Basic

Privatisation of ports: East African countries weighing the pros and cons

Posted by: Semere Asmelash

Date: Monday, 27 November 2023

Some of the world's major port operators have shifted attention to East Africa. Photo: Tanzania port authority

By Nuri Aden and Gaure Mdee    

The building blocks are in place, and the momentum is picking up. After a long period of stagnation, African economies are swimming with the development tide and anchoring the continent to the global chain through their ports.

But while some of the world's major port operators have lately shifted their attention to East Africa, privatisation of ports in the region remains challenging.

Despite an abundance of natural resources and the availability of port infrastructure in many countries, the operation and efficiency of these facilities have been problematic due to a lack of modern equipment.

Ports are vital components of international trade interactions. They often serve as primary routes connecting various nations, providing services for transporting goods and raw materials. Without ports, a large portion of the global economy would stall.

Ports located in the Indian Ocean and the Red Sea are major trade routes and integral to the global supply chain. They are part of the oil and gas supply routes and the newly planned trade routes developed by China, known as the "Belt and Road Initiative".

Ports in Tanzania and Kenya share challenges like congestion and outdated infrastructure.  Photo: Tanzania port authority

The emerging situation has acted as a significant catalyst for countries and organisations with resources and extensive experience in port operations, such as Singapore, the Netherlands and China, to quickly obtain contracts in countries struggling to operate and develop their ports. World's ten largest ports are located in these three countries.

Port wars

Modern ports require the capacity to achieve economies of scale and to service large container ships that significantly impact international trade. Fundamentally, you can only be a significant trade hub with the infrastructure and operation of large ports.

Ports in Tanzania and Kenya share similar challenges like congestion, outdated infrastructure and intense competition from other regional ports.

In keeping with the trend, many African countries have opened their doors to private investment, benefiting investors and promoters alike.

The scramble for regional port ownership in East Africa led Tanzanian President Samia Suluhu Hassan to declare that expediting the privatisation deal was in the country's interest, given that "the neighbour has similar ambitions".

Approximately 95% of Tanzania's international maritime trade is handled at Dar es Salaam’s port. This port services six landlocked countries, including Malawi, Zambia, Burundi, Rwanda, Uganda, and the eastern part of the Democratic Republic of Congo.

 95% of Tanzania's maritime trade is handled at Dar es Salaam’s port. Photo: Tanzania port authority

In Kenya, a contract with a foreign private investor will enable the latter to manage the facilities of the Kenya Ports Authority, including the new port of Lamu.

Besides Kenya, the port also serves countries such as Uganda, Burundi, Rwanda, Eastern Congo, South Sudan and Ethiopia.

It is also directly connected to the major ports of Western Europe, Asia, America and the Middle East.

Plans for privatisation ran into opposition before the country’s last elections, although the government had already entered into an agreement with an investor by then.

The contract was scheduled to be implemented in July 2022, and the government was required to request proposals before the August elections. This would have allowed investors to manage the facilities of the Kenya Ports Authority, including the new port of Lamu.

The country only recently returned to renegotiate new agreements.

Investor intentions

For a long time, private entities have been angling for ports across Africa including in Mozambique, Tanzania, Kenya, Somalia, Eritrea and Djibouti.

Many countries have already made inroads into these ports, including China, which operates 12 ports across the continent. Other nations that run various ports worldwide are also looking closely at East Africa.

Some have established dry ports, such as the central cargo handling facility commissioned recently in Rwanda by President Paul Kagame.

Despite foreign countries' success and long-term experience in operating more modern ports, privatisation projects have recently faced opposition from civil society organisations and some politicians in East African countries after criticism of loopholes in several legal clauses.

In Tanzania, foreign investors were seen as obstacles when clauses of the agreement regarding the proposal to take over the operation of the main port of Dar es Salaam were claimed to be hidden from the public.

Africa still pales in comparison to the world's prominent players in the port business. Photo: Tanzania port authority

The government clarified that it made amendments to some of the clauses that were being questioned. These include the government taking 60% of the revenue and the procedure to review work and contract implementation every five years.

French in the mix

France is also in the race for East African ports. French operators from the Bollore Group have been criticised for how they obtained contracts to gain control of ports.

This September, the Revolutionary Government of Zanzibar handed over the management and operation of the Malindi port from the Zanzibar Ports Corporation (ZPC) to the French company Africa Global Logistics with an eye on higher revenue and efficiency. ZPC will receive 30% of the income.

Overall, Africa still pales in comparison to the world's most prominent players in the port business. Shanghai, for instance, handles in five days what Dar es Salaam does in a year. Likewise, what Mombasa takes in a year, Shanghai does in ten days.

The economics of scale and consolidation put local operators at a significant disadvantage. Major port operators already have relationships with enough ships, understand the environment, and have financial backing.

On the flip side, there are strategic spin-offs. African countries stand to gain some of these advantages by collaborating with and drawing from the experiences of investors from outside.

Morocco's Tanger is currently the only African facility counted among the world's top 50 ports. If not anything, this is a sign that Africa has a lot of catch-up to do.

The question African countries now need to answer is what they can do to improve their commercial prospects, realise their potential and compete with the rest of the world.


Dr. Fikrejesus Amahazion at the XXIX International Rosa Luxemburg Conference in Berlin on January

Dehai Events