Will East Africa sail off into the sunset with its economy boosting Port Projects, or are there clouds on the Horizon?

From Djibouti to Mozambique, several east African countries are at various stages in the development of ambitious and modern port facilities worth a combined value of over US$20 billion.

The first berth of a proposed 32 berth Port in the Kenya coastal town of Lamu, for example, is due to open later this month, part of the flagship Lamu Port South Sudan-Ethiopia Transport (LAPPSET) Corridor Program, a Chinese backed economic and transport megaproject which is set to include transportation hubs for rail, highways and international airports.

Meanwhile, in October, Rwanda inaugurated the first phase of Kigali’s first inland port, which will reduce the time and money spent moving goods from the main regional ports of Mombasa and Dar-es-Salam to the hinterland.

And the Beijing based China Merchants Holdings International (CMHI) is currently undergoing tough negotiations with the Tanzanian government over the construction of a US$10 billion port and a special economic zone (SEZ), which, if completed according to the plans, will be the largest Port in Africa.

More than 90 per cent of the world’s trade is currently carried out by sea but African trade is beleaguered by poor infrastructure and a lack of transport connectivity; according to a recent report by the auditing firm PricewaterhouseCoopers, it costs up to 3.5 per cent more to transport a single sea container in Africa than in other regions.

This drives up importation costs while making the continent’s exports less competitive on the global market. PwC estimates that a significant improvement in port performance could increase the GDP of sub-Saharan Africa by 2 per cent.

As a result, there is a consensus that Africa’s Ports are in desperate need of investment and expansion to usher in the next stage of the continent’s economic growth.

But there are concerns over the financing arrangements and business models of many of the proposed projects, as well as land and environmental rights. Some analysts have also questioned whether the country’s hosting the ports will benefit from the projects as much as the countries and entities financing them.

In addition, there are significant concerns over the impact of these projects on national sovereignty. China is now the single largest financier of infrastructure in Africa. According to recent research by Deloitte, China has funded 20 per cent of the continent’s infrastructure projects and is building one in every three.

But the loans for these projects, which are part of China’s geostrategic Belt & Road Initiative (BRI) to improve connectivity between Asia, Europe and Africa via the construction of modern highways, airports, railways and ports come with stringent conditions.

The infrastructure is mostly built by Chinese contractors using Chinese workers and Chinese technology. Aside from the national security implications of this, once projects are operational, China’s involvement can be ongoing: this January alarming news about the nature of asset seizure and confidentiality clauses in the contract of Kenya’s US$3.2 billion Chinese-built Standard Gauge Railway project were exposed by the Daily Nation newspaper.

Showdown in Dar es Salaam

Nowhere is the tension between the strategic aims of China and that of the host nation of one of its financed megaprojects more fraught than with Tanzania’s Bagamoyo Port.

Despite being in the pipeline since 2015, President John Pombe Magufuli has halted the project until CMHI (which had planned to finance the project with Oman’s State General Reserve Fund) agrees to the government’s five demands.

They include CMHI taking a 33-year lease to run the facility as opposed to the 99 years originally requested; subjecting CMHI to the same taxation regime as any other investor; and conceding that Tanzania is free to start and operate a new port in competition with Bagamoyo if it deems fit.

According to Paul Nantulya, a research associate at the Africa Centre for Strategic Studies of the United States Department of Defence, the issues flagged up by Bagamoyo Port accountability, transparency, negotiating power, debt financing and national security can also be found in other similar projects.

East Africa, Nantulya notes, has taken on about US$26 billion in new Chinese debt for infrastructure, energy, and construction projects with some countries like Djibouti already debt-stressed and at high risk of default

The problem, he tells Equal Times, has a lot to do with the nature of China’s broader engagements with African countries, as China-Africa state-to-state relations are mostly conducted behind closed doors, beyond the public’s reach.

“Institutions of accountability such as inspector generals, public protectors, chambers of commerce and industry, as well as parliamentary oversight committees, civil society, media, and NGOs have little knowledge of these negotiations, and are therefore unable to monitor commitments to ensure that they reflect the national interest,” he says.

