Dongo Kundu can revamp Mombasa

A study conducted by the University of Nairobi looking at the socio-economic impact of the standard gauge railway (SGR) freight services released last week establishes that Mombasa has reached a point of “economic decay.”

Currently, 85 percent of all inland cargo coming is transported on the SGR, rendering truckers and container freight stations (CFSs) redundant and the study reveals that more than 60 percent of employees working at the stations were sacked over the same period.

The government also has lost more than Sh126 billion in revenue in one year from Mombasa County since the introduction of freight trains. The county will also fail to collect more than Sh17.3 billion due to closure of various businesses in the city while a number of businesses such as fuel stations, hotels and lodges will feel the heat.

I am yet to verify these numbers and the methodology but the figures run counter to data available in public domain.

First is that government lost Sh 126 billion in revenue in one year from Mombasa County since the introduction of SGR freight trains. Looking at the Kenya National Bureau of Statistics Gross County Product numbers that measure economic activities from a production approach, transport and storage contribution to the Mombasa economy is at Sh47.4 billion. So, it would be interesting to know which approach researchers used to arrive at Sh 126 billion. In fact, production value numbers should be bigger than revenue.

Second, the statement that Mombasa County will also fail to collect more than Sh17.3 billion in revenue. Going by the Auditor General’s report, Mombasa collected Sh3.1 billion from local revenue sources in 2017/2018. In fact, Mombasa’s total budget expenditure in the same financial year is less that Sh17.3 billion; it is Sh11.2 billion.

But there is no doubt about the conclusion of the report that the SGR service has negatively impacted Mombasa economy.

The SGR will remain a monument where lessons are drawn about how incompetent African government negotiated infrastructure deals with China are.

Because, even though the government has declined to make the SGR contract available, the accessible version has a provision that Kenya is bound to allocate the needed freight cargo to the SGR or else pays the cost of that cargo shortfall – a take-or-pay agreement.

So, Mombasa County is bound with the SGR as a poisoned chalice.

The only hope for Mombasa can count on but will have to be patient is the Dongo Kundu Special Economic Zone intended to use the strategic position of Mombasa by establishing a port-based Special Economic Zone.

The success stories about the economic impact of SEZs located at seaports around the world are well documented.

First, SEZs position economies better in attracting capital investment, advanced tech adoption that ultimately precipitate local production capacity.

Example of an industry with untapped but ripe potential is the blue economy, the Zone can attract investment for sustainable exploitation of the ocean like fish processing.

Second is that the Zone provides local companies with a pedestal to target new markets. Since Special Economic Zones provide social infrastructure and investment incentives especially tax incentives, local companies can expand to new markets or partner with big brands.

Example is light manufacturing where Chinese companies are outsourcing production lines to offshore companies due to rising industrial wages. Local manufacturers therefore can fight for these investments that Ethiopia has been harvesting.

Third, the human capital. In the many economies where Special Economic Zones have been established, the Zones have not only created employment opportunities but also attracted investment in skills development, making workers competitive and more productive.