Signing up to smoother trade

The legal battle for Doraleh Container Terminal isn't over yet. Credit: DP World
The legal battle for Doraleh Container Terminal isn't over yet. Credit: DP World
Lamu looks to have a real future in the region. Credit: Michael Edward Walsh, Flickr, CC BY-NC-ND 2.0
Lamu looks to have a real future in the region. Credit: Michael Edward Walsh, Flickr, CC BY-NC-ND 2.0
New Kenyan rail links are causing controversy. Credit: KPA
New Kenyan rail links are causing controversy. Credit: KPA
Djibouti now has a port community system to cover the ports of Doraleh, Ghoubet and Tadjourah
Djibouti now has a port community system to cover the ports of Doraleh, Ghoubet and Tadjourah
Industry Database

Cheaper, faster, simpler — East African countries are onboard for better trade facilitation. Felicity Landon reports

Investments, developments, volumes up, volumes down — for East African ports, these factors are as dependent on their landlocked neighbours as they are on what’s happening at home.

Politics, conflict and red tape can all conspire to create business uncertainty. Commentators agree that building berths and quay cranes is only the start. The connections are also vital, and that includes efficient IT solutions as well as road and rail links.

Intra-Africa trade is another vital part of the mix. In December 2018, Burundi, Kenya, Rwanda, Tanzania and Uganda agreed to implement trade facilitation reforms, including reducing ‘non-tariff barriers’ such as burdensome and incompatible product regulations, to make regional trade cheaper, faster and simpler. The five countries, which are members of the East African Community (EAC) customs union and common market, signed the agreement during Africa eCommerce Week, organised by the United Nations Conference on Trade and Development (UNCTAD) in Nairobi.

“This is an opportunity for the EAC countries, many of which are landlocked, to sell their products within the region, in Africa, and across the whole world,” said Frederick Ngobi Gume, Uganda’s minister for co-operatives. “It also gives us an opportunity to simplify the import and export of commodities. Such an approach reduces bureaucracy, with online clearances reducing contacts at the border. This initiative will go a long way to stimulate trade within the EAC and further afield.”

The African Continental Free Trade Agreement, signed by most countries in March 2018, is looking to create a free trade area by building on regional blocs such as this — and the EAC declaration also aligned with the World Trade Organization’s Trade Facilitation Agreement, which entered into force in 2017.

Rounded trade

Jan Hoffmann, chief of the trade logistics branch at UNCTAD’s technology and logistics division, says: “This was a really good event in December and we are proud that we got five ministers’ commitment to give their blessing to and invest more in trade facilitation.”

However, he emphasises, this is not just about intra-Africa trade. “Sometimes there is a perceived arrogance of developed countries of ‘Why don’t you trade more with each other?’ — but that will never be the total solution. What’s needed is a combination of intra-regional and export.”

Exports are often dependent on regional value chains, he says. “You want to produce textiles or shoes in Uganda. You also need input – for example, nails, leather, packaging, etc. You want to have good quality shoes to export and, in order to be more competitive, you want a wide hinterland from which to buy your inputs. Some you may import from outside Africa and some you may source from inside Africa. That is where our integrated approach is vital.”

The EAC countries have improved their trading conditions “on whatever international benchmark you choose”, says Mr Hoffmann, introducing measures such as juxtaposed border posts, reduced bureaucracy and moves against corruption.

Trade facilitation moves are important when crossing borders, while so-called non-tariff measures (NTM) governing product standards, certifications, and so on, are particularly important for exports out of the region, he adds, to ensure quality and any necessary certification of products.

With an average growth rate of 6.7% between 2013 and 2017 – double the African average – East Africa is one of the fastest growing regions in the world, growth that is accompanied by rapid social improvements, says TradeMark East Africa. TMEA, funded by a range of development agencies to grow prosperity in East Africa through trade, works closely with EAC institutions, national governments, the private sector and civil society organisations towards increased physical access to markets, enhanced trade environments and better business competitiveness.

