Kenya is tapping billions of shillings in new investments from what is emerging as an early harvest of the fruits of the looming birth of Africa’s latest independent state — South Sudan.
East Africa’s largest economy has emerged as the major beneficiary of the expectation that Southern Sudanese will choose independence in January — sparking a race among foreign governments with the financial muscle to develop infrastructure that the new state will require to trade with the world.
South Sudan currently relies heavily on Port Sudan to take its key export, oil, to the global market, raising its exposure to the North in the event of political disagreement between the two after the separation.
Analysts at the Brussels-based International Crisis Group (ICG) say the South’s search for an alternative transport corridor to reduce its dependence on the North has opened for Kenya an opportunity to attract billions of dollars in fresh infrastructure investment and an advantage in the scramble for foreign direct investments to East Africa.
“As East Africa’s economic powerhouse, Kenya stands to benefit from the emergence of a large new market in South Sudan and major infrastructure that the country will need to engage commercially with the world, including oil exportation,” says ICG in its latest report on the possible impact of Southern independence on neighbouring states.
Kenya has already bagged nearly $5 billion in new investment as Asia’s economic giants Japan and China scramble for a share of the infrastructure that South Sudan will need to secure its trade with the world after independence.
The projects include construction of an oil refinery and sea port in Lamu, a 1,400 kilometre oil pipeline that will link Juba, Southern Sudanese capital to the Lamu port and construction of a new Mombasa-Kampala standard gauge railway line.
Heavy investment is also being made in the 1,130 kilometre road that links Nairobi to Juba to cut the more than 26 hours it currently takes to cover the distance.
The combined cost of the projects is estimated at $10 billion (Sh750 billion) or 34 per cent of Kenya’s Sh2.2 trillion gross domestic product (GDP).
Southern Sudan remains totally dependent on Port Sudan, in the country’s North, to export oil – its main source of revenue that has attracted heavy Chinese and Japanese interest.
Lamu’s deep waters have earned it top marks as the possible location of a new port that the Kenya government has wanted to build since the 1980s with little success in raising the money it needs for it.
It now appears that the emerging geopolitical situation is working to Kenya’s advantage offering the potential to upgrade its infrastructure and create thousands of new jobs.
Japan and China — keen to protect their investments in Southern Sudan— have signed multi-billion shilling contracts with the Kenya government to help finance the projects, setting the stage for execution of the public works with the potential of transforming the country’s infrastructure.
Japan and China have been the most aggressive investors in Southern Sudan pursuing oil and gas they need to drive their economies – which are ranked the world’s second and third largest, respectively.
Sudan’s oil deposits are estimated at 6.614 billion barrels with 85 per cent of it located in the South.
China and Japan took in 79 and four per cent of South Sudan’s total oil exports last year respectively.
“Nobody knows what relationship the North and South might have in 10 or 20 years time,” said a Chinese diplomat in Kenya who asked to be identified simply as Mr Liu. “A separate trade route is important given the trends in Sudan and relevant Chinese companies are now looking into this,” he said.
Though the North under the firm grip of President Omar al-Bashir has promised to respect the outcome of the January referendum, analysts maintain that the sharing of oil revenues could cause friction – making it necessary for the Southern Sudan government and investors led by China and Japan to look for alternative trade routes.
In recent months, China and Japan have lined up their state-owned banks to offer the cash needed to finance the projects removing the financial hurdle to Kenya’s long held ambition to become South Sudan’s gateway to the world.
China has agreed to bankroll construction of the sea port in Lamu, the new Mombasa-Kampala standard gauge railway line and part of the Northern Corridor road that connects Mombasa port to Juba through Uganda.
Japan, through Toyota, has signed an agreement with Kenya to provide the $1.5 billion needed to construct the oil pipeline connecting Juba and Lamu.
That agreement will also see Toyota finance the building of an oil terminal and a petroleum refinery in Lamu.
The Southern Sudan government has also kicked off plans to build a high speed railway line to Uganda aiming to link up with the planned high speed standard gauge line between Mombasa and Kampala. Kenya and Uganda are also expected to benefit from exports of agri-based products and raw materials to South Sudan, and access affordable crude oil in return.
Kenya is particularly expected to benefit from the thousands of jobs that the large infrastructure projects are expected to create and take in a large share of the Sh750 billion that foreigners plan to pump into the works.
Completion of the mega- projects is also expected to improve the flow of Kenyan goods into the regional market giving its manufacturers the competitive edge they need to compete on pricing – that has become a key driver of market share expansion.
The projects are also expected to turn Kenya into a logistic hub that serves Uganda, Rwanda, Burundi, Eastern Congo, Southern Sudan and Ethiopia. South Sudan with a 12 million population remains virtually a virgin market without homegrown manufacturing sector to meet local demand for consumer goods.
It has expressed its intention to join the East Africa Community, the regional trading bloc that is set to launch a common market beginning next month.
Uganda remains Kenya’s major export market that took in goods worth Sh46.2 billion in 2009 compared to Sudan’s Sh12.7 billion.
The biggest impact of an independent South Sudan on Kenya’s economy will however come from tapping its oil, reducing its current dependence on supplies from the Gulf whose cost has been rising in recent years pushed by the high insurance and freight charges in the pirates infested East African coastline.
Cheaper Sudanese imports should help Kenya stabilize its supplies and reduce pricing volatility that has become the main driver of the cost of goods and services in East Africa’s biggest economy.
It could also reduce the country’s import bill because petroleum is Kenya’s single largest import item that accounts for about 20 per cent of the total import bill and ultimately bring stability in the currency market.
Analysts say the looming secession of South Sudan could have major geo-political implications in Eastern Africa given the different stance taken by major powers in the region.
The divisions appear to pit Kenya and Uganda, who are seen to be in favour of the separation, against Libya and Egypt who are said to be quietly pushing for a united Sudan.
Libya and Egypt fear that a new state could pose a threat to the stability of the region as it removes a long running preoccupation from the mind of Khartoum leaving it free to find new relevance.
“Cairo fears that secession could lead to instability in both the North and South that could be exploited by extremists,” says the ICG report.
“In this regard, Egypt sees the South as a moderating influence on the North and would prefer unity so as to maintain that check.”
Egypt also fears that a new state will open fresh threats to its supply of Nile water at a time when Kenya, Uganda and Tanzania have signed a treaty authorising unhindered use of the Nile waters by all the riparian states against a 1959 pact that offered Cairo control over the use of the Nile water.
