Business Case and Intervention Summary
Intervention SummaryTitle: Kenya Strengthening Regional Economic
Integration What support will the UK provide?
The UK will provide an additional 27.7 million for
infrastructure and advice to strengthen regional integration and
improve trade competitiveness in Kenya, to be implemented primarily
by TradeMark East Africa (TMEA). This will bring our total
commitment to regional economic integration in Kenya to 31.45
million. The new resources will be used to address inefficiencies
and improve capacity at East Africas largest port, Mombasa, and in
associated policy changes, setting up future work on longer term
improvements in port operations. This support was foreseen in the
DFID Kenya Operational Plan published in April 2011.
Why is UK support required?
Few countries have grown, reduced poverty, and increased job
creation, without expansion of trade. In East Africa, trade has
been constrained by market size, and by problems that have made the
costs of trade high, including inefficiencies at borders. The East
Africa Community (EAC) was established in 1999, in part as an
economic partnership to tackle common constraints to trade and to
strengthen East Africas trading with other regions. DFID took the
lead in 2010 in responding by creating TradeMark East Africa
(TMEA). TMEA works with the EAC and member states to strengthen
economic integration and trade competitiveness. In Kenya, DFID
funding - with assistance from Denmark (15%) and others (5%) - is
supporting integration and competitiveness via TMEA. UK aid reduces
trade costs along the transport corridor from the coast, improves
standards of Kenyan goods, helps government meet its integration
commitments, and supports the private sector/civil society to
influence trade costs.
Poor port infrastructure, cargo clearance and customs procedures
at Mombasa port contribute as much as 40% to the cost of trade
along the transport corridor to central Africa. A set of priority
interventions to reduce costs has been agreed with the Ministries
of Transport and Trade, and the Kenya Ports Authority. This will
also provide a basis for agreement on longer term improvements. The
Kenyan Government is not responding in the face of multiple market
and governance failures. UK support is needed to allow this
programme to go ahead. Increased funding will be part of a wider
expansion of DFID support for TMEA regionally, recognising progress
it has already made and opportunities to build momentum.
What are the expected results?
Investment in the port, alongside TMEAs existing programme, will
reduce transport times along the northern corridor by 15% and
increase Kenyas exports by 10%. There will be benefits for Uganda,
Burundi, and Rwanda. Specific results by 2016 will include:
An increase of $750-800 million in Kenyas exports in sectors
that will impact the poor. A reduction of up to 1.5 days to clear
imported goods through Mombasa Port.
A reduction of up to 4 days in the time it takes to move a
container into/out of Kenya.The programme will have an indirect
effect on regional economic growth, jobs and incomes.
Business Case
Strategic Case
A. Context and need for a DFID intervention
1. The aim of this programme is to increase growth and reduce
poverty in Kenya, through greater regional economic integration and
improved trade competitiveness.
East African regional economic integration
2. There has been significant growth in East Africas exports in
recent years but the regions share of world exports still remains
below 0.1%. Small markets mean firms cannot benefit from economies
of scale and export costs are high it costs East African countries
twice as much to trade than East Asia and developed countries.
Transport costs in particular are excessive freight costs per
kilometre in East Africa are more than 50% higher than in the
United States and Europe and add nearly 75% to the price of exports
from Uganda, Burundi and Rwanda. The problem is not just one of
distances inefficient customs processes, excessive bureaucracy and
poor infrastructure all impose substantial transport delays and
significantly increase costs.
3. Table 1 from the World Banks 2012 Doing Business Report
illustrates the extent of the challenge which affects imports as
well as exports. East African countries appear very close to the
bottom of international rankings both in terms of the particular
challenge of trading across borders as well as the more general
ease of doing business.
Table 1Doing Business 2012 reportBurundi
Kenya
Rwanda
Tanzania
Uganda
Ease of Doing Business Rank
169
109
45
127
123
Trading Across Borders Rank
174
141
155
92
158
Documents to export (number)
9
8
8
6
7
Time to export (days)
35
26
29
18
37
Cost to export (US$ per container)
2,965
2,055
3,275
1,255
2,880
Documents to import (number)
10
7
8
6
9
Time to import (days)
54
24
31
24
34
Cost to import (US$ per container)
4,855
2,190
4,990
1,430
3,015
4. The East African Community (EAC) was established in 1999 by
Kenya, Tanzania and Uganda to increase trade by overcoming the
challenges of small market size, and to strengthen regional
political cohesion. Burundi and Rwanda subsequently joined in 2009.
