Canarail Brings East Africa Community Railway To The Fore
The long awaited, and much debated, East Africa Community railway line is again in the limelight. Canarail, the Canadian consultancy firm hired to conduct the feasibility study, now estimates that the planned stretch connecting Rwanda, Tanzania and Burundi would cost up to US$5.2bn and take four years to complete.
For a continent with an estimated yearly infrastructure need of more than US$90bn (current yearly infrastructure spending stands at circa US$40bn according to the African Development Bank) the East Africa Community railway line is high on the agenda. Once completed the project is expected to significantly lower the respective countries' transport costs, and by consequence the cost of doing business, by easing current bottlenecks and facilitating getting goods to market.
The savings are indeed expected to be significant. The time it takes to transport cargo from the port of Dar es Salaam in Tanzania, to Kigali, Rwanda, would be reduced from current four days by road, down to two days by train. It is estimated that a freight train could carry around 6,000 to 7,000 tons of goods, whereas a passenger train would have the capacity to transport over 800 people.
|Source: World Economic Forum Global Competitiveness Report 2012-2013|
However, whilst we do not argue its benefits, we do question the project'sits feasibility. The cost remains prohibitive and the source of financing remains unknown. Getting the private sector to participate would be one of the most sensible ways to progress. Yet, a private public partnership carries significant risks, not least in terms of availability payments.
In Rwanda, though the cost per passenger ticket is expected to decrease to Rwf16,000 (US$26) from current Rwf25,000 (by road covering the same distance) it is still a significant sum for a country with a current GDP per capita of US$620. In fact, the price-tagcost remains significant even taking into account long term growth prospects (BMI's Country Risk Team expects GDP per capita to reach US$1,279 by 2022).
That said, another possible avenue to attract private funds could be via specifically targeted so called infrastructure bonds. A successful financing tool used in neighboringneighbouring Kenya. By informing potential investors where the proceeds are going, the model has proved successful in attracting more risk adverse investors, thus taping in to a wider pool of liquidity. Hence, the bonds could allow the governments to raise funds at a relatively low interest rate - more affordable than going to the bank and much quicker than seeking help assistance from any of the development institutions.