REFORMS IN AFRICA. Samuel O. Helu. Kenya Ports Authority FEBRUARY 4-8 TH, 2008, KAMPALA, UGANDA

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1 TRADE NEGOTIATIONS AND PRO-POOR POOR SERVICES REFORMS IN AFRICA STATUS OF TRANSPORT SERVICES REFORMS BRIDGING THE GAP FOR ENHANCED TRADE AND PRO-POOR GROWTH Samuel O. Helu Principal i Planning Officer Kenya Ports Authority FEBRUARY 4-8 TH, 2008, KAMPALA, UGANDA

2 Overview Status of transport system Transport Sector Reforms in Africa Steps that still need to be taken Kenya s Reform Experience Meeting EPA Challenges Implications of EC Requests Areas for reform & Developments Conclusion & Way Forward OUTLINE

3 Overview African transport system is both diverse and spectacularly uneven in its spread. It also varies in degree of development and efficiency. It consists of Road, Rail, Air, Pipeline and, Maritime and Inland Water transport. Transport is a prerequisite to Africa s successful participation in the global economy and is essential to Africa s long term economic development and prosperity. Sound transport network is a sine qua non for active participation and integration into the global economy. Ironically, its importance has too often been overlooked. Poor transport infrastructure due to neglect and conflict in some countries Many countries not served by a sound all-weather road system

4 Cont. Paved roads are still limited, raging from about 60 km in Chad to over 2,000 km per 1 million people p in Tunisia, Algeria, Namibia and Botswana. Freight rates by rail are on average about twice as high as those in Asia and one and a half times those in Latin America. The cost air transportation in Africa is four times higher than in the Far East A container passing through ports costs $220 in Abidjan but only $ 120 in Antwerp. Rail transport carries >1% of global pax and 2% of global trade, network only 75,000km, 6 countries have no rail networks. Different rail gauges complicate rail systems integration 90 ports handling only 6% of global traffic, with 6 ports, 3 in Egypt and 3 in SA, handling <50% of container traffic

5 Cont. Over 4,000 airports, only 20% have paved runways and less suitable for modern increasing passenger traffic Over 300 registered airlines and over 1,400 small aircrafts (general aviation) Countries like DRC, Sudan & Nigeria rely on inland waterways and rivers for pax & cargo movements but this is less developed Total freight costs is high (13%), more than average for LDCs (9%) and double world average Landlocked countries has average of 20.7%, port tariffs and border post charges range b/w 12 & 40% of total costs of inland transport Countries face huge costs in accessing global markets, 55.5% in Malawi, 51.8% in Chad, g g g,,, 48.4% in Rwanda, 35.6% in Mali & 35.5% in Uganda

6 Transport system in Kenya Road Commonly used: 80% Total network: 151,000 km, of which 62,667 km classified 17% in good condition, 39% fair and 43% failed state Railway Total network: 2,700 km (mainline, branches & private sidings) Old and outdated narrow gauge of 1.000m compared to gauge in Central & Southern Africa Concessioned to RVR KR only manages the concession agreement and non-conceded assets

7 Air Transport Cont. 3 international airports, 5 major airports and over 150 airstrips Privatized national airline (KQ), over 30 foreign firms and numerous charter flights Pipeline Transport Commissioned in 1978 Operated by KPC, state agency Runs from Mombasa via Nairobi and Nakuru to Kisumu and Eldoret Maritime Transport 1 seaport with annual rated capacity of 21 million metric Current capacity utilization is 75% Managed by KPA, state agency Modern equipment, 3 ICDs (Kenya) and 1 liaison office (Uganda) 50% of operations in private hands

8 Cont. Inland Water Transport Least used Restricted to Lake Victoria Lack of infrastructure and other facilities due to neglect Transportation often viewed as a second tier investment priority, pitted against more pressing immediate socially-oriented poverty reduction programmes. Firsttobe postponed, p if not simply pyforgone incase of fiscal pressure. Governments are availing more funding to the transport sector but this will not keep up with existing and future demand for critical transportation infrastructure.

