Impact and Benefits of the Standard Gauge Railway in Kenya

The Standard Gauge Railway (SGR) is one of the flagship projects in Kenya’s economic blueprint ‘Vision 2030’, which aims to transform the economic, political and social state of the country by 2030.

The Standard Gauge Railway, currently under construction is the most expensive transport project Kenya being undertaken in the recent times. It is important to note that the SGR is not just a new track, but the foundation for an efficient transport corridor to catalyze Kenya’s growth into 2030 and beyond.

The first phase from Mombasa to Nairobi Standard Gauge Railway is almost complete and the trains are operating between the Miritini SGR Terminus and Syokimau SGR terminus. However, there are plans to extend the SGR from Syokimau to the old Railways station in Nairobi CBD, and another extension to the Jomo Kenyatta International Airport. Similar plan

The next phase will extend the SGR from Nairobi top Naivasha. This will be followed by another phase that will link Naivasha and Kisumu and then Malaba.

The transformative power of a railway line has already been demonstrated by the current line. The multi-billion-dollar investment will also run alongside the old British-built line and is to be extended to West Africa as part of the Great Equatorial Landbridge, connecting the East African coast to the West African Atlantic coast.

Analysts have hyped the SGR as the next game changer in East Africa whose impact will be likened to that of the ‘Lunatic Express’ during its time more than a century ago.

How SGR will link Kenyan towns and beyond

The Mombasa-Nairobi section is only the first part of a much larger project. The standard gauge railway is planned to run between Mombasa and Malaba and eventually link to other major East African cities; Kampala, Kigali, and Juba. With this, the Kenyan government is hoping to strengthen ties between the corresponding countries creating a network of viral links between ports and key cities in East Africa.

It involves construction of 700 km of standard-gauge track, 33 stations, and dozens of wagons and locomotives. Just like its huge cost pegged at KSh447.5bn ($4.99bn), so are the expectations that it will transform transport in East Africa and strengthen cross-border political and economic ties.

Benefits of SGR in Kenya

 

While appearing on the recent CNN Market Place, Atanas Maina, Managing Director of Kenya Railways, termed SGR as the most significant game changer that we have ever seen.

He explained that the cost of the investment is roughly six percent of the Kenya’s GDP, to the program

He goes on, “The bulk of the cargo has gone to the road. We’re looking by the year 2025, we should be able to achieve up to 40 per cent through a scheduled network.’’

Aly Khan-Satchu, CEO of Rich Management Ltd who was also on the Weekly program, said that the real benefit will be from the spillover effect, the industrialization that will happen around this railway, the cheap power that people will plug into, the ability to access this big global market.

They told CNN that the expansion is expected to take trucks off the road and cargo back onto the tracks, with only five percent of cargo currently being transported by rail.

Also, Felipe Manga, research, and planning manager at the Kenya Railways Corporation said “The benefits are so huge. Kenya is the entry point for three landlocked countries, and what happens here directly affects those countries. This will create efficient regional links, improve business within the EAC and foster strong multilateral relationships.”

 

Top Benefits of the Standard Gauge Railway in Kenya

 

Reduced transport cost

The SGR project is expected to reduce rail transport costs from $0.20 to $0.08 per ton per kilometer. This cost saving is generated by use of block trains with economies of large scale compared to narrow gauge and road transport

Reduce time to travel between Mombasa and Nairobi

The SGR trains will be able to attain a speed of up to 120Km/hour. This will greatly reduce the time required to move between the Kenyan towns.

According to The International Railway Journal, the new line is hoped to cut travel time from Mombasa to Nairobi to four hours for passengers, eight hours for freight trains significantly reducing travel time between the two cities from the current 15 hours to four and making a considerable impact on transport activities.

Gross domestic product (GDP) growth

The CCCC argues that the project will contribute to an annual GDP growth of at least 1.5% during construction.

SGR will help in Job creation

Job creation will result directly from the construction and maintenance of the SGR-Line and from the transport of passengers and goods.

Also, subsequent operation will create at least 60 new jobs per kilometer of the track during the construction period.

Similarly, the CCCC claims the construction could create at least 10,000 jobs locally as large quantities of local inputs such as steel, cement, aggregates, electricity generation and electricity transmission pylons and cables, roofing materials, glass are required from local industries.

Other than the jobs relate to the construction, the areas around the SGR stations along the route, or towns where they will be stopping, will see increased economic activities. This will include markets, hotels, transport, and trade.

Increase in industrialization

Kenya’s industries will also benefit from the demand for inputs that the project will obviously spawn. The opportunities are immense, especially for individuals and SMEs. Demand for steel, cement, aggregates, electricity pylons and cables; roofing materials, glass etc. is likely to surge.

Also, once business people gather confidence that goods they fabricate and farm produce they add value to will reach their target markets on time, processing plants will naturally sprout.

 

Business growth along the SGR route

First, the inevitable emergence of trading centers along the SGR route and especially in the immediate neighborhoods of termini will certainly influence a new socio-economic dynamic whose value will manifest in unforeseen opportunities.

The SGR provides ground for burgeoning upstream business. The SGR will result to investments such as hotels, accounting, real estate, roads, engineering, consulting, etc.

Companies will most likely set up shops near or along the line and also hotels will be located near to procure goods and services from the locals.

Regional growth East Africa and beyond

Kenya is the most powerful exporter and importer in the East African region, thus provides a much needed regional business environment that factors growth of opportunities for trade.

Kenya has developed financial systems, open and robust markets, and already significantly ahead beside a massive economic growth buoyed by prospects of low power costs, commodities, and crude sales in the short and long-term. The SGR is both value addition and a direct economic driver.

Entrepreneurship opportunities from SGR

Local entrepreneurs will have the opportunity to participate in the provision of railway transport services by investing in locomotives and rolling stock.

A vibrant local tourism culture will benefit many entrepreneurs. Job opportunities away from key urban centers mean that the craze to head to Nairobi, Mombasa or Kisumu will die out. County governments, on the other hand, will enjoy higher taxes from facilities tied to the SGR.

Urbanization along the SGR route

Similarly, the SGR will significantly influence land use and spur development in the areas around where it will traverse. Whenever human settlement hurdles people into a common area, traders will instinctively troop in. Therefore, from foodstuffs to clothing, construction to training, opportunities will abound.

Workers will also require services such as catering, healthcare, security, and entertainment.  In this way, the SGR project will create a captive market for service providers in these sectors.

Establishment of training institutions

The onus is on training institutions to take advantage of the existing skills deficit in the country within these areas. Some 15,000 Kenyans, with the required skills, will be needed on the project during construction and after.

Conclusion

The project has been met with a lot of criticism, with opposing camp questioning its economic value to the country. Moreover, environmental issues have also been raised about the project, with the Standard Gauge Railway cutting through national parks and impacting wildlife. Despite this, the government says they have made provisions to diminish these effects.

Also, many Kenyans, regional importers, and exporters have already inbuilt the SGR into their 2018 logistics model. Any delay in completion would imply delayed cost savings to them.

As part of the logistics chain, SGR efficiency will practically be measured by its users based on time, cost and place benefits. In other words, the time it takes to transport goods from say Mombasa port to Nairobi, the total cost and the coverage of the current and potential economic engines.

In the long run, the benefits arising from the Standard Gauge Railway (SGR) project still outstrip its cost by far.

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