The economic rise of China and India make Indian Ocean new focus of trade

US President Barack Obama’s three-nation tour of Africa that just ended with a final stop in Tanzania, re-energised the debate about the US and China’s supposed “scramble” for Africa’s resources and markets.

Asked about it during his speech in Soweto, South Africa, Obama said it was good not just for China, but all the major world economic powers to come and invest in Africa. In addition to the Chinese, he said Indians, Brazilians and Singaporeans should all come because a rich Africa will benefit everyone.

The significance of Obama’s comments may not have struck many, but the reality is that the world powers have been, and will continue to co-operate in Africa, rather than fight over it.

This is perhaps nowhere more apparent than off the East African coast where, in the name of fighting Somali piracy, the European Union, the US, China, India, Russia and Japan all sent navies to secure shipping routes.

In any event, Obama announced an initiative to help modernise the Mombasa and Dar es Salaam ports, and reduce the time of transporting containers into the East African hinterland by 15 per cent.

In the first part of this series, Future shape of East Africa: What happens when the sleeping giant awakes?, June 22-28, we examined how in the late 1980s and most of the 1990s, most factors in the region were pushing toward an economic community in which the Democratic Republic of Congo and its vast mineral and water resources would play a key role.

In the second part, Juba and Addis: Why the coffee smells so strong in the north, June 29-July 5, we explored the strong northern swing of recent years, in which through a myriad infrastructure partnerships and regional geopolitics, Ethiopia, South Sudan, Somalia, and Djibouti are increasingly drawn into an evolving regional economic bloc of the East African Community and the Horn of Africa. The cornerstone of that is the Lamu Port and South Sudan-Ethiopia (Lapsset) highway, railway and oil pipeline project.

Last week, in a meeting in Entebbe, Uganda, between presidents Yoweri Museveni, Uhuru Kenyatta, and Paul Kagame (of Uganda, Kenya and Rwanda respectively), the leaders agreed to extend part of Lapsset into Uganda and Rwanda.

On their own, the many cross-border infrastructure projects would seem to be evidence of nothing more than deepening regional integration.

However, taken together, they represent something more global — a strong orientation toward the East African seaboard, and the rise of the Indian Ocean as an even more important economic zone than it already is. This shift is driven as much by changing realities in the EAC, as by the rise of India and China across the Indian ocean.

India and China’s big power aspirations and quests for energy security have compelled the two countries to “redirect their gazes from the land to the sea,” according to James Holmes and Toshi Yoshihara, associate professors of strategy at the US Naval War College.

As the two countries look to secure seas that are critical for their trade, as they did with their anti-piracy navies near the Gulf of Aden and off the East African coast in the Indian Ocean, whoever has a firmer foothold in East Africa at the end is likely to have the strategic advantage.

Robert Kaplan, American national security journalist and author, in his book Monsoon, notes that the Indian Ocean currently accounts for half of the world’s container traffic.

Global energy needs are expected to rise by 45 per cent in the next 20 years, according to the US Energy Information Administration (EIA), and most of this growth will be fuelled by demand from India and China.

The bulk of India and China’s crude oil imports today are from the Persian Gulf. But discovery of more oil and gas in East Africa has made the region more attractive to China and India’s industries due to shorter transport routes to Asia, compared with that from the Middle East, which has to go through chokepoints at the Strait of Hormuz, a narrow channel between Oman and Iran, and Bab el-Mandab, between Djibouti and Yemen.

Small wonder, then, that piracy in the Indian Ocean brought about a show of unity among the countries described earlier, some of them either openly hostile to each other, or at least wary of co-operation, military or otherwise.

Strengthening East Africa’s port infrastructure therefore not only just supports economic activity inland, but positions the region better to engage with what could be the 21st century’s superpowers.

Already the region has seen a surge in trade with India and China, receiving about $11 billion in investment and development aid from China over the past decade, new data shows, reflecting the Asian giant’s rising influence in the region.

According to global research firm Open Data for International Development (AidData), mineral rich Tanzania and Uganda got 80 per cent of the funds — at $4.6 billion and $4.5 billion respectively. Kenya received $1.6 billion, while Rwanda and Burundi received $469 million and $165 million respectively.

China particularly is targeting infrastructure development projects across the region, entering a market where nations such as India, Japan and traditional economic big boys like European Union and the US have been playing for a while.

In Tanzania, among other things, the Chinese government is funding a 523-kilometre long natural gas pipeline from Mnazi Bay and Songo Songo Island in the south, to Dar es Salaam. The project will cost $1 billion.

