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Steakholders vs Smallholders: The Political Economy of Kenya’s Sugar Industry

7 min read. Western Kenya’s sugar industry has a productivity problem. Fortunate to have been given several reprieves by COMESA, growers, millers and policymakers have still been unable to move away from the protectionist thinking on which the industry was originally built. But time is running out. Can the industry survive without state protection? By DAVID NDII.

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Steakholders vs Smallholders: The Political Economy of Kenya’s Sugar Industry
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Kenya’s sugar industry circus continues. Late last year, the government formed a task force to look into the industry’s never-ending woes. Last week, a farmers lobby group formed a parallel task force, which is already convening in western Kenya and collecting views. The government has dismissed the private task force, and vice versa. Farmers seem to be behind the private one. Ironically, both are talking the same language— reviewing law and policy.

For more than a decade now, Kenya has been granted reprieves by the COMESA trade block to reform its sugar industry. Last year, the reprieve was extended for a further two years to 2020. The COMESA region has some very competitive sugar producers including Sudan and Malawi. Kenya runs a huge trade surplus with COMESA. Kenya’s excuses are wearing thin. This time round, the trade block set up a committee to supervise the implementation of the deal.

It is a tall order. Kenya’s sugar industry has a productivity problem. This has two components, low farm productivity and low sugar recovery. We have the lowest cane yields in the COMESA region (and the other COMESA countries have some of the highest yields in the world). The recovery rates are between 9 and 11 percent, that is, a tonne of cane produces between 90 – 110 kilos of sugar, while western Kenya manages to recover only 6 percent.

Why are cane yields in western Kenya so low? Simply put, this is because cane sugar production is a land and capital intensive crop. Western Kenya smallholders are land and capital poor. They don’t have the capital to invest in irrigation and high tech agronomy, or the scale to make such investments pay off. We do not leave the country to benchmark. Kwale International Sugar, the Mauritian investors who revived Ramisi Sugar report that they are harvesting 60 tonnes per hectare on rain fed cane, and 140 tonnes per hectare on irrigated fields. They describe their irrigation system as a “state-of-the art technology that includes a sub-surface drip-fed irrigation system which delivers 40 percent water saving.

We have the lowest cane yields in the COMESA region…the other COMESA countries have some of the highest in the world…

Assuming the rest of the agronomy is the same, irrigation alone more than doubles the cane yield. In fact, at 60 tonnes per hectare the rain-fed yield in Kwale is the same as western Kenya. However, cane at the coast matures faster, 12 months as compared to 15 to 18 months in western. This makes for significant productivity differences. In western, it translates to 120 tonnes per hectare over a three year cycle, which brings down the average annual production per hectare to 40, while in Kwale the yield and annual production remain at 60 tonnes per hectare. So, though we have 220,000 hectares planted, we only harvest 80,000 a year on average, which is just over a third of the planted acreage. To see the difference this makes, we produce on average 600,000 metric ton of sugar on 200,000 acres (440,000 acres) of land. Mauritius produces a similar about of sugar on 72,000 hectares (158,000 acres).

In economics, we think of resource allocation in terms of opportunity cost. The economic value of an industry is what it produces over the next best alternative use of the scarce resources that it employs. Kenya is a land-poor country. Only a third of the land is arable without considerable investment in irrigation and land improvement. The sugar belt is some of Kenya’s most productive rain-fed cropland. If the land under sugarcane could be made as productive as tea, it would generate $1.3 billion ( Sh.130 billion) at current exchange rates, compared to US$ 180 million worth of sugar currently.

By misallocating resources, western Kenya is losing KSh 100 billion worth of agricultural productivity. As a country we are losing more. Average ex-factory price of sugar is currently quoted at KSh 4,000 per 50-kg bag (KSh 80 per kilo) which translates to US$ 800 per tonne. Sugar is trading at about $280 a tonne, or KSh 30 per kilo in the world market. Kenyan consumers are paying more than double the world price. With current consumption at 80 kilos per household, the sugar industry protection works out to KSh 4,000 per household per year. If we were buying sugar at the world price, the savings would be enough to buy every Kenyan household a kilo of meat every month.

By misallocating resources, western Kenya is losing KSh 100 billion worth of agricultural productivity.

We pay western Kenya more than double the world price of sugar, but it has not made the region prosperous. All the public sugar companies are insolvent. The government and stakeholders continue to go round in circles. Waswahili have a popular saying “ukiona vialea vimeundua” (ships/vessels float because they are build to), meaning there are reasons why things are what they are.

After independence, the government set about identifying cash crops that smallholders could grow in the different “high potential” agro-ecological zones. Central Kenya had coffee, tea and pyrethrum. The white highlands had their cereals and dairy. In line with the import substitution industrialization strategy of the time, sugar and cotton were identified as ideal cash crops for the lake region. It is the misfortune of western Kenya that both crops were unsuited for a smallholder out-grower production system. To be sure, it is pure good luck that tea turned out to be suited for the model. In fact, the World Bank strongly advised the government against it, as there was no precedent of smallholder tea production anywhere in the world.