Referring to an analysis of port developments issued by PwC last year, TMEA emphasises: “Africa needs to take advantage of the economic potential of its ports and shipping sector if it is to realise its growth ambitions.”

Investment is not always about building new ports or terminals, it says: “Investment spent on infrastructure without cognisance of the efficiency and effectiveness of the port may not produce the desired results.”

The analysis showed that a 25% improvement in port performance could increase GDP by 2%, but said that with growing congestion in many African ports, the continent ran the risk of sacrificing further growth through lack of investment.

Process efficiency

Regional ports expert David Mackay, director of Varuna Consulting, agrees that trade facilitation measures and IT solutions are just as vital as physical infrastructure for a port’s success.

“IT, Single Windows, processes and security have been playing a bigger and bigger part in ports. There are two reasons – first, for basic security, and second as an anti-corruption measure. Also, this has improved performance and it helps bring in the taxes and duties that should be paid.”

African container ports generally lag fairly far behind in performance compared with the top ten container ports in the world, says Mr Mackay: “And there is no reason except for general inefficiency and a lack of IT. Mombasa is looking at a brand new terminal handling system and there is a battle going on because certain vested interests want to keep the old one – which should be in a museum. At the moment, Mombasa doesn’t have a proper terminal yard planning system. How can you operate like that in 2019?”

Having said that, Mombasa – recently named by TMEA as the seventh busiest cargo port in Africa – continues to surge ahead with long-term investment and new infrastructure. “Mombasa is extending its container terminal and adding more berths. It can keep growing – there is room.”

What really gets the headlines at present is the controversy over the new standard gauge railway (SGR) which connects Mombasa to Nairobi and is due for further extension towards Uganda (although this is being held back by financial constraints).

The Kenyan government borrowed Sh227 billion from Exim Bank of China to fund the rail project and is under huge pressure to keep up the repayments. Recent press articles in Kenya have claimed that the Port of Mombasa could even be lost to the Chinese government if Kenya Railways Corporation defaults on its obligations.

There is a precedent: when the Sri Lankan government leased Hambantota port to China to meet loan obligations, this sent shockwaves through Africa, says Mr Mackay. “It made people realise – China can be ruthless. The SGR is carrying some very big loans, hence this huge focus on getting volumes and making it a financial success.”

Rail moves

Shippers have protested against a government directive that all cargo consignments from Mombasa destined for Nairobi must be moved by train. Mr Mackay says: “Shippers and receivers are not totally happy with it – they feel they are being forced to feed the SGR. But there is considerable pressure to make it viable.”

In fact, he says, the SGR is settling down, trains are loading well and operationally the project is OK. “The SGR has the ability to become a gamechanger. Where it is exciting is that in a few years’ time, SGR should go right up to Kampala. At present, if you a receiver in Kampala, from clearance up to delivery is an average nine to 11 days from Mombasa. In three to four years’ time, it could be perhaps two days. That is why I use the word gamechanger – really delivering efficiency and time and cost savings.”

There are ‘soft’ benefits too, he points out, including reducing the pollution and congestion caused by the trucks which were making the journey inland. That has created some unemployment – but it is also saving lives. “The deaths per month on that highway to hell, Mombasa to Nairobi road, were horrific. Now, those containers are going on the train.”

Meanwhile, 341 kilometres northeast of Mombasa, three berths are nearing completion at Kenya’s new port of Lamu. Mr Mackay says: “If you had asked me about Lamu two years ago, I would have been a bit reticent, concerned that it might be a white elephant, but now I think it has a real future. Things tend to move slowly in Africa, so not tomorrow or in two years, but at some stage it will be a big player.”

The logic of Lamu, he says, is to be a key port for Ethiopian transhipment, as well as for a pipeline to Southern Sudan.

The first berths are due to open in mid-2019. Lamu offers water depths of more than 17 metres, and there are some very ambitious rail and road links planned to support the port. Eventually, Lamu is planned to have 23 berths. Will cargo relocate to Lamu from Mombasa? “My feeling is no,” says Mr Mackay. “Mombasa is expanding and can keep growing. The Ethiopian economy is beginning to boom, and Lamu could become that country’s alternative to using Djibouti. I think Ethiopia is very keen politically and geographically to have [access to] two ports and not be reliant on Djibouti.”