South Sudan announced its intention to join in mid-2011. Together
the EAC grouping of states have a total population of around 130
million and GDP of $79.5 billion. They share similar resources and
trade profiles and in many respects also share a common history. 5.
Protocols have been signed to establish both a customs union (2004)
and common market (2010) to transform East Africa into a single,
larger economy. The customs union is moving close to full
implementation only a few exemptions from the common external
tariff are still in place, although considerable work remains to
remove non-tariff barriers and implement a revenue sharing
arrangement. The common market is scheduled to be fully implemented
in 2014, although this timing is likely to slip. The creation of a
larger market will allow producers and traders across the region to
exploit economies of scale, increase investment and accelerate the
introduction of new technologies. It is also expected to increase
political stability and provide a focus for shared legislative and
regulatory reform.
6. Since the customs union protocol was signed, intra-EAC trade
has increased significantly - between 2006 and 2010 total intra-EAC
trade grew by 135% as many of the internal tariffs between EAC
member states were removed. Total trade grew by 62% in the same
period and intra-EAC trade as a share of total trade grew by 7.8%
to 11.38%. Partner states have grown faster on average than the
rest of sub-Saharan Africa - annual per capita growth averaged 6.3%
between 2005 and 2010. But this average growth rate is insufficient
to unlock the necessary higher jobs and incomes growth needed to
address the jobs gap, which in Kenya alone, according to the World
Banks Kenya Economic Update of December 2011, exceeds half a
million new entrants to the labour market each year.7. Evidence
from a range of studies points to improvements in the business
environment associated with trade competitiveness leading to
improved growth, jobs, incomes and social effects. The relationship
between trade, growth and poverty reduction is complex and the
evidence is difficult to interpret however. This recent East
African experience illustrates the general point that very few
countries have grown over long periods of time or secured a
sustained reduction in poverty without a significant change in
competitiveness and a large expansion of their trade. Poverty
reduction in broad terms has followed as a consequence of increases
in income, employment and government social expenditures. There are
risks and opportunities, however, for particular poor groups (and
regions) as increased trade changes the profile of livelihood
possibilities. There are also different gender effects women may
benefit less from increases in formal employment but benefit more
from improved management of the informal economy and informal trade
where they predominate. Whilst increased trade may be a necessary
condition for economic development it is not always
sufficient.Kenya and the EAC
8. There is strong political support for East African
integration in Kenya, with leaders anxious to avoid the problems
that led to the collapse of the original EAC in the late 1970s.
Kenya has so far set an example in a number of respects in
implementing regional agreements Building on this commitment is
central to the challenge of accelerating integration and increasing
trade across the region. Kenya is by a significant margin the
largest economy in the EAC and accounts for nearly half of all its
economic activity. It provides a potentially large market for other
countries and crucially is the geographical link to markets outside
the region for Uganda, Rwanda and Burundi - 95% of all trade to and
from Uganda, Rwanda and Burundi passes through the Northern
Corridor which starts at Mombasa Port and runs for 55% of its total
distance across Kenyan soil.
9. Like other EAC countries Kenyas trade with member states has
grown significantly since the agreement of the customs union
protocol exports to EAC countries increased by an annual average of
13.5% between 2004 and 2008 and imports from EAC countries
(although from a small base) quadrupled over the same period.
10. But as Table 1 highlights (and as elsewhere in the region) a
set of problems captured under the broad headings of poor
infrastructure and excessive red tape mean that Kenya remains a
difficult environment in which to do business and from which to
trade with other countries - in 2012 109 out of 183 countries on
ease of doing business, and 141 on trading across borders.
Addressing the continuing challenges that underlie these rankings
is central to the development of closer regional partnership and
the growth of trade in both Kenya and other EAC countries.Transport
infrastructure and inefficiency at Mombasa port
11. The poor state of transport infrastructure within Kenya
ensures that freight costs are high and competitiveness is reduced.