The sugar industry thrived behind the tariff barriers of import substitution industrialization. But by the mid-seventies, the structural and economic challenges that now plague the industry were already in place. Prof. Stephen Mbogoh, one of the country’s leading agricultural economists, who studied the sugar industry for his doctorate observed:

“At the macro-level planners are interested in other aspects of an enterprise, besides the profitability aspect. The potential for an enterprise to create employment in Kenya, particularly in the rural areas, is an important consideration. Cane production is found to be the most profitable enterprise, but it does not generate as much capacity for absorbing the rural unemployed as the alternative enterprises.” (Mbogoh, Stephen Gichovi. An Economic Analysis of Kenya’s Sugar Industry with Special Reference to the Self-Sufficiency Production Policy PhD Thesis. University of Alberta. 1980)

Mbogoh’s analysis showed that sugar had the highest income per worker, but the lowest job creation potential of the competing alternatives (See table). But this analysis does not bring the import protection factor to bear. Even then sugar was the most highly protected of the alternatives. From Mbogoh’s data sugar was retailing at KSh. 4.50 per kilo in 1976, which works out to US$ 750 per tonne, against a world price of US$ 250 per tonne— the same as now. If both the domestic resource cost (i.e. the cost of protection) and job creation were taken into account, the maize/groundnut combination would have come out on top. It is worth noting that even with import protection, the maize/groundnut gross revenue is comparable to sugarcane.

After independence, the government set about identifying cash crops that smallholders could grow in the different “high potential” agro-ecological zones. Central Kenya had coffee, tea and pyrethrum. The White Highlands had their cereals and dairy. In line with the import substitution industrialization strategy of the time, sugar and cotton were identified as ideal cash crops for the lake region. It is the misfortune of western Kenya that both crops were unsuited for a smallholder out-grower production system.

From an economic policy standpoint, gross revenue is a more important variable than the net profit because it captures all the incomes generated by an economic activity and not just the profit of that specific enterprise. The difference between gross and net income captures the multiplier effect of an enterprise. In this case, we see that while both sugarcane and the maize/groundnut option have roughly the same gross income, the maize/groundnut options buys 60 percent more (KSh 2,122) than sugarcane (KSh 1,296), which is indicative of a better distributional outcome than sugarcane.

By the mid-seventies, the structural and economic challenges that now plague the industry were already in place.

In summary the policymakers saddled western Kenya with an uncompetitive, capital intensive, low productivity, regressive (i.e. income concentrating) cash crop. One cannot help but wonder whether the predominance of western Kenya migrant labour in Nairobi has something to do with these policy choices.

In all fairness, this was not, as is sometimes insinuated, a conspiracy to impoverish the region. Rather, it was a reflection of the conviction behind import substitution industrialization. Indeed, the import substitution strategy was predicated on “export pessimism” – the idea that primary commodity exporters were condemned to deteriorating terms of trade (purchasing power vis-a-vis manufactured goods) in perpetuity. Viewed from this perspective, western Kenya with its sugar and cotton mills seemed brighter than that of primary commodity exporting central Kenya.

Policymakers saddled western Kenya with an uncompetitive, capital intensive, low productivity, regressive cash crop. One cannot help but wonder whether the predominance of western Kenya migrant labour in Nairobi has something to do with these policy choices.

By the end of the 70s, import substitution had run its course. Subsidies drained government coffers, and the imports of machinery and raw materials required to keep the industries afloat depleted foreign exchange without generating any. In Sessional Paper No.1 of 1986, Economic Management for Renewed Growth, the Moi government acknowledged that it was at the end of the road. Gradual liberalization began then, and ended with a bang in 1993. The textile industry, and cotton farming were wiped out.

But the sugar industry survived. How come? To the best of my knowledge, this question has not received much academic attention, but I have a theory. Cotton was by and large a poor man’s crop. Sugarcane outgrowers are both rich and poor. According to Prof. Mbogoh’s study, large scale outgrowers farming 40 to well over a 1000 hectares accounted for 40 percent of the outgrower acreage, and smallholders with between one and six hectares for the other 60 percent. I suppose that the sizes will have changed as land has become fragmented but the industry structure remains more or less the same.

Liberalization…ended with a bang in 1993. The textile industry, and cotton farming were wiped out. But the sugar industry survived. How come?

Because sugarcane production is capital intensive, the large scale outgrowers are able to achieve higher farm productivity than smallholders, but still benefit from the cane prices that are based on the smallholders cost structure. Moreover, the low husbandry requirements between planting and harvesting makes sugarcane very amenable to “telephone” farming by western Kenya elites. Additionally, the same said elites have preferential access to other business opportunities in the value chain, such as suppliers to the factories and sugar distribution. It is instructive that Mumias, which stands out by not having large scale outgrowers, was the only sugar company that was privatized, perhaps because there were no powerful elites with a vested interest in maintaining the status quo. From this vantage point, the private task force begins to look more like a “steak holder” than a stakeholder initiative.

Because sugarcane production is capital intensive, the large scale outgrowers are able to achieve higher farm productivity than smallholders, but still benefit from the cane prices that are based on the smallholders’ cost structure.

But western Kenya’s sugar industry cannot be protected from competition indefinitely. Sooner or later, the COMESA safeguards will come to an end. If not that, other domestic producers will follow KISCOL and cash in on the high prices with lower costs of production. And as long as the wedge between the international and domestic prices remains what it is, episodes of import deluges will continue to destabilize the industry. The time for western Kenya sugar industry to face reality is now.

Steak holders should let the people go.

David Ndii
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David Ndii is a leading Kenyan economist and public intellectual.

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Who Is Afraid of Commuter Ride-Hailing Apps? Tech Meets Matatu, and Why Nairobi Does Not Need State-Run Public Transport

8 min read. DAVID NDII explores the disruptive power of ride-hailing apps on public transportation in Nairobi and why both the government and the matatu industry should be embracing the commuter ride-hailing apps instead of fighting them.