WORTH OF SINGLE WINDOW PROJECTS

Port Community Systems (PCS) and Single Window projects have been gathering pace in the East Africa region, as a crucial way of speeding the flow of cargoes and information.

The Djibouti Port Community System (DPCS) was launched in July 2018 and covers the ports of Doraleh, Ghoubet and Tadjourah. “There was no PCS in place before – all ports, Customs and government agencies had their own separate systems,” says Warsama Mouhoumed Bouh, chief executive of DPCS. “A PCS was needed for a number of reasons. For example, the shipping agents were sending vessel arrival documentation and manifests to four or five different entities in different formats. It was time-consuming and submission delays resulted in penalties. The ports had good performances but the import/export documentation was taking some time, due to lack of integration between the different entities such as Customs, port authority, terminal operators, immigration, quarantine, etc.”

The terminal operators and port authority must now respond to all requests submitted through the PCS within a 60-minute limit, says Mr Bouh. “It would take two to four days for a berth to be delivered in the past. Now berth allocation happens in 60 minutes. Online payment has been a plus, since all payments previously had to be made onsite by cheque; we have introduced a DPCS payment card on top of online payments.”

Senegal-based Single Window specialist GAINDE 2000 has implemented a Customs management system called SIMBA in Kenya; an initiative is under way to upgrade the system to make it more interoperable with Customs in Uganda, Rwanda and Tanzania.

“We have been in charge of the integration between the Kenyan Customs Service Solution and the KenyaTradeNet (KenTrade) Single Window solution for the interoperability of data,” says GAINDE’s international business development director, Mor Talla Diop. The main challenge, he says, is to remove fraud connected with goods entering Mombasa and in transit to Uganda and Rwanda. A Single Customs Territory has been initiated to enable payment of taxes and duties at the port.

Cargo clearance documents for cargo via SGR (the Mombasa-Nairobi rail link) and also at Lamu port will be processed through the system, says Daniel Kiange, representing KenTrade.

“As a trade facilitator, KenTrade is very important in Kenya’s ports and the neighbouring countries. It has assisted a lot in terms of reducing delays and costs associated with cargo clearance through the port of Mombasa and the northern corridor,” he says.

The role played by the system was recognised by the World Bank’s ‘Ease of Doing Business’ report last year and is one of the reasons why Kenya’s ranking improved, says Mr Kiange.



DISPUTE OVER DORALEH

The dispute between DP World and the government of Djibouti over the Doraleh Container Terminal continues.

In February 2018, the government seized control of the terminal, which DPW designed, built and was operating under a concession awarded in 2006.

Speaking at the Heritage Foundation in December, US National Security Adviser John Bolton highlighted and criticised the Djibouti government’s actions.

DP World subsequently said in a statement: “The Government of Djibouti continues to flout international business laws, disregarding multiple international court rulings in DP World’s favour that declared the expropriation illegal. We will continue to use all available resources to bring about a resolution to this needless dispute.”

In July last year, Djibouti Ports and Free Zones Authority (DPFZA) repeated its claim that the Doraleh Container Terminal concession agreement had been cancelled “due to severe irregularities that threatened the national interest and sovereignty of Djibouti”.

The Port of Djibouti is an important gateway for landlocked Ethiopia. The 759-kilometre Djibouti-Addis Ababa Railway, the first completely electrified line in Africa, started commercial operations on January 1, 2018 and is said to have reduced Djibouti-Addis Ababa transport times from a week to as little as ten hours.

“Due to the upgraded rail connections, Ethiopia is enjoying a notable economic development,” says DPFZA. “This is based on its gold and agricultural exports, mainly coffee, dried beans and seed oils, having attracted Chinese, Singaporean and Indian investors to construct processing plants.”

Relieved of congestion by the railway, the corridor road is also being reconstructed.

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