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Lessons from Lamu port construction delays

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An artistic impression of the first three berths of the Lamu Port. FILE PHOTO | NMG

The great English economist Alfred Marshall wrote in 1890 that in dense clusters, the mysteries of the trade become no mysteries, but are, as it were, in the air.

The mysteries of a continental trading entrepot are building in the air of Lamu as the cultural town seeks to gain the status of harbouring eastern and central Africa’s largest port.

The Lamu port project is an ambitious plan expected to have 32 berths occupying an area of more than 1,000 acres.

It is also expected to be an inter-regional transportation hub configured with a standard gauge rail, highway, international airport, an oil pipeline from South Sudan, Uganda and Ethiopia, as well as an oil refinery. Also included is a special economic zone /industrial areas and a resort city.

But is Lamu an aggressive infrastructure investment standing at the risk of building too much too soon?

In today’s globalised world, infrastructure only makes sense when it empowers and brings value to humanity. That’s when a real city is created.

Looking at Lamu’s concept framework, Dubai comes to mind. In the 1950s Sheikh Rashid II, who was the Emir from 1958 to 1990, envisioned Dubai as being the urban connector between his region and the world and tried to achieve this by investing heavily in infrastructure.

He started by dredging the Dubai creek and built a one of its kind bridge across it, then built Dubai’s first airport, despite British scepticism, and enlarged it to allow aeroplanes in 1965.

In 1972, he opened Port Rashid and then Jebel Ali port, supposedly the largest man made harbour in the world, seven years later.

Another seven years later, he provided a business friendly legal infrastructure to match the physical infrastructure by unveiling the Jebel Ali Free Zone providing lightly taxed and lightly regulated regions to attract international firms and industries.

Despite all these snazziest, the most over the top, most extreme physical infrastructure, Sheikh Rashid II later came to realize that huge infrastructure wasn't enough to build the success of a port city.

Dubai had to make itself a good place to work by winning in the global contest of attracting human capital.

Today, more than 80 per cent of Dubai’s inhabitants are immigrants because when your pool of talent becomes global, investing in quality of life becomes an economic development strategy for long run urban success.

In essence, even port cities must attract outside talent to succeed but Kenya seems to be betting big on physical infrastructure to establish a port city just like Dubai in its early years.

READ: Building of Lamu port three months behind schedule

The second challenge with the Lamu port is that Kenya has chosen to lead this megaproject as state-driven when reality is that its constrained by limited government budget.

According to the PS for Transport, the government has so far been pumping Sh14 billion per year into this project, a drop in the ocean in the entire Sh2.5 trillion project.

Government’s “pay as you go” funding problem has seen it run three months behind schedule in the unveiling of its first berth that was to happen next month and has now been pushed to June.

These are the typical risks that government transfers to private sector by removing them from its balance sheets when entering into PPP agreements since the private sector can tap additional financing resources particularly those from institutional investors and get construction done in one go.

It will be in the best interest of Kenya to seriously consider a public private partnership funding model for this massive investment because PPP projects are delivered faster. The private sector wants to earn money with those assets so they therefore construct them faster.

There is good evidence that macroeconomic benefits of infrastructure typically occur with public-private partnership.