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Who Is Afraid of Commuter Ride-Hailing Apps? Tech Meets Matatu, and Why Nairobi Does Not Need State-Run Public Transport
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Technology platforms have become disruptors in unexpected places. They have over the years disrupted the music distribution business, the book trade, and even the hospitality industry, but none has been as turbulent as Uber’s disruption of public transportation.

A couple of days ago, the commuter ride-hailing app services Little Shuttle and SWVL announced that they were suspending their operations. Little Shuttle and Little Cab ride-hailing apps are products of technology company Craft Silicon. SWVL is an Egyptian start-up that has invested in the country to do this specific business. Launched seven months ago, SWVL is reported to have 150 buses serving 100 routes, and has raised Sh1.5 billion from investors to expand its operations.

The National Transport and Safety Authority (NTSA) subsequently issued a statement giving its reasons for the suspensions. The agency explained that the two companies had obtained the “wrong” licence—known as a Tour Service Licence (TSL)—which it deemed to be a violation of Passenger Service Vehicle (PSV) regulations. NTSA also accused the operators of failing to register their vehicles with the authority as required by Section 26 of the Transport and Safety Act No. 33 of 2012. “The two companies have never contacted the Authority to show any intention to operate as commuter service providers”, the NTSA avers.

Technology platforms have become disruptors in unexpected places. They have over the years disrupted the music distribution business, the book trade, and even the hospitality industry, but none has been as turbulent as Uber’s disruption of public transportation.

Section 26 of the Transport and Safety Act, the provision that NTSA claims has been violated, states that “[a] person shall not operate a motor vehicle whose tare weight exceeds three thousand and forty-eight kilogrammes for the carriage of goods or passengers for hire or reward unless the vehicle is licensed by the Authority in accordance with this Part and in such manner as the Cabinet Secretary may prescribe. Violating the provisions, i.e., operating a commercial vehicle without a prescribed licence is a criminal offence that can attract a fine of Ksh. 300,000 or imprisonment for a term of five years.”

The other ground for suspension is that the two operators have violated PSV regulations. To be licensed under these regulations, the operator is required to be a corporate body which may be a company, a cooperative society (SACCO) or other collective registered under the Societies Act, and have a minimum of 30 vehicles owned by the operator or under a franchise arrangement with the owners.

Regulation 7 (f) requires passengers to be “issued with receipts for fares paid, and as from 1st July 2014, operate a cashless fare system.” Another regulation requires “a transport safety management system based on ISO3900.” Obviously, these regulations are not enforced—and therein lies the paradox. The shuttle services that the NTSA has suspended were the closest thing to compliance with the spirit of these regulations that we have seen since the collapse of the Kenya Bus Service (KBS) franchise several years ago. It is in fact not apparent from my reading of these regulations that Little Shuttle and SWVL have violated these regulations in any substantive way.

The NTSA is disingenuous. Investors do not determine for themselves what licences they need. They go to the government and say, look, I want to run a business of the following nature, what do I need? The government then makes the determination and advises the investor accordingly. In the statement announcing the suspension of operations, Little Shuttle’s Chief Executive Officer disclosed that they were operating on the basis of a national Transport Licensing Board (TLB) licence—also issued by the NTSA—which does not restrict them to specific routes. Someone at the NTSA must have determined that a national TLB licence is what they required. Moreover, if it was deemed that there was no suitable licence, the Transport and Safety Act gives the Cabinet Secretary the power to “exempt any person or class of persons or any motor vehicle or class of motor vehicles from all or any of the provisions of this Act.” The NTSA could have advised the investors to apply for exemption.

In his statement, the Little Shuttle CEO alludes to cartels: “I am not sure if the decision to stop us was from the authorities or they were under pressure from the public transport cartels.” There is a whole range of actors that this could apply to, either working independently or in concert. There are the investors, that is, the vehicle owners, the crew who operate the vehicles and control the revenue, route cartels who control access to particular routes and the police extortion racket. The industry has also been associated with money-laundering syndicates. As one of the biggest cash businesses around, it is as close to the ideal laundromat as you can get.

A key challenge that bona fide investors in the matatu industry face is that they are hostage to crew and route cartels. Precisely because PSVs do not issue receipts as required by law, the owners have no way of keeping tabs on revenue. Moreover, even if they could do so, they would still be compelled to give the crew leeway to pay bribes. Students of economics may recognise this as a principal-agent problem. 

The principal-agent problem arises in contractual relationships where the principal (the vehicle owner) cannot observe whether poor performance by the agent (the crew) is because of external factors (e.g. poor market conditions) or lack of effort or dishonesty on the part of the agent. We say that the interests of the principal (maximum effort by the agent) and the incentives of the agent (maximum income for least effort) are not compatible.

To mitigate this problem the industry has come up with a fixed daily revenue target, which in essence changes the contract between the owner and crew from a wage to a vehicle lease. In economic theory, we call this the incentive-compatible contract. An incentive-compatible contract seeks to motivate the parties to achieve mutually beneficial outcomes. This particular incentive-compatible contract has an extremely high social cost. 

Because the crew gets to keep the revenue above the daily target, they are motivated to maximise the number of passengers, and this they do at the expense of road and passenger safety. The cashless system the government sought to enforce would have gone some way towards resolving this problem, which is probably partly why it was resisted—not to mention the resistance by those others with vested interests in a cash business, notably the money-laundering syndicates and the police extortion cartel.

The ride-hailing apps portend a more robust solution to this problem; because of the ubiquity of mobile payments, they can easily combine revenue tracking and cashless payments. And since the revenue is tracked electronically, this makes it possible to enter into a wage contract between the owner and the crew. Crew on a wage contract have no incentive to compromise safety in order to maximise revenue.

