The Economic Promise of the East African Railway

by Patrick Malone

On May 11, Chinese Premier Li Keqiang and Kenyan President Uburu Kenyatta, together with representatives from the East African Community (EAC), agreed to co-finance the construction of the Mombasa-Nairobi Railroad.  This railroad is part of the East African Railway (EAR) project that will connect East Africa from Mombasa, Kenya to Bujumbura, Burundi, inaugurating a new age of African infrastructure investment.

The 1,824-mile EAR will connect several East African cities, including Nairobi and Kisumu in Kenya, Kampala in Uganda, and Kigali in Rwanda, with connections to Juba in South Sudan, Addis Ababa in Ethiopia, and Kisangani in the Democratic Republic of Congo (DRC).  The economic impact will be huge. Not only will the EAR open up lucrative mining and oil markets as deep into the interior as Kisangani, it will reduce overland transport costs and travel time while also accelerating the integration of the EAC economic bloc and the proliferation of intraregional trade.

Since the EAC’s inception in 2000, member states have profited enormously.  Between 2006 and 2010, intraregional tradegrew from $1.6 billion to $3.8 billion.  Still, EAC intraregional trade stands at twelve percent of total trade as compared to the European Union’s figure of sixty percent. By linking East Africa’s shipping ports more efficiently and more rapidly to interior states, the EAR will move more goods quicker and strengthen these regional ties while narrowing the intraregional trade gap. The EAR’s impact alone on transport costs will be impressive. Currently, moving a container of goods between an East African port of entry and the interior takes an average of seventy-five days and costs an average of $4,000. EAR freight will travel 120 kilometers per hour and lessen the cost to ship freight by more than fifty percent. The EAR project will also offer substantial job opportunities. The EAR’s Chinese contractor estimates that for each kilometer of track, the EAR will generate sixty jobs.

Rwanda and Burundi are a case in point. The projected railroad will be the first of its kind between these neighboring nations, both of which have long suffered high transportation costs and faced low levels of employment. In Rwanda alone—where ninety percent of Rwandese are subsistence farmers—the EAR is projected to generate 30,000 labor and 7,000 skilled jobs during its initial construction. Furthermore, in eastern Burundi, newly discovered nickel deposits can be reached and easily exploited by a more efficient rail system.

Despite these positive projections, cost, terrorism, geographic obstacles, and national rivalries are all potential spoilers for the EAR. The foremost challenge will be meeting the project’s colossal price tag. China’s Export-Import Bank will provide ninety percent of the first leg’s $3.8 billion price tag, but this contribution barely makes a dent into the EAR’s estimated $13.5 billion overall budget. Kenya’s meager ten percent contribution speaks volumes of East Africa’s financial predicament. If the region’s largest economy finds the price tag burdensome, its smaller neighbors will struggle to pay their share. China may be a politically advantageous choice of financier as East African countries look to pivot away from what Ugandan President Museveni has characterized as Western donor overreach, but it is not yet altogether certain that they will foot the bill for the EAR’s southwestern sections. It is unlikely that EAC members will be able to generate financing on their own, and accessing Western investment to fill this gap may prove difficult with donors questioning Uganda’s anti-homosexuality legislation and Rwanda’s alleged support of destabilizing militias in the DRC.

Another concern is the unstable security situation. In mid-May, two deadly explosions by Somali insurgent group al-Shabaab rocked Kenya’s capital. With President Kenyatta continuing to support military operations into Somalia, terrorism is a serious threat within Kenya.  Security must be ensured if the EAR hopes to attract investment and meet the expected returns of its financiers.

The EAR’s geographic endpoints also pose certain physical and political challenges. For instance, Rwanda and Burundi have no pre-existing rail lines. With seventy-four percent of available land dedicated to agriculture, political leaders in both countries will need to decide where to build these lines and how to acquire that land. Political wrangling is not unfamiliar to many EAC politicians, but fractious governance could further damage the EAR’s prospects. International financing will require that the EAC avoid future political pitfalls, such as arresting political rivals to disguise national security mistakes.

On the positive side, the regulatory environments of many EAC member states remain attractive to direct foreign investment and the extractive sectors continue to grow and innovate. As construction begins, success depends on whether leaders can look beyond their own political livelihoods and put their nation’s interests first, a challenge that other authors in this serieshave highlighted. EAC member states should seek more, not less, integration and cooperation, and allow stability and trust once again into these often tempestuous relationships.  If the EAC can navigate their problems, the EAR will help to bring prosperity to East Africa.

About the Author

Patrick Malone is a Master of Arts in Law and Diplomacy candidate at The Fletcher School where he is studying International Political Economy and Development Economics. Prior to Fletcher, Patrick spent two years working with the United States Peace Corps in Rwanda, where he supported several education, public health and infrastructure development projects.

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