1bn), consists of two container terminals, Tanger-Med I and II, and dedicated ports for passengers, vehicles and hydrocarbons. The two terminals of Tanger-Med I are operated by Netherlands-based APM Terminals, which is a subsidiary of Danish energy and shipping giant The Maersk Group, while the second is being run by a consortium of firms including EUROGATE, Contship Italia, and shipping lines MSC, CMA-CGM and Comanav. In 2010 Marsa Maroc won the contract to manage the Tanger-Med I bulk terminal. Since the start of operations in 2008, the facility has seen significant annual growth, despite the onset of the global financial crisis. In 2013 the port’s activity was up by 39% compared to the previous year, with total cargo reaching 34.9m tonnes. According to the TMPA, containerised traffic grew 40%, while vehicles reported an 81% year-on-year rise. A total of 181,500 vehicles were handled by the port, of which 93,700 were exported from the nearby Renault factory. “Given the outlook for global growth in the maritime transport sector is at around 5%, the Tanger-Med port should handle roughly 3m TEUs in 2014,” Hartmut Goeritz, managing director of APM Terminals-Tangiers, told OBG.


In 2009 work started on Tanger-Med II, which comprises two container terminals with a capacity of 5.2m TEUs per year and room for simultaneous berthing of seven mega-container ships. The facility was awarded to Marsa Maroc in 2012. Upon completion, scheduled for 2016, the facility will have a capacity of 8m TEUs per year

– close to that of Rotterdam, which, at 10m TEUs, is Europe’s biggest port. “The development of Tanger-Med II has not only been instrumental for export-driven industries, but also plays a key role for trans-shipment operations given its strategic location,” Mohammed Abdeljalil, president of the board at Marsa Maroc, told OBG. The project has received significant European financing – the European Investment Bank granted a total of €386m thus far – and has attracted various global maritime players. Maersk Line, CMA CGM, Delmas, Mitsui OSK Lines (MOL) and Hamburg Sud all have established operations at the port. A major driver of its fast growth is the comprehensive industrial development surrounding the port. The most visible example is French car manufacturer Renault, which opened a $1.5bn factory on the outskirts of Tangiers with a capacity of some 150,000 units per year. The hub has also attracted many supply-side industries reliant on the connectivity via TangerMed. The region has four industrial parks targeting the aviation, textiles, chemicals, mechanical, metallurgical and naval industries (see the North chapter).


The development of port infrastructure is considered a strategic component of the kingdom’s industrial development plans and is in line with efforts to attract foreign investment in key industries by positioning itself as entry point of choice for North and West Africa. As the increase in capacity on the front end progresses, the ultimate success of this strategy will depend in large part on the connectivity between the port and other modes of transport. Port operators are mindful of Office National des Chemins de Fer’s need for added capacity and will be keeping a close eye on the roll-out of its plans to expand the network with new and more regular services, as well as extensions to key commercial centres. As a result of the various changes currently being undertaken within the country, the next few years should see the establishment of a truly interconnected transport network in Morocco, upon which the country’s ports can build long-term plans for growth.




Donald Mahaga, Chairman, Kenya Oil and Gas Association: Interview

which to handle negotiations, communication can be very slow.

How will the energy bill currently under consideration affect the industry as a whole? What are the largest challenges faced by producers in commercialising onshore finds in Kenya? DONALD MAHAGA: Although we are still quite a few years away from commercialisation in Kenya, in terms of further development we do face the challenge of coordinating the roles of various project stakeholders, including private companies, various levels of government and local communities. The government is still building experience at regulating the oil and gas sector. At the national level, we want to see an increase in capacity, more cooperation with the private sector and greater support in the field more generally. Moreover, we need to see greater consistency in the regulation of industry. The oil and gas sector is constitutionally a central government prerogative; we get our licences from them, and we sign contracts with them. However, since devolution, the role that county governments have in relation to oil and gas projects is unclear, with some counties imposing additional requirements on projects, or requiring additional licences. The roles that both the national and the county governments play need to be delineated in order to prevent problems from arising down the line. This issue is illustrated by current environmental regulations: while the National Environment Management Authority is authorised to grant permission for a project, the county-level environmental agency’s requirements may differ. Finally, communities themselves often have unrealistic expectations about the immediate benefits of oil and gas exploration, making it difficult to negotiate job opportunities and access to land. As there is no organised mechanism through


MAHAGA: The capital gains tax can only slow down investment in the industry. What usually happens in frontier markets such as Kenya is that junior companies arrive first, discover where the reserves are, and are then bought out by bigger industry players. The juniors naturally have fewer resources at their disposal than the larger companies. As a result, the proposed 30-37.5% capital gains tax – much higher than in other industries – makes investment in exploration less attractive. This is especially true given that the capital gains tax was suspended when many of these companies made their initial investments. With regard to rules for local content, industry is very supportive of developing local capacity, not only because it will increase domestic support for projects, but because sourcing employees within the country can bring down costs over the long term. Given that Kenya’s oil and gas industry is in its nascent stages, capacity will have to be developed very gradually over time. Although the industry agrees with the local content regulations, it has taken issue with the speed at which these requirements are increased over a relatively short period of time. Moreover, at least three companies have introduced educational initiatives and courses that are aimed at building local capacity, involving the participation of both public and private players. A major focal point has been to provide skills that are relevant to industries beyond oil and gas, so that workers are not dependent on one industry alone.