That said, it is not evident that the commuter ride-hailing services are an immediate threat to the matatu industry. The two suspended services appear to be more of an alternative to personal cars than direct competitors for matatus. This can only be a good thing in terms of reducing congestion on the roads. Still, the development has caused sufficient concern somewhere, perhaps because the reputation of the disruption caused to the conventional taxi industry precedes Little Shuttle and SWVL. But it is also the case that sometimes these regulatory hurdles are extortion rackets that are intended to extract bribes or a share of the business.

The principal-agent problem arises in contractual relationships where the principal (the vehicle owner) cannot observe whether poor performance by the agent (the crew) is because of external factors (e.g. poor market conditions) or lack of effort or dishonesty on the part of the agent.

There is another vested-interest candidate—the government itself. It is now one and a half years since the government hastily painted some red lines on some of Nairobi’s thoroughfares and declared the lanes thus demarcated dedicated Bus Rapid Transit (BRT) lanes. The red paint has since faded. It is said that the buses are being assembled in South Africa, after local samples failed to make the grade. But other than the now faded lines, there is no evidence of actual BRT infrastructure being built. A BRT system is a metro light rail on the cheap but it also costs. The first phase of the Dar es Salaam system covering 21 kilometres took three years to build at a cost of $140 million (Sh14 billion) while the second phase covering another 19 kilometres will cost $160 million (Sh16 billion).

Nairobi is one of several African cities that do not have municipal public transport. For all their notoriety, matatus, dala dala and tro tros manage to move the cities quite efficiently. They are accessible, responsive, affordable, flexible as well as colourful and entertaining. A number of surveys conducted in Nairobi over the last decade or so indicate that public transport—predominantly matatus—accounts for between 50 and 55 per cent of commutes in the city; 40 per cent of commuters walk, while between 8 and 12 per cent use private cars.

By way of comparison, London’s elaborate public transport system comprising of buses covers 35 per cent of the commutes. The iconic underground moves 10 per cent. For all the congestion hullabaloo, a recent paper titled Commuting in Urban Kenya: Unpacking Travel Demands in Large and Small Kenyan Cities, published in the academic journal Sustainability, observes that average commuting journeys in Nairobi are comparable to those of major cities in the United States such as New York and Los Angeles.

This data is telling us that Nairobi is none the worse for lack of a municipal public transport system. Municipal systems are hugely expensive to build and to run, requiring operational subsidies. At £17.6 billion (Sh2.3 trillion) and counting, CrossRail—London’s new train system which has been under construction since 2009—is billed as the most expensive public infrastructure project in Europe. As observed, the Dar es Salaam BRT has already cost $300 million (Sh30 billion) and is nowhere near solving the city’s congestion problem.

There is, in fact, a parallel between what the commuter ride-hailing apps are trying to do and the story of mobile telephony in Africa. The phenomenal growth of mobile telephony in Africa is, to a large extent, a leapfrogging of the largely non-existent landline telephony. The same applies to the innovations around mobile telephony, notably mobile money, reflecting the poor reach of financial services referred to nowadays as financial exclusion. Mobile telephony systems and services are estimated to account for close to 9 per cent of Africa’s GDP, only marginally below manufacturing at 10 per cent, which is remarkable for a sector that is only two decades old.

To mitigate this problem the industry has come up with a fixed daily revenue target, which in essence changes the contract between the owner and crew from a wage to a vehicle lease. In economic theory, we call this the incentive-compatible contract

Like landline telephony, public urban transport systems are characterised by rigidity. Customers must go to the bus or train and follow fixed routes and timetables, just as in the old days when we used to have to go—sometimes for miles—to reach a telephone. To send money urgently, you went to the Post Office to send a telegraphic money order which was physically delivered to the recipient who in turn physically went to cash it at the Post Office.

The disruptive power of ride-hailing apps is what the Little Shuttle CEO refers to in his memo as “supply and demand software technology.” In plain English, this is about using customer ride request data—how many customers want to travel, when and where—to provide services that are responsive to demand in terms of capacity, routes, scheduling and pricing. But this is not entirely new; one of the reasons why matatus eclipsed scheduled bus services is precisely because they were more responsive.

As observed, between 8 and 12 per cent of Nairobi’s estimated three million commuters use private vehicles This works out to something in the order of 300,000 commuters and, assuming two people per car, 150,000 vehicles that spend eight hours or more hogging parking spaces—Sh150 billion worth of idle capital, over and above fuel, pollution and congestion costs.

Nairobi’s public transport imperative is to put more of these people on matatus and this seems to be precisely what the suspended ride-hailing services had set out to do. A smart government would be doing its best to make commuting by private vehicles costly. How so? For starters, the Nairobi County government needs to go back to a time tariff for street parking. Leaving a private car in a street parking all day should be extremely punitive. I would propose a rate of Sh100 per hour. We may also want to think about applying congestion charges on the city’s main arteries: Mombasa Road, Waiyaki Way, Thika Road, Jogoo Road, Ngong Road and Langata Road.

Assuming that each of the minibuses serves 40 commuters who would otherwise travel in private cars, we are talking of each bus displacing 20 private vehicles on the road. If only 20 per cent of driving commuters take to these services, we are talking of replacing 30,000 cars with only 1,500 minibuses. This would certainly have a discernible impact on de-congesting the roads. And the less congested the roads become, the faster the trips, the more attractive using public transportation becomes, and the more profitable the entire industry becomes. Far from fighting them, both the government and the matatu industry should be embracing the commuter ride-hailing apps.