“At no point in the process of negotiations are public entities brought on board and this was certainly the case with Bagamoyo.”

…not to mention Djibouti & Kenya

This is also the case with the Lamu port part of the flagship LAPSSET project. Rows over the project have risen from the manner of its implementation, with rights groups raising constitutional, environmental and land concerns, issues that also formed the basis of a petition filed in Kenya High Court in 2012 according to Rose Birgen, senior programme officer with the environmental rights group Natural Justice, based in Nairobi, Kenya.

“It has always been the concern that the project risks biodiversity loss, deforestation and loss of vegetation cover, displacement without adequate compensation, losses of livelihoods, loss of traditional knowledge, violation of human rights and social problems such as alcoholism and prostitution by the influx of non-locals to the area,” Birgen tells Equal Times.

“The berths have literally been placed right over the local Shaka la Paye reef,” she says. “The loss of corals will result in the destruction of critical fishery resource

Although the Kenyan High Court directed that compensation of US$17 million should be awarded to the 4,600-fisherman affected by the port construction, the Kenyan government is yet to pay out a single shilling

Meanwhile, President Uhuru Kenyatta hopes that the completed berth will begin receiving ships before the end of 2019, thus yielding economic benefits in Lamu and the towns and villages along the LAPSSET corridor. However, Birgen remains skeptical: “In my opinion, it is uncertain whether the port is or is not economically viable because the true cost of the project including external costs have yet to be assessed. Based on this omission, Kenya cannot evaluate the full costs,” she opines.

Over in nearby Djibouti, the government has been at the centre of a protracted legal battle over the port in Djibouti City for over 12 years. Things came to a head in November 2018 when the Dubai-based global port operator DP World sued the Djibouti government for seizing ownership of the Doraleh Container Terminal, where DP World held a 33.34 per cent stake. The Djibouti government, which held 66.66 per cent of the shares, had previously sold a 23.5 per cent stake to China Merchants Port Holdings (CMP), a subsidiary of China Merchants Group (CMG).

According to Quartz Magazine, the Djibouti authorities claimed “the concession agreement [with DP World] contravenes state sovereignty and national interests and makes DP World the key authority in a geo-strategic corridor” but the Court of International Arbitration in London disagreed when this April it ordered Djibouti to pay DP World US$385 million plus interest for breaking the deal, as well as an additional US$148 million in unpaid royalties and legal costs.

Boosting East Africa’s Economy

But despite the difficulties, Crecentia Mafokeng, Africa and Middle East representative for the global trade union federation Building and Wood Workers’ International (BWI), says that these infrastructure projects generally offer a bright spot on east Africa’s horizon.

Djibouti, for example, is still on course to become a regional and African logistical hub, as its geostrategic location (in the Horn of Africa and close to the Gulf States) makes this tiny country of just one million people a critical nerve centre for global shipping and foreign military bases.

As a result, Djibouti port is expected to handle trade worth US$7 billion within two years and create 15,000 jobs when ongoing expansion is completed, according to Mafokeng.

“The race is not just for military bases. There is another track where nations are competing to be the regional, and in general, African logistics hub. For now, Djibouti has a leg up,” she says.

“Kenya and Tanzania on the other hand continue to bulk up their Mombasa and Dar es Salaam ports, and with a special economic zone. Optimistic projections see Bagamoyo being as busy as Rotterdam, and becoming Africa’s biggest container port in the next 10 years,” she notes

If all the projects are successfully completed, Mafokeng says it will mean that between 2025 and 2040, the east African coastline could be home to the busiest chain of ports outside China. “Over the next three decades, the east African hinterland will also be buttressed by developments that will shape its economy and its integration,” she tells Equal Times, noting that she sees the projects fostering regional connectivity and deeper infrastructural integration.

“Investment in infrastructure and capital projects are essential to help diversify economies and promote private sector activity and industrialisation, while ensuring that enough jobs are created for the 12 million young people entering Africa’s labour force each year,” she observes.

Editor’s Note: The article reflects the author’s opinion only, and not necessarily the views of editorial opinion of Belt & Road News.