To what extent does scope exist for future onshore and offshore discoveries?

MAHAGA: There is an excellent chance of additional commercial discoveries in both onshore and offshore areas, especially when the geology of surrounding countries is taken into account. There have already been several non-commercial discoveries. Given the success that has already been experienced off Tanzania’s coast, similar geology could apply to the Kenyan coast, and we think that this area is gas-prone.



Tim Carstens, Managing Director, Base Resources: INTERVIEW What specific measures could help improve the country’s attractiveness for mining operators? TIM CARSTENS: Kenya’s ranking in the highly regarded Fraser Report was clearly disappointing. Most alarming was the dramatic drop from the 2013 ranking of 79th, which unfortunately suggested a perception that Kenya is headed in the wrong direction. The key to improving investment attractiveness is the development of a clear mining policy that competitively positions Kenya to attract mining investment relative to alternate jurisdictions. This policy would preferably be developed through an inclusive consultative process and should set out a 20-30 year vision for the sector, offering guidance on how this is to be achieved. A process should then be undertaken to ensure that Kenya’s legislation supports this vision. This is an endeavour that Tanzania successfully undertook back in 1997, at which time it implemented a policy aimed at attracting investment into what was then a nascent industry. The success of this approach saw mineral exports increase from $26m per year to over $1bn in the space of a decade. Encouragingly, in July 2015 there were indications that the government of Kenya had engaged McKinsey to develop a Mining Vision. This is a good start, and the industry would clearly welcome the opportunity to contribute to the development of a vision that builds a sustainable and inclusive industry. With regards to mineral potential, Kenya needs to take a number of concrete steps to encourage and incentivise investment from exploration companies. These often-small companies, and the money they invest, are the lifeblood of a healthy mining industry and are crucial to the identification of mineral resources. However, they are also very mobile organisations and will invest their money where the conditions are most attractive and stable. Kenya will only begin to get a clearer understanding of its mineral endowment through an increase in exploration activity, which in turn will lead to further investment in mining exploration and development.

How would you rate the country’s current mining and environmental licensing processes? CARSTENS: The Kenyan mining sector is slowly being modernised. Part of this process has involved the introduction of an online mining cadastre system. This system allows for license applications to be uploaded electronically and includes a publicly available map and the status of all issued and pending licences. The licensing processes, across the entire spectrum of requirements, are expected to become more streamlined as the industry grows and Kenya gains more experience in dealing with these matters. Complete transparency and

Tim Carstens, Managing Director, Base Resources a consistent application and granting process will be absolutely critical.

To what extent do you see similarities between the geologies of Kenya and its neighbours? CARSTENS: As the saying goes, geology doesn’t recognise national boundaries. Mineral sands are a case in point. Deposits of mineral sands run from the east coast of South Africa, through Mozambique, into Tanzania and up the coast of Kenya. I have no doubt that they continue into southern Somalia as well. The only major exploration work being conducted in Kenya at the moment is by Acacia Mining (formerly African Barrick Gold), which is exploring for gold in western Kenya. There is a clear northern extension of the Tanzanian greenstone belt, which hosts a number of large operating gold mines today. It should be noted that mineral markets are currently very weak, with prices having dropped considerably over the past two years. This has led to a significant cutback in exploration budgets globally. An upturn in the market will partly assist Kenya’s ability to attract exploration investment. An aeromagnetic survey is critical in the bid to attract exploration.




Regulatory reforms across numerous Kenyan sectors stimulate new activity The telecommunications sector in Kenya has seen tremendous growth and change in the past 12 months, as industry players grapple to position themselves competitively in an increasingly saturated market. The recent exit of Essar Telecom Kenya through a unique divestment of licences and subscribers to the two largest competitors in the market left the sector with three industry players. Recognising the convergence of telecommunications services with mobile money and banking services, in April 2014 the Communications Authority of Kenya awarded the first mobile virtual network operating licence to Equity Bank, one of the largest retail banks in sub-Saharan Africa, which will ride on Airtel’s network. After successfully fighting court challenges to the use of “thin SIM” technology, Equity Bank officially launched its Equitel product, offering an overlay SIM card with value-added services like mobile money.