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Should Africa’s Tallest Skyscraper Be Built in a Kenyan Village?

10 min read. The proposed construction of a 61-storey building in Watamu has generated both hopes and fears among local residents, who view the project as either a white elephant with serious environmental consequences or a godsend that will bring much-needed jobs and prosperity to the coastal area. RASNA WARAH examines the pros and cons of this multi-million-dollar project.

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Should Africa’s Tallest Skyscraper Be Built in a Kenyan Village?
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If all goes according to plan, construction work on a 61-storey skyscraper – which is being mooted as the tallest structure in the whole of Africa – will soon start in Watamu, a sleepy fishing village and tourist resort about 20 kilometres south of Malindi along Kenya’s coastline.

But lack of clarity on how the developer managed to get approval for the Sh28 billion ($280 million) project is raising concerns about whether this is another white elephant or phantom project. Questions are also being raised about whether the building is economically feasible and environmentally sustainable.

On its website, Palm Exotjca is marketed as an exclusive development with “chic residential suites, premium commercial space, eclectic restaurants and a vibrant casino”. Three Italians are said to be managing the project: The chairman Giuseppe Moscarino is a veterinarian and neurosurgeon from Rome whose passions are “art, architecture and Africa’s extraordinary beauty”; the managing director is Oliver Nepomuceno, who is described as the manager of several commercial and investment companies and joint ventures; and Lorenzo Pagnini is listed as the lead architect.

The main investors in the project are said to be the Italian billionaire Franco Rosso, along with investors from Switzerland, Dubai and South Africa. According to the developers, an engineering firm in India will handle the structural design aspects of the building while a Chinese company will undertake the construction work. Local engineering and architectural firms will also contribute to various aspects of the construction phase.

When completed, the 370-metre-high building, whose shiny artistic exterior will resemble the trunk of a palm tree, will comprise 270 hotel rooms, 189 luxury suites and apartments and social amenities, such as a shopping mall, a business centre, a theatre, a cinema, a nightclub, a fitness centre, a wellness spa, a children’s play area and four swimming pools – all of which invoke images of Dubai or Las Vegas.

The problem is that Watamu is not Dubai or Las Vegas. This fishing village and beach resort with a population of 14,000 barely has the infrastructure to service a level 4 hospital, let alone a skyscraper of this size. MAWASCO, the water utility company, already has problems meeting the water demand in Watamu and there are no signs that it intends to increase supply during the construction phase of the project or when it is completed. The Kenya Power and Lighting Company has promised to upgrade the Kakuyuni sub-station with a 23 MVA transformer and 25 kilometres of an overhead line, but only on the condition that the developer pays for the upgrade, which will cost Sh161 million.

Moreover, Watamu is hardly a vibrant tourist destination and commercial hub along the lines of Rio de Janeiro or Miami. What were the developers thinking when they came up with the idea and how do they expect to fill up all these hotel rooms and apartments?

Other such projects, such as Flavio Briatore’s Billionaire Club in Malindi – which was marketed as “a club for the world’s richest” – also had ambitions to attract the wealthy from around the world, but Malindians have yet to see Bill Gates or the Saudi Prince Mohamed bin Salman check in. On the contrary, Briatore has threatened to sell his other hotel, Lion in the Sun, in Malindi because he says that the unattractive business environment and poor infrastructure in the town are keeping foreign tourists and investors away.

In an article published in Coastal Guide, Issue 20, July 2019, Damian Davies, the general manager of the Turtle Bay hotel in Watamu, questioned the viability of the Palm Exojca project and whether the investors will get a profitable return on their investment. “There are lots of properties for sale in Watamu that aren’t selling; who will buy an apartment in a tower some distance from the beach when no one is buying beautiful beach properties?” he asked. “We don’t want a start-up that for economic reasons isn’t finished: a partially completed skyscraper.”

Red flags

Malindi and Watamu are currently experiencing a slump in tourism. Hotels are either shutting down or scaling down.

Many Italian residents are selling their villas to go back to Europe or to move elsewhere. But there is simply no market for these properties. Those that do manage to sell their houses often do so at below-market rates, mainly to Kenyans from Nairobi looking for a holiday home.

Italian and other tourists are flocking to other destinations in East Africa, such as Zanzibar, which have not been tainted by the threat of terrorism, and which have more superior amenities and infrastructure. The idea that this luxury development will be the magnet that will pull in tourists and foreign investors could simply be wishful thinking.

At a public participation meeting organised by NEMA at the site of the building on 3 October, Mr Moscarino, the chairman of Palm Exojca, explained that this exclusive development will bring another type of high-end visitor to the area and is not competing with the hotels in the vicinity. He added that he was very proud to be associated with the tallest building in Africa.

However, let us say that the project is viable and there is a market for it, this question still remains: Why build such a tall structure in a village that is not a commercial hub and where most buildings are just one-storey tall? Wouldn’t it be incongruous with its surroundings? Wouldn’t it be like building a skyscraper in the middle of a desert? If you have to build the structure, why not build a scaled-down version?

The answer perhaps lies in the fact that skyscrapers are more about ego and prestige than about economics. Very tall structures, such as the Petronas Towers in in Kuala Lumpur and the Burj Khalifa in Dubai, are a kind of phallic symbol representing strength and virility. The skyscraper is to the modern world what the obelisk was to the ancient Egyptians – a monument that projects mystical power and status. But is this what Watamu needs?

