President William Ruto and his Ugandan counterpart Yoweri Museveni at State House Uganda in a past event.
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Kenya, an East African giant in slumber
Kenya used to be the regional giant: “When Kenya sneezes, East Africa catches a cold”, was a popular saying. Not anymore. With an economy in limbo, and an angry populace – the giant is sneezing to oblivion.
For many years, Uganda was Kenya’s primary market for its goods. Not anymore. Statistics are not showing a lofty picture. Between January and June 2022, there was a notable dip to about US$300 million. Economists explained that Uganda had deliberately set up factories to manufacture goods previously imported from Kenya and there are pointers that Nairobi is losing a huge market.
For instance, Kenya’s Bidco has become a household name in Uganda and was voted the best manufacturing company of the year in Uganda last year and now manufactures from Uganda. There are many others. Last month, the Uganda Manufacturers Association (UMA) asked the Yoweri Museveni government to consider retaliation mechanisms against Kenya following persistent ban on Ugandan exports to Kenya.
“Our very blunt demand as manufacturers is there should be a retaliatory measure because we cannot be in a marriage where you cannot enter some bedrooms. Every time we speak about mistreatment of Uganda, government is in un-ending engagements with Nairobi and other capitals,” said Richard Mubiru, Executive Director, UMA.
He cited the ban on milk exports to Kenya in March 2023, which saw Brookside Uganda lay off half of its employees. Kenya had also banned maize and wheat imports from Uganda. Kenya is one of the largest consumers of Uganda maize. In 2018, and for the first time, Uganda exported more goods to Kenya than it imported. Statistics from the Central Bank of Kenya indicated a deficit of Sh4 billion. Uganda was exporting about 70 per cent of the nearly 420,000 tonnes of maize imports. Uganda had been the largest buyer of Kenyan goods, but this has been fading as more factories, hitherto in Kenya, mushroomed in Uganda.
While Kenya’s search for oil has been trapped in politics, Uganda has announced that it will start oil production from its Tilenga Project in 2025. The oilfield in Uganda’s Lake Albert is operated by French major TotalEnergies in partnership with China National Offshore Oil Corporation (CNOOC). Uganda hopes to pump the oil from the central processing facility in Kasenyi to the Tanzanian port of Tanga.
Uganda opted for a longer Hoima–Tanga route, which was the most economical and secure. In the initial plans, Toyota Tsusho was to design the pipeline and tank terminals in Hoima, Lokichar, and Lamu. In 2016, Uganda opted to route its oil through Tanzania and argued that it was cheaper and more secure. The move left Kenya to build its pipeline from Turkana to Lamu – a project that seems to have died. There was fear in Uganda that Lamu could be the target of militia groups from Somalia and that it would have been expensive to compensate landowners along the Kenya route.
Initially, the Uganda oil pipeline was to pass through Kenya up to the new Lamu Port. Kenya had started to develop the Lamu facility, hoping it would become the exporting port for Uganda’s crude reserves – estimated to be over 2.2 billion barrels, which puts Uganda behind Nigeria, Angola, and South Sudan. With such oil wealth, Uganda could easily dislodge Kenya as the regional giant. The bad news is that Lamu port has turned out to be a white elephant – so far – and has no cargo after Uganda pulled out. An oil refinery was to be built at the coast once Uganda’s oil started flowing. Kenya had said it would take a 2.5 percent shareholding, but that has now been abandoned. In July last year, the Uganda Investment Authority announced the discovery of an estimated 31 million tonnes of gold deposits.
The country has already built a gold refining factory and issued a license for part of the gold deposit to a Chinese firm. The Wagagai Gold Mine and Refinery is expected to commence production in March 2024 and could turn Uganda into a mining giant. President Museveni has declared that Uganda will never again export unprocessed gold. The gold deposits were discovered in Alupe near the Kenyan border, Karamoja in eastern Uganda, and in central and western Uganda.
Though Kenya boasts that agriculture is the bedrock of its economy, it has struggled to feed its population and relies on Uganda and Tanzania. While Tanzania had emerged as a major exporter of maize and rice to Kenya and, according to the United Nations COMTRADE database on international trade, it exports of maize to Kenya was US$53.5 million during 2022, recent tariff wars has been forcing Kenya traders to seek new options. Current Central Bank of Kenya data indicates that Kenya’s goods imports from Tanzania plunged 31.12 percent year-on-year to Sh18.68 billion in January-June.
While former President Uhuru Kenyatta had ended the trade wars between Nairobi and Tanzania, which was blocking entry of Kenyan goods, there is renewed bad blood between Nairobi and Dar. Though President William Ruto is championing the removal of trade barriers among African countries to ease the movement of goods, services, and labour through the integration of regional trading blocs, Kenya has become an expensive destination for entrepreneurs.
Another poser has been on Kenya’s cartels and their appetite for oil money. Last month, Uganda announced that it would hand over exclusive rights for all its supply of petroleum products to Vitol, a Bahrain refiner. This would eventually end Uganda’s reliance on Kenya for 90 per cent of its fuel imports. Data from Uganda Central bank indicates that the country imported $1.6 billion worth of petroleum products in 2022.
In the new arrangement, Vitol will source the fuel for the state-owned Uganda National Oil Company (UNOC), which will sell to private marketing companies. The fuel will be shipped from either Mombasa or Dar es Salaam. Uganda has accused Kenya of leaving Uganda consumers “exposed… to occasional supply vulnerabilities” after adopting a less transparent sourcing mechanism which saw cartels inflate prices by up to 59 per cent. This week, Uganda’s Energy Minister Ruth Nankabirwa tabled the Petroleum Supply (Amendment) Bill 2023 in parliament to empower UNOC to take over the oil supply.
Tanzania has been wooing Uganda traders to stop using the Mombasa port. But the Dar port is disadvantaged by the long distance. The distance from Dar to Kampala is 1,600 kilometers compared to 1,200 kilometers from Mombasa.
However, it has been reported that traders from Central Africa and the East African hinterland are shifting from Mombasa to Dar es Salaam port because of delays caused by protests and damage to cargo and trucks. The Tanzania Port Authority is offering various incentives to Uganda traders which include some 30-day free storage. In September, the Kenya Ports Authority (KPA) doubled the free cargo storage window for domestic importers from two to four days.
They claim that some shipping lines have introduced arbitrary charges without the approval of the Kenyan Maritime Authority (KMA), with some charging up to $1,200 for a 40-feet container, more than what Tanzania’s Dar es Salaam port charges.
Mombasa port users have been complaining of arbitrary charges which they say led to losing customers to Tanzania. It has been noted that cargo handled through Mombasa in 2022 shrank 1.9 per cent to 33.9 million metric tonnes, from 34.6 million tonnes in 2021. The battle between Mombasa’s northern corridor and Tanzania’s central corridor to service Uganda, Rwanda, Burundi and the eastern Democratic Republic of Congo (DRC) appears to be on. Pundits say that Mombasa could lose out if the punitive charges continue.
Kenya has been left with the half-done Standard Gauge Railway – which terminated into the bushes of Suswa and continues to gobble millions of dollars every year. While the line was to connect with Uganda, there were no donor commitments to finish the line and that left Kenya with loan payments and an incomplete line due to Uganda’s delayed commitment to construct its bit to Malaba.
With Kenya’s economy is in a limbo and as the Ruto regime finds itself in a debt hole, all eyes are on the giant of East Africa, which is slowly going into a deep slumber as corruption and inexperience take their toll.
[email protected] @johnkamau1