Questions Remain

n an effort to keep up with market developments and the provisions of the Constitution of Kenya, the Communications Authority, in consultation with the Ministry for Information Communications and Technology, and industry stakeholders, is in the process of amending 10 out of the 16 ICT regulations under the Kenya Information and Communications Act, which is the main statute regulating the ICT industry.

The proposals are commendable, but shortcomings remain. For example, a transferee is not assured of being re-assigned an appropriate portion of the spectrum being surrendered. The draft regulations do not set out the factors the Communications Authority should consider when re-assigning the spectrum, and so it has a considerable amount of discretion in determining how to re-assign the spectrum. In relation to the issuance of a new licence, it is unclear if the transferee will be granted a new licence for the remainder of the transferor’s term or for a whole new term, and also what fees (if any) are to be payable by the transferee.

Grey Matters



The ICT industry has experienced significant changes and based on the reforms being proposed in the draft regulations, it is evident that the Communications Authority wants to specifically regulate grey areas in the law, manage technological developments and promote consumer welfare. Those draft laws that contain the most significant proposals for the industry are the Licensing and Quality of Service Regulations, the Broadcasting Regulations, and the Fair Competition and Equality of Treatment Regulations.

Fewer Players

The changes being proposed to the Licensing and Quality of Service Regulations have clearly been influenced by the exit in 2014 of Essar, trading under the “Yu” brand name from the mobile telecommunications sector. Essar’s exit not only resulted in a consolidation of the mobile telecommunications sector from a four-player market to a three-player market, but also marked the first time a telecommunications company exited the Kenyan market by way of an asset sale. Following the exit of Essar, Kenya’s second-largest mobile


telecommunications company by subscriber base, Airtel, acquired the former’s subscribers, while Safaricom, Kenya’s largest telecoms company and one of East Africa’s most profitable companies, gained Essar’s spectrum and fixed assets. At the time the transaction was taking place, some of the issues that were unclear in the existing legal provisions were (i) the procedure to be followed when transferring spectrum and licences (ii), whether the transferee gets a new licence and (iii) how consumers were to be protected post completion. To address these concerns, the Communications Authority is proposing to amend the Licensing and Quality of Service Regulations to require that (i) spectrum be surrendered to the Communications Authority for re-assignment, (ii) the transferee be granted a new licence and (iii) the transferee and transferor put in place adequate measures to protect consumers.

In addition to the draft Licensing and Quality of Service Regulations, the proposed Fair Competition and Equality of Treatment Regulations set out one of the most contentious changes under the draft regulations: the amendment of the criteria for determining a dominant licensee. Designation of a licensee as dominant is currently provided for under the existing Fair Competition and Equality of Treatment Regulations of 2010. However, the Communications Authority is proposing to amend the dominance criteria to include a licensee controlling 51% of the relevant market segment. The implication of being declared dominant, among other things, is that it restricts a licensee’s ability to set prices independently. The question of dominance is most relevant to the mobile sector, where Safaricom is much larger than its competitors in the voice, data and mobile money transfer markets. The Communications Authority has recently



signed a memorandum of understanding with the Competition Authority of Kenya, the national competition regulator. However, it is not clear how the Communications Authority and Competition Authority will work together on the issue of dominance, especially since the Competition Act does not prohibit dominance, but only the abuse of dominance. In addition, since services such as mobile money transfer require an authorisation from the Communications Authority and the Central Bank of Kenya (CBK), it is not clear if the Communications Authority has the mandate to declare a licensee dominant in mobile money transfer, which is also subject to regulation by the CBK. This is because a strong argument can be made that since it is a money transfer service, the market for mobile money transfer includes not just mobile operators, but banks and money transfer firms, such as Money Gram and Western Union, as well.

Broadcasting Sector

In the broadcasting sector, the draft Broadcasting Regulations are proposing far-reaching changes, such as increasing from one to three the number of frequencies in one site that a public broadcaster and not a private broadcaster is entitled to, requiring the surrender of analogue television broadcasting frequencies following the migration from analogue television broadcasting frequencies to digital frequencies, setting minimum local content broadcasting requirements in an effort to promote the domestic film, arts and music production industries. The draft regulation also imposes certain restrictions of the types of programmes that can be broadcast during the prime-time viewing and listening period between 5pm and 10pm. One final amendment of interest is under the draft Universal Access and Service Regulations. The existing 2010 regulations require licensees to pay a universal service levy equal to 0.5% of their gross annual revenues. The current definition of gross revenues captures all revenues derived by a licensee. The draft regulations propose to amend this definition to restrict gross revenues to rev-

enues from communications services. The implication of this amendment is that only revenues that are derived from licensed services are subject to the 0.5% levy. Consequently, revenues derived from asset disposals, dividends from portfolio companies, or the sales of products and services that do not require a licence from the Communications Authority – for instance the sale of mobile phones – will be excluded when computing gross revenue for purposes of calculating the government’s universal service levy. The ICT regulations were still in a draft form as of October 2015 and awaiting submission to Parliament for debate and approval prior to coming into force. In this regard, the changes discussed in this article may not be in the final versions of the regulations once passed by Parliament.