Kilifi County has given the go-ahead to the project perhaps in the belief that it will generate jobs and stimulate the local economy, but Najib Balala, the Cabinet Secretary for Tourism, is not convinced that this is the kind of project that Watamu requires. He feels that a more suitable location for the project might have been Mombasa or Nairobi. He has also advised the National Environmental Management Authority (NEMA) not to approve the project. “That 61-storey skyscraper on a small plot in Watamu must not be built,” he is reported to have said.

What raises a red flag is the fact that the Palm Exotjca website lists its address as One World Trade Centre, Suite 8500, New York, but that address seems to be a virtual one intended to impress high-end clients. The other address is a plot number and P.O. Box number in Mombasa, but there is no email or phone number provided. The phone number listed on the website is a Washington DC number that goes unanswered. One concerned resident who has been following up on the matter said: “When we call the phone number listed on the website, no one answers it and has not for over a year. So why is it so difficult to find the real phone number if Palm Exotjca really wants to sell high-end apartments?”

According to residents’ associations and other concerned groups in and around Watamu who have raised their objections regarding the project with NEMA, Vitamefin Limited, the company that is listed as the owner of one of Palm Exojca’s plots in Watamu, was previously registered in the US Virgin Islands. However, the Virgin Islands Official Gazette, Volume XLIX, Number 78, shows that this company was struck off the register of companies on 1 May 2015 for non-payment of annual fees.

NEMA says that it has conducted an Environmental and Social Impact Assessment (ESIA) that shows no adverse environmental or social impacts related to the project. But Augustine K. Masinde, the National Director of Physical Planning in the Ministry of Lands and Physical Planning, disagrees. In a letter to the Director-General of NEMA dated 12 July 2019, he raised concerns about the conformity of the proposed development with physical planning laws and zoning regulations. He also said that certain issues, such as the environmental suitability of the parcel of land for the proposed development and availability and adequacy of requisite infrastructure and services, needed to be clarified. “In view of the foregoing, we advise that you suspend the approval of the proposed development to allow proper review and audit to establish its sustainability,” stated the letter.

A memo to NEMA – submitted on 21 July this year on behalf of the Watamu Association, the Kilifi Residents Association, the Kilifi County Alliance, Watamu Hoteliers, Local Ocean Trust, Watamu Marine Association, A Rocha Kenya, Watamu Against Crime, Watamu Property Managers and the Jiwe Leupe Community Association – lists several problems with the project, including:

  • The project is disproportionate in scope and scale, both technically and financially. The substrata along the Kenyan coast is highly unsuitable for very tall buildings.
  • There has been lack of meaningful public participation by the developers and the ESIA team.
  • Watamu lacks the skilled labour force to put up such a structure. The immigration of a large, well-paid skilled workers into Watamu has the potential for significant social, cultural, economic and moral hazards.
  • The area lacks the required infrastructure, including water and electricity supply, for such a large-scale project.

Lack of sufficient and meaningful public participation is of particular concern to the residents, as it was with the proposed coal-fired plant in Lamu. In the case of Lamu, lack of public participation was a key consideration in the National Environment Tribunal (NET)’s ruling. In its 26 June 2019 jugement, NET ordered Amu Power, the key player in the proposed Lamu coal project, to halt construction of the plant and to undertake a fresh ESIA for the project. It noted that the ESIA carried out for Amu Power was flawed in one key aspect: it did not involve public participation, which is a constitutional requirement. It noted that lack of public participation was “contemptuous of the people of Lamu”.

Mike Norton-Griffiths, the chairman of the Watamu Association, says that the major flaw in the project is in the planning. He says that nine completely independent projects are buried in the ESIA, each requiring an ESIA and planning permission, and each needing to be completed before the main project. Yet this has not been done.

There are also serious environmental concerns. Watamu is home to the Arabuko Sokoke Forest, the famous Gede ruins and a marine park that is the breeding ground for turtles and other marine life. There are concerns that improper handling of wastewater and sewage from the project – both during the construction phase and when it is completed – could negatively impact the biodiversity in the region.

Simmering tensions

The above concerns were partially addressed on 3 October at the public participation meeting organised by NEMA, which I attended. A Kenyan engineer recruited by Palm Exojca made a detailed slide presentation explaining how the development will deal issues such as wastewater and even birds who could die accidentally by crashing into the tall shiny structure. (Much of this presentation was lost on the local communities attending the meeting, but that did not deter him from going on with the hour-long presentation.)

The meeting, which was attended by NEMA, county government officials, some representatives of residents associations, and a large group of people from the community, at times appeared stage-managed and intended to allay any fears that the project was unviable or environmentally unsustainable.

But what also came out loud and clear at the meeting was that the local residents view the project as a contest between the national government and the county government of Kilifi and between the (mostly British) expatriate community and the Italian investors. Speakers at the meeting emphasised that this was a project supported by the county government and that the national government should not interfere with it. “Those opposed to this project are enemies of devolution and enemies of the people,” said one very vocal community leader, whose statement was met with roaring applause from the audience.

Supporters of the project, including the governor of Kilifi County, Amoson Kingi, believe that the project will bring in much-needed jobs to the area and will boost tourism. Community members at the meeting repeatedly cited employment as the main benefit of the project. (The majority of the local residents will neither be able to afford the amenities offered at Palm Exojca, but they do hope to find low-paid and semi-skilled jobs in the luxury development.)