9 Transport Sector Reforms At independence, common adage in Africa was: We run while others are walking. Now what Africa needs is not to run but leapfrog into the 21 st century. In the transport sector, this leapfrogging requires a lot to be done- addressing major issues, potential ti solutions and their policy implications Reforms undertaken since 1990s with various degrees of success. These include concession, divestiture, greenfield projects, management and lease contract There is no magic in the quest for prosperity: - it requires right incentives, more open policies (investment, competition & regulatory), trade promotion, stable macroeconomic framework, Transport policies need to change focus and dramatic measures taken to review ownership, financing and operation o of transport t infrastructure and services

10 Experience with Reform and impact on service provision i Port Reform in Nigeria: one of the world s largest concession programmes (Landlord d model). Resulted from Gov t s vision i and need to remedy shortcomings which were inhibiting trade & development. Landlord ports: Abidjan, Tema, Takoradi, Luanda, Doula Port concessions in Chile Urban rail concessions in Bangkok, Kuala Lumpur & Manila Commercialization & PSP in railways in Eastern Europe & Central Asia Concessioning i of Kenya/Uganda Railways Concessioning of Railways in Latin America Toll roads in Chile, Malaysia, South Africa (BOT & FROM) Privatization of airlines (Nigeria, Zambia) The reforms has revitalized transport systems- operate more efficiently and more competitively- increased supply and improved quality of service

11 PPP projects and value, Subsector No Investment ($m) Airports ,552 Railways 98 36,810 Roads ,720 Seaports ,100 Total ,182

12 Kenya s Reform Experience Reforms started in 1992: GOK launched a program on Public Enterprises Reform and Privatization. 207 out of 240 commercially oriented enterprises scheduled for privatization. By 2002, 108 of these had been privatized. Transport enterprises not included Private sector participation (Kenya Airways) Joint concessioning of Kenya/Uganda Railways in Nov Institutional and Regulatory reforms (air, maritime, road) Management age e and lease agreement e The Privatization Act 2005 passed by Parliament Trade policy being developed Vision 2030

13 Proposed Reforms Conversion of port of Mombasa into a landlord port Acceleration of privatization and restructuring of public enterprises Enhanced PSP in transport operations and infrastructure development Divesting from Gulf marine services (Lake Victoria) Extension of pipeline to Kampala ( and later Kigali) under a private concession Sector undergoing gvarious reforms and there is no regulatory framework for various sub-sectors Need to conclude the reforms and develop effective regulatory framework before making future commitments

14 PPP projects in Kenya and their value, Sector No Investment $ million Transport Tl Telecom 3 2, Energy Water & sewage 1 0

15 Challenges Establishing adequate policy, legal and regulatory frameworks Mobilizing adequate resources for service expansion and maintenance Carrying out broad sectoral reforms which impact on service levels & quality Privatization vis-à-vis public operation Ensuring long-term sustainability Carrying out institutional and structural reforms to improve the management of public institutions operating in the sector Establishing an adequate technological base Promoting inter-country cooperation in setting up shared institutions and shared facilities inaregionali lframework.

16 What still needs to be done Commitment to sectoral reforms: Embrace reform and step up its pace Attract private sector resources and know-how Speed up privatization- strong political will and urgent reform of of outdated and inadequate policy, legal and regulatory frameworks Increase local private capital for partnership with foreign investors Innovative resource mobilization strategies centering on diversification of funding sources, e.g, South Africa Toll Road Model Implementation of the Yamoussoukro Declaration relating to air and airport safety, maintenance, cooperation and liberalization and other regional initiatives Concessioning and management reforms Effective regulatory framework

17 Kenya s specific commitments in transportation services Sector/ Sub-sector Cross Border Consumption Commercial Presence of Supply abroad presence national persons C. Air Transport a) Aircraft repair and maintenance services b) Selling and marketing of air transport services Utf/Utf NL/NL NL/NL NL/NL NL/NL NL/NL Uex/U Uex/U c) CRS NL/NL NL/NL U/U Uex/U F. Road Transport a) Passenger transportation b) Freight transportation c) Rental of commercial vehicles of road transport equipment d) Maintenance and repair of road transport equipment e) Supporting services for road transportation services NL/NL NL/NL NL/NL Utf/Utf NL/NL U/NL NL/NL NL/NL NL/NL NL/NL U/U U/U U/U U/U U/U Uex/OP Uex/U Ue/U Uex/U Uex/U

18 Terminologies Cont NL: No limitations, Kenya agreed to place no constraints on the item U: Unbound, Kenya made no engagements with respect to the item Uex: Unbound, except as provided by Kenya s horizontal commitments OP: Other provisions apply

19 Current Request by EU Requests and offers basically deal with addition of new sectors, removal of existing limitations or introduction of commitments in modes with are unbound, undertaking additional commitments under Art XVIII and termination of MFN exceptions EU has made comprehensive request in the sector.