In Kenya, China has provided a $1.4 billion loan to the geothermal sector. Rwanda, on the other hand, is courting China to finance the $600 million Bugesera International Airport. And at the last China-Africa conference, the Asian behemoth committed to advancing the continent at least $20 billion in loans over the next three years.

For its part, India has become the top source of Kenya’s imports, overtaking the United Arab Emirates and China, according to statistics from the Kenya National Bureau of Statistics. In 2011, the region received a chunk of a $5 billion loan from New Delhi to finance key infrastructure projects.

With support from their governments, Chinese and Indian firms are positioning themselves for the expected windfall in the region’s telecoms, mineral extraction, engineering and consumer goods markets, fields previously dominated mostly by Western firms.

India’s economic growth, meanwhile, is expected to overtake China’s at some point during the coming decade, due to its having a significantly younger and faster expanding working age population than China. India also has more potential for growth as it is starting from a lower level of economic development than China and so has more “catch-up potential.”

In any event, this only ensures that the East African coastline is facing the great economic rim of the future, and the navies amassed to deal with Somali piracy, may also be an early indication of how that future will be policed.

Kaplan writes that soon, one can envision a “NATO of the seas” for the Indian Ocean, composed of the navies of different countries in co-operation with each other, working to secure those waters.

Still, there is no single strategic approach to the challenges faced by states of the Indian Ocean: The Gulf of Aden, the Persian Gulf, the Bay of Bengal and the East African coast are burdened by different threats, requiring tailor made solutions.

This state of affairs is made even more complicated by the fact that for the first time since the 16th century, the West’s power in the Indian Ocean is no longer unrivalled.

All these forces are coming into play at a time when the port of Mombasa is a huge headache for the region. The container yard at the port was built to accommodate 450,000 containers annually. However it has been overstretched and is currently handling 800,000 containers annually.

The ripple effect of the congestion has spawned delays in the clearance of goods whose ramifications have been felt in the entire region.

Feeling the pressure, in 2012 Kenya commenced building a new container terminal funded by the Japanese at a cost of $322.3 million. The terminal will increase Mombasa port’s capacity to 1.2 million containers. Just as well, because the current projections indicate that by 2015 containerised cargo will increase to in excess of 960,000 containers.

The congestion nightmare at the Mombasa port is meanwhile forcing inland states to look elsewhere.

Kenya’s status as the region’s logistics hub came into Dar es Salaam’s cross-hairs when Tanzania signed a deal with China to set up the bloc’s largest port and expand Dar es Salaam’s main airport. Early this year Tanzania unveiled the Mwambani Port and Railway Corridor (Mwaporc) to be built in Tanga.

Competition

Mwaporc is set to be the region’s largest infrastructure project, eclipsing Lapsset. The proposed $32 billion Mwaporc will become Tanzania’s third corridor after the Tanzania-Zambia Railway Corridor (Tazara) and the Central Corridor, and will consist of a deep sea port as well as a new standard gauge railway that will link the Indian Ocean through Tanzania to Uganda and the Democratic Republic of Congo.

But the port at Bagamoyo, if the deal comes off, will be the regional game-changer that Tanzania will offer. The $11 billion Bagamoyo port will be bigger than the Dar es Salaam and Mombasa ports, tilting the scales of regional trade in favour of Tanzania.

Bagamoyo will have the capacity to handle 20 million containers a year — arguably an optimistic figure, as it would place Bagamoyo among the top five ports worldwide. However, whatever the final capacity, it will be substantially larger than Mombasa’s and Dar es Salaam’s.

Collectively, Bagamoyo, Mwaporc, Lamu, the revival of Mogadishu port, should Somalia continue to stabilise, the modernisation of Mombasa and Dar es Salaam, and Djibouti’s planned five new ports would mean most of the jobs and money in the region will be at the Coast. And the coastal strip would be a massive transshipment point for China’s and India’s goods into the Great Lakes region.

The EAC will have become truly a major trading bloc. However, the most lucrative trade will not be with itself. It will be with Asia. China and India will define the shape of the future EAC. And there is a rich irony in all this. In 1896 the building of the Kenya-Uganda Railway started at the Coast.

The roots of the East African Community can be traced partly to that date, as it was the railway that definitely opened up the East African hinterland and united the region. The railway is also a story of the Indian coolies who were brought in by colonial Britain to build it. And here we are again, 117 years later, and India is one of the powers poised to draw the new East African map.

Our Verdict/Likelihood Of The Eastern Conflexion happening within the next 10 years: 8/10. This makes it the most likely of the three possibilities we explored.

The likelihood of the Northern Formation was 6/10; and the Congo/Central African Outcome was 4/10.

twitter:@chris-_mungai & @cobbo3