It is hard to argue with the sentiments of the majority of the local people, who have been marginalised for decades and who suffer from high levels of poverty and underdevelopment. (Kilfi County is among the six poorest counties in the country.) A project like this could change their fortunes in significant ways by generating hundreds of jobs both directly and indirectly. When you have not seen any real development in your area for years, despite the presence of a large numbers of beach hotels, a project like is hard to resist, even amid environmental concerns. As one speaker at the meeting pointed out, “Nobody talked about how the beach hotels in Watamu would affect turtles. So why should this development, which is not even on the beach (it is 366 metres from the ocean) be of concern?”

The project has also unveiled simmering tensions between the indigenous local residents and the largely British expatriate residents. Kilifi North MP Owen Baya, a vocal supporter of the project, claims that the British people living in Watamu are opposed to the project because it will “block their view of the ocean”. But he does not say how the influx of wealthy foreigners into Watamu when the building is completed will affect the local population. Will it give rise to other types of tensions?

There is also the issue of double standards. Someone I spoke with who did not want to be named told me that the Europeans living in Watamu live there only half the year; they spend the rest of the year in Europe. “These people can enjoy First World amenities, like theatres and nice roads and pavements, whenever they want to. But they want Watamu to remain a backwater whose unspoilt natural environment they can enjoy whenever it is convenient for them. But what about the locals who have never been to a cinema or even travelled outside their county? Don’t they deserve a taste of modernity?”

The locals clearly view the Italian investors as a godsend that will bring much-needed employment and development to the area. One MCA even referred to Mr. Moscarino as “our small God”.

“Even London began as a small village,” said another speaker. “We want Watamu to become a city like Dubai.”

Owen Baya, the Kilifi North MP, told the audience that until a hundred years ago even Nairobi was just a swamp, and wondered why there was so much resistance to this particular project.

At the meeting, Mr. Moscarino gained additional points with the locals when he sold the development as a social responsibility project. He told the cheering crowds that the developers will build a hospitality school and a secondary school in Watamu and that up to 2,000 local people will be hired as drivers, carpenters, construction workers and the like during the construction phase. It was obvious that he was exploiting the fact the majority of residents are too poor and illiterate to refuse such a generous offer. His statement was met with loud cheers.

As I left the NEMA meeting, I did wonder whether if, for any reason, the project is not completed – and the promised jobs and schools never materialise – what effect this will have on the local people. Will dashed hopes lead to even more resentment?

We can only wait and see if indeed the local people’s dreams will be realised in five years when the construction of Palm Exojca is expected to be completed. Palm Exojca could either be the catalyst that spurs development in Watamu or the Trojan horse that introduces vices that threaten to destroy a way of life. It could also be a case study in how economic opportunities often trump environmental concerns when it comes to “development”, especially in areas that are poor and marginalised.

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That Sinking Feeling 2.0: Who Is to Blame for Tanzanian’s Ferry Disasters?

5 min read. Systematic overloading of poorly maintained state-owned vessels, compounded by human error, explains why Tanzanian marine transport is so dangerous, but who is answerable for mass deaths on Tanzania’s lakes? nobody, it would appear writes BRIAN COOKSEY

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THAT SINKING FEELING: Who is to blame for the MV Nyerere ferry disaster?
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On the 20th of September 2018, the ferry MV Nyerere capsized in shallow water at the tiny port of Ukara Island on Lake Victoria. Nearly 230 men, women and children drowned, most of them trapped inside the upturned hull. About 40 people were rescued by small boats. The vessel had a capacity of 100 passengers. Many of the dead were buried on the lakeshore, identities unknown, victims of Tanzania’s shoddy, state-run ferry services. President John Pombe Magufuli immediately declared four days of national mourning and flags flew at half-mast on public buildings. “Negligence has cost us so many lives . . . children, mothers, students, old people”, he lamented, ordering the arrest of “all those involved in the ferry.” Three days later, Prime Minister Kassim Majaliwa set up a seven-person Commission of Enquiry led by the former Chief of the Defence Forces, General George Waitara, to establish the cause of the accident and bring those responsible to book. The commission was given a month to report. That was the last the public heard of it, for the commission has shown no signs of life in the twelve months since the accident, during which period the political opposition, media and civil society organisations have kept quiet on the issue of state accountability for the accident. For who else can be held accountable when a state-owned and state-managed boat capsizes? There was no stormy weather to blame. A few commentators, including the state-owned Daily News and commentator Nkwezi Mhango, went so far as to blame the victims for knowingly, recklessly, boarding an overloaded craft. Writing in The Nation, Professor Austin Bukenya recommended “discipline” among passengers who should know better than to clamber onto overcrowded ferries. Presumably, they should wait for the next (uncrowded?) one. . .

Systematic overloading of poorly maintained state-owned vessels, compounded by human error, explains why Tanzanian marine transport is so dangerous. Unknown numbers die when small private vessels—mitumbwi (dug-out canoes) and ngalawa (canoes with sails and outriggers)—capsize. But the large steel boats run by the state are supposed to be orders of magnitude safer than the traditional modes of water transport.

Since the MV Bukoba capsized and sank in 1996, with the loss of an estimated 1,000 lives, Tanzanians have continued to die in large numbers in further ferry disasters, including two in Zanzibar waters within less than a year of each other claiming more than 1,800 lives. To date, no government official or private operator (the Zanzibar ferries were privately owned) has been held responsible for any of these disasters.