20 Challenges to the EPA The key challenges faced include the following: Lack of financial resources to develop the infrastructure, High cost of transport services, Poor competitiveness, Under developed transport system Inadequate environmental policies, Lack of skilled trained manpower on tradenegotiations, ti ti High and rising poverty levels, Lack of technology to stimulate productive capacities; Costly and low quality (standards) of services; Lack of policy, legal and regulatory framework, among others.

21 Meeting EPA Challenges Measures aimed at increasing the level of supply of existing goods and services but also developing new areas as well as new products for trade with the EU. ESA countries need to undertake reform programmes, improve governance, increase transparency, strengthen public institutions and promote private sector participation, among others. To effectively meet the EPA challenges, there will be need for adequate human, technical, technological and capital resources.

22 Implications of EC Requests The services sector is backbone of EC economy, contributing to 79% in GDP Kenya is a transport service importer from the EU and the contribution to GDP still low but growing The request can create opportunities, improve competitiveness in emerging sectors like transport and auxiliary services and create foundation for future liberalization in services and other trade related areas Increased FDI, improved performance of the sector, and expansion and modernization of infrastructure and other facilities. Increased supply of services leading to expansion of capacity to meet the increasing demand for efficient services, creation of employment and facilitate trade. Improved performance of the rest of the economy, enhanced economic development and reduced poverty.

23 Implications of the EC requests The request also will lead to further liberalization of the sector that will result in lowering transport costs, ensuring fast and efficient services and providing enhanced services that supports the other sectors of the economy. It will also provide greater choices for commercial and general transport. It will encourage foreign investment in the sector, enhance commercial activities and employment opportunities, and promote the growth of other related service sectors. Multiplier effects extended to other sectors Need to prepare a proposal for specific improvement of transport infrastructure & services to international standards through specific programmes geared towards improvement of infrastructure and services, procedures and human resource development. The request however calls for acceleration of the reform agenda in the sector

24 Why making Coommitments is difficult? Limited by policy constraint- Transport services require well designed policy & regulation which is lacking in most countries. Markets should only be opened when effective policy and regulations are in place Sector faces various barriers (regional & global) and knowledge of the sector is a bit limited (moral hazard)- maritime Opening the sector for domestic development reasons -not a must (not even necessary) to include them. The development of the sector is still lagging behind and reforms and other measures being undertaken which has promoted private sector s s participation, increased efficiency, improved performance and increased profitability.

25 Cont. Effective policy and regulatory framework will be necessary to facilitate participation of foreign investors in the sector in the country. The sector is currently undergoing major reforms and there is need to await the conclusion of the ongoing greforms before making any future commitments.

26 Areas for reform & Development Policy Market access (commercial presence & cross-border transport services trade) Regulation (including licensing requirements) Universal service (Policy instrument used) Market structure No. of firms Market share Ownership structure Performance indicators Price Quality of service Investment/employment levels

27 Cont. Areas for consideration: Capacity building to meet the goals of the sector and country Negotiate from more informed position Implement the new commitments and better manage the process Apply the new markets with quality and timely service meeting their standards Improve and expand existing infrastructure and other facilities Construct new ones Develop the missing links Implement other projects relating to safety and security enhancement

28 Conclusion & Way Forward The future of transport sector in Africa is full of optimism but embedded in an uncertain world- thus the need of managing uncertainties. The art of the long view or future transport is to transform, cooperate and reposition. The transport of tomorrow must be continuously innovative Africa s export of transport services has been low and declining due to domestic supply-side constraints and trade barriers in both developing and developed country export markets Need to reform and develop the sector, examining the existing policies, legal and regulatory framework A prioritized sector development programme (infrastructure development, HRD, R&D, policy & regulatory framework) It is not the strongest of the species that survive, nor the most intelligent but the one most responsive to change - Charles Darwin ( )

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