Capital Markets

Since it commenced operations in the 1980s, Kenya’s capital market has grown in leaps and bounds and has become an integral component of the country’s financial system and a key driver of economic growth and development. The great strides that have been taken by Kenya’s capital markets have attracted institutions and investors who now see Kenya as an ideal investment destination. The Capital Markets Act, Chapter 485a, Laws of Kenya (the Capital Markets Act) first came into force in 1989 and the Capital Markets Authority of Kenya (CMA) was constituted in 1990. The Capital Markets Act underwent substantial reform in 2002 and again more recently in 2013 when a raft of amendments and new regulations were introduced. Following this, the CMA issued the 10-year Capital Market Master Plan (2014-23) in which it sets out its vision for Kenya to be at the heart of African capital markets.

Master Plan

The Capital Market Master Plan focuses on regional integration, with Nairobi as an East African centre. The CMA has been active in creating the Capital Markets Framework and consultations were held on the regional regulations earlier this year. There is also a focus on building capacity, expand-




ing infrastructure and increasing liquidity in the market. The current priority is on allowing direct market access and block trading. The third limb of the Capital Market Master Plan addresses the legal and regulatory environment. The CMA is mandated with promulgating regulation that increases innovation, opens up new markets and prevents mischief in the markets. The Capital Market Master Plan envisages that the CMA will take the “no action” approach of the US Securities and Exchange Commission, which allows firms to approach it when they are not certain of whether a product, service or action would constitute a violation of US securities law and may request a “no action” letter confirming that no action would be taken against the company based on the facts set out in the “no action” request.

Insider Trader

Following a case of insider trading in 2013, the Parliament tightened the relevant law through an amendment to the Capital Markets Act. The amendment introduced the following categories of insider trading: market manipulation, false trading, market rigging, fraudulently inducing trading of securities, use of manipulative devices and making false or misleading statements. In addition, the penalties for insider trading have been enhanced.

Corporate Governance

Following the events of 2013 and in line with the Capital Market Master Plan, the CMA is also looking to strengthen the corporate governance of listed companies in Kenya. The current corporate governance guidelines are essentially nonbinding on listed companies, but operate on a “comply or explain” basis. The CMA has proposed a more robust code which is intended to be adopted this year. The new code will also largely operate on a similar “comply or explain” basis, but certain aspect of the code will now be mandatory. The mandatory changes in the new corporate governance code are predominantly in relation to the composition, role and responsibilities of the board of directors of listed companies. These require that all directors, the chairman and the company secretary undergo an annual evaluation and that a summary of the results of these evaluations be published in the company’s annual report. In addition, a third of the directors will be required to be independent directors, and an independent director can only serve on the board of a company for nine years. Directors who are not corporate directors cannot be on the boards of more than three listed companies at any one time.


New Products

The 2013 amendments to the Capital Markets Act and the new regulations introduced a range of new products and services. Notable among these are the new growth enterprise market segment (GEMS), real estate investment trusts (REITs) and sharia-compliant Islamic bonds. In addition, a new derivatives exchange is scheduled to be launched shortly.


The introduction of GEMS on the Nairobi Securities Exchange (NSE) was designed to make it easier and cheaper for small and medium-sized enterprises (SMEs) to list their shares and raise capital in Kenya and thereby help address the gap in SMEs’ access to funding. The GEMS market has had slow traction with only one initial listing. Despite the slow pace, there were three new listings – including the cross-listing of Atlas Development and Support Services from the London Alternative Investment Market – in the fourth quarter of 2014. The CMA is actively focused on trying to increase activity in this segment.


REITs regulations, aimed at providing Kenyan investors with an opportunity to invest in the real estate sector in a liquid manner, were promulgated in 2013. The regulations provide for income REITs (I-REITs), development REITs (D-REITs) and Islamic REITs. There is a great deal of interest in REITS in Kenya, but their implementation was hindered by the lack of clarity around their taxation. The Finance Act 2015 has provided clarification on this issue through an amendment to the Stamp Duty Act, Chapter 480 of the Laws of Kenya, which has resulted in no stamp duty being chargeable on an instrument relating to a transaction, the effect of which is to (i) transfer a beneficial interest in property from one REIT trustee to another REIT trustee or to an additional REIT trustee; or (ii) transfer the beneficial interest in property from a person or persons for the transfer of units in a REIT. Pursuant to this clarification, at the time of publication, at least one I-REIT was in the process of being listed on the Nairobi Securities Exchange.


Continued in our March Issue 2017






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February 2017 Issue  
February 2017 Issue