Accidents Waiting to Happen

Overcrowding ferries is systematic and intentional. A 200-passenger ferry is allowed to carry, for example, 400 passengers. The 200 “official” passengers are recorded on the vessel’s manifest, the 200 “unofficial” ones are not recorded and their fare is pocketed by the officials responsible for the management and the safety of the ship. Income that should be used for maintenance and repairs is similarly pocketed, leading to regular breakdowns and the suspension of services, thus increasing the overcrowding problem. Those anonymous corpses buried on the beach at Ukara are the “collateral damage” caused by rent-seeking government officials. A ferry service that is privately-owned and managed would deprive these officials of their rents; that is why ferry services remain a state monopoly.

Large-scale accidents on Lake Victoria are therefore arguably the result of a state monopoly of formal ferry services which dates back to the colonial period when the East African Harbours Corporation provided ferry services for the three East African countries. President Magufuli is committed to the improvement of lake transport, but it is taken for granted that the state will run the show. Magufuli has commissioned four new ferries and ordered the rehabilitation of old ones.

Marine Services Company Ltd (MSCL) and Tanzania Electrical, Mechanical and Electronics Services Agency (TEMESA) are the two official agencies responsible for running cargo ship and ferry services on Tanzanian waters. Prior to its incorporation in 1997, MSCL was the marine division of Tanzania Railways Corporation (TRC). The rationale for restructuring MSCL was to make it and other parts of TRC semi-independent “business units” to increase efficiency and profitability. According to its website, MSCL “operates ferries, cargo ships and tankers on Lake Victoria, Lake Tanganyika and Lake Nyasa. It provides services to neighbouring Burundi, DR Congo, Zambia and Malawi.” Over the years, these services have steadily dwindled. While MSCL used to run nine sizeable passenger and cargo vessels, breakdowns and lack of maintenance have left the company with only two. Laid up since 2014, the MV Victoria and MV Butiama are finally being rehabilitated at a cost of Sh26 billion, or $11.4 million, but will not be operational before March 2020 according to MSCL project manager Abel Gwanafyo, quoted by the Citizen newspaper on 8 August. Since the “rehabilitation” is only partially complete (22.5 per cent in the case of MV Butiama) further delays may be expected. The rehabilitation is part of a Sh152 billion ($67 million) shipbuilding and infrastructure development project launched by the President in August last year. At the launching ceremony, Magufuli revealed that he once considered disbanding MSCL but changed his mind because of the “exemplary performance” of the company’s new CEO, Eric Hamissi, in beginning to turn the company around.

While MSCL runs larger ships over longer routes, TEMESA—which is an executive agency under the Ministry of Works—serves short river crossings as part of the road network. Established in 2005, TEMESA operates double- and single-ended Roll on-Roll Off (‘ro-ro’) car ferries, mainly in remote locations where traffic volumes do not justify the construction of bridges. TEMESA’s “mission” involves “running safe and reliable ferry services”, including the ill-fated MV Nyerere. As a result of last September’s disaster, the President summarily suspended TEMESA’s Director General Dr Musa Mgwatu and its advisory board.

Finally, after the MV Nyerere disaster Magufuli took to task the country’s transport regulator, the Surface and Marine Transport Regulatory Authority (SUMATRA), summarily suspending its board of directors. In November 2017, the president signed the Tanzania Shipping Agencies Act which established the Tanzania Shipping Agencies Corporation (TSAC) to take over SUMATRA’s responsibility for marine transport regulation. According to lawyers Clyde and Company, TSAC was to become operational in February 2018. With a narrower scope than SUMATRA, it was hoped that the new agency would operate with greater efficiency and bring increased transparency to Tanzania mainland’s marine transport sector. The appointment of board members from the private sector as well as from government should, according to Clyde and Company, allow TSAC “to operate with an effective commercial approach.” It is unclear why SUMATRA rather than TSAC, was taken to task over the MV Nyerere accident.

The ferries the government commissions for service on Tanzanian lakes are mostly built by Songoro Marine Transport Ltd, owned by Mr Saleh Songoro and Sons of Mwanza. Mr Songoro bought the company—which was set up with aid from the Netherlands—when it was privatised in 1998. Songoro has a good working relationship with Dutch firm Damen Shipyards, one of the world’s largest builders of small ships. But a private shipbuilding monopoly serving monopoly state agencies is not going to solve the problem of inadequate and accident-prone transport services on Lake Victoria. The chronic shortage of lake transport is the maritime equivalent of poor urban public transport, which Dar es Salaam suffered during the days of the Usafiri Dar es Salaam (UDA) public transport monopoly. Private minibuses (daladala) were permitted in 1985, much to the relief of Dar es Salaam’s long-suffering citizens. The inhabitants of Lake Victoria’s shores are still waiting for their maritime daladala to come on stream.

Would Private Ferry Services Reduce the Death Toll?

Would privately owned, privately run ferry services be safer and more efficient than what we have now? It is possible that private services would be equally prone to rent-seeking and inefficiency in the absence of transparent and accountable contracting and regulation. On the other hand, private operators are more likely to maintain their vessels in order to maximise profit than state-run services, where all income flows are potentially vulnerable to self-destructive rent-seeking. They are also more likely to take safety issues more seriously than a state-run service, since private operators are more likely than civil servants to be held accountable in the event of a major accident. Since the ruling elite includes those who have little belief in or respect for the private sector, we could expect a more determined search for culprits and sanctions, especially if the boat-owners were Asians, Arabs or Caucasians.

President Magufuli has been widely praised for instilling discipline in government offices, hospitals and schools and sacking top officials deemed not to be performing and promoting those who are. But accountability is personal, not institutional, and the president clearly does not want to challenge all agencies equally. Since there is no public debate over privatising lake transport, we can expect Lake Victoria ferry passengers to continue being the potential victims of overcrowded and dangerous ferry services.

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