EAC presidents back $78bn mega projects, but who will foot the bill?
Left to right: Presidents Salva Kiir, Uhuru Kenyatta, Yoweri Museveni (back in white shirt), John Magufuli and Burundi vice-president Gaston Sindimwo. Rwanda Infrastructure minister James Musoni walks behind Mr Kenyatta. The East African leaders met in Kampala, Uganda for the EAC summit on February 24, 2018. PHOTO | PPU
EAC presidents have resolved to implement some 286 power and infrastructure projects, but they must figure out a financing plan.
Aim of the grand projects is to increase installed electricity capacity, improved roads, SGR, oil pipelines and an oil refinery.
With a combined GDP of $147.5 billion, the six countries can hardly borrow the $78 billion, as this is above the 50 per cent debt-to-GDP ratio that has been set by the International Monetary Fund, as a prudent threshold for poor countries like those in East Africa.
East African heads of state have recommitted to the construction of 286 ambitious infrastructure projects intended to link the region and increase electricity generation capacity. To complete these projects the region has to find at least $78 billion, over a 10-year period.
If the projects are implemented, East Africa will see an increase in installed electricity capacity of 6,734MW, from 4,245MW, 7,600km of improved roads as well as 4,000km of standard gauge railway lines, 3,000km of oil pipelines and an oil refinery.
However, at the EAC Heads of State Summit in Kampala, attended by Presidents Yoweri Museveni of Uganda, John Magufuli of Tanzania, Salva Kiir of South Sudan and Uhuru Kenyatta of Kenya, it was clear that funding these projects would be an uphill task.
With the exception of President Kiir — who was preoccupied with rallying the EAC to support him against the arms embargo and sanctions imposed by the international community on his government — and Burundi’s Vice-President Gaton Sindimwo — whose only contribution to the discourse was to say he backed the proposals — the Summit dwelt largely on how the six countries would raise the $78 billion.
President Museveni kicked off the debate talking about the importance of making sure that the private sector doesn’t fund the construction of railways, electricity and Internet infrastructure.
“Low cost Internet will allow our young people to provide audit and other services to the Americans. High electricity, transport and Internet costs will not allow us to industrialise. Therefore the cost of money and structure of ownerships should not interfere with this strategic aim,” he said.
No to PPPs
According to President Museveni, roads should not be constructed through public-private partnerships (PPPs), so that the rich can pay road tolls while the poor get stuck on crowded public roads. He said East Africa should consider infrastructure bonds.
However, President Kenyatta, whose country has floated infrastructure bonds since 2009, seemed happy with using PPPs to finance the region’s projects, arguing instead that governments in the region ease the processes of working with the private sector.
“I have a problem with bureaucrats. We frustrate our partners when we take years to approve infrastructure projects they are interested in funding,” he said.
President Kenyatta added that approving infrastructure projects at a faster pace would show that the region is interested in infrastructure investment and a preferred destination for investors.
“With joint infrastructure projects, we can attract more capital,” he said.
President Magufuli also voiced frustration at the slow speed and commitment to completing the projects that have been highlighted.
“I am sorry I am harsh but why did the Secretary-General not tell us why they only implemented 14 out of the 200 projects earmarked in 2014?” he asked.
Instead of adding new projects, President Magufuli, who has previously criticised the EAC Secretariat for inefficiency, said the meeting should have been analysing the challenges faced over the past three years in the implementation of the planned projects.
Too much talk
But, like President Museveni, President Magufuli thinks PPPs are too expensive for a region where cost of doing business is prohibitive and local production uncompetitive in the international arena.
“The average cost of transporting a 20-feet container over a distance of 1,500km in the EAC is $5,000. That is the same as the cost of moving the same container over the 9,000km between China and Tanzania,” he said.
The region is also notorious for high electricity costs when compared with the rest of the world. For this reason, President Magufuli says the region cannot entrust the private sector with the financing of infrastructure.
“The private sector talks too much, but doesn’t act much and are always after profit maximisation,” said President Magufuli, in a hall where the air conditioning malfunctioned.
This prompted President Museveni to apologise and lambast his team for making the guests uncomfortable by squeezing them in a “Kafunda.”
“I am sorry for your suffering, I can see you are all sweating because of the poor organisation by the Ugandan group. They are always determined to inconvenience our visitors I don’t know for what reason so they bring you in this Kafunda here — Kafunda is a squeezed place — and then they make sure that the air conditioning doesn’t work or works very badly. We could have done better if we just sat outside and enjoyed the Lake Victoria breeze. Really this is the last time I will tolerate these officials who habitually inconvenience our visitors,” said President Museveni, ironically acknowledging the other challenges the region faces in its drive for a major leap in its development.
Taxes
President Magufuli said the region needs to collect more taxes, use them efficiently and stop illicit financial outflows, which are sometimes higher than the aid provided by the donor community.
But James Musoni, Rwanda’s Minister of Infrastructure, who represented President Paul Kagame at the meeting, said the problem with looking to public funding for expensive infrastructure projects is that the region’s population is too poor to provide the necessary taxes and a majority of EAC partner states already have a high debt burden.
Kenya, East Africa’s most indebted country, is expected to have a debt to GDP ratio of over 60 per cent in 2018/19. Last week, it raised a $2 billion Eurobond.
Faced with these challenges, the meeting seemed unsure on how to resolve the challenge of funding. As a result one of the most awkward moments at the retreat was just before the leaders could adopt the communiqué committing Uganda, Kenya, Rwanda, Tanzania, Burundi and South Sudan to invest in these projects.
Mobilising funds President Museveni asked Secretary-General Liberat Mfumukeko to tell the leaders who between the Secretariat and partner states would spearhead the mobilisation of funds for the infrastructure projects.
Mr Mfumukeko stuttered, unwilling to commit the partner states or the EAC Secretariat to raising over $73 billion that has not been mobilised. The donor community, including the World Bank, Africa Development Bank, TradeMark East Africa and the European Union have committed to provide less than $5 billion.
At the insistence of President Museveni that the Secretary-General answer, Mr Mfumukeko said the Secretariat has since 2014 improved its ability to mobilise funds for the region’s infrastructure.
Since Mr Mfumukeko became Secretary-General he has signed agreements with different donors offering grants in the range of $1 million. These are used to fund things like feasibility studies, as they are too little to fund construction.
With a combined GDP of $147.5 billion, the six countries can hardly borrow the $78 billion, as this is above the 50 per cent debt-to-GDP ratio that has been set by the International Monetary Fund, as a prudent threshold for poor countries like those in East Africa.