Road and rail networks are both in bad condition. But the single
biggest contributor to the cost of transporting along the northern
corridor (40%) is fixed port charges and time delays at Mombasa
port as a consequence of the inadequacies of port infrastructure,
and burdensome documentation, cargo clearance and customs
procedures. In total more than 90% of all delays along the northern
corridor are estimated to be at the port. Administratively these
areas fall under the Kenya Port Authority, an agency connected to
the Ministry of Transport, and the Kenya Revenue Authority, an
agency connected to the Ministry of Finance.12. The port has
already exceeded its design limits, but as trade grows is expected
to handle increasing volumes of imports and exports - traffic is
forecast to grow by up to 400% in the period to 2030. The port
development programme set out in a port master plan is at least 10
years behind schedule, and the master plan itself is outdated and
takes no account of wider sub-regional development issues
(discussed below). High berth occupancy rates and periodic episodes
of extreme congestion illustrate that the port is already stretched
to beyond maximum capacity. Major improvements in efficiency
alongside new investment are essential to prevent further large
increases in vessel delays, port congestion surcharges and customer
costs, and continued knock on effects on regional competitiveness
and economic growth .13. A major investment in a new container
terminal at Kipevu West is underway, funded by Japan, which is due
for completion in 2015. Officially gazetted plans to privatise port
operations through a landlord port authority are in place, enabling
port and maritime regulatory functions to be separated from port
management and operations (which can then be outsourced). These are
not likely to proceed ahead of Kenyas elections in 2013. There are
a number of interventions that in the short term can improve the
ports capacity to both service ships at the quayside (reducing ship
waiting delays) and move cargo more effectively in and out of the
port gates - with significant regional economic effects.
14. These improvements need to take place in an environment that
has been historically difficult to reform as result of a complex
set of economic, political and regional interests in port
operations. In particular
Kenya Port Authoritys role as an employer together with its
resources have made it extremely susceptible to political
interference (at both board and management levels); Kenya Revenue
Authority and its management of the administrative procedures
applying to movement of goods are perceived to be dependent on
uninterested and distant administrators;
Plans to improve efficiency, including through privatisation and
the mechanism of a landlord authority, have been opposed by groups
including the Dockworkers Union, coastal politicians and indigenous
coastal residents because of concerns it will allow elite groups to
acquire port assets and businesses, in a way that further
marginalises coastal communities .
Those who benefit from inefficiency and delay (through legal
services and charges as well as corruption) have a vested interest
in blocking change.
15. Over time, however, change is becoming more difficult to
resist. Increasingly pressure for port reform is building from a
combination of external and internal forces that include: an
improved governance environment partly a consequence of the new
constitution;
high level political lobbying by the Presidents of both Rwanda
and Uganda about the impact of inefficiency on their economies and
wider regional integration;
increased competition from neighbouring ports;
lobbying by the business community on the impact of inefficiency
on growth, incomes and employment;
pressure from global terminal operators; and
the increasing recognition of the scale of the problem as
regional economic output increases and traffic levels grow.
Weaknesses and delays in customs and clearance processes
16. Delays faced by importers and exporters at Mombasa Port
because of capacity constraints are compounded by inefficient
customs processes - which in many cases are linked to entrenched
corrupt practices. The problem extends to customs operations at
Kenyas land borders. Traders are frequently unable to obtain and
submit documents ahead of arrival at border crossings. Requirements
on either side of borders are often duplicated (including the need
to arrange transit bonds). There is little coordination between
national agencies and little sharing of information. Customs checks
are onerous and do not take sufficient account of risk.
Non-tariff barriers and product standards
17. In addition to the problems caused by inefficiencies in
Mombasa port and in its direct customs and clearance processes:
Kenyan traders spend substantial time visiting a large number of
agencies fulfilling requirements related to regulatory information
permits and trade licenses as well as certificates related to
product standards.
Excessive numbers of police checks and weighbridges (often
linked to corruption and the payment of petty bribes) add to delays
and costs for both Kenyan traders and traders from other EAC
countries using the northern corridor. Between Mombasa port and
Malaba on the border with Uganda there are seven separate
weighbridges.
Exporters face major challenges in understanding and meeting the
product standards required to trade with other countries. Within
the EAC, standards frequently vary so that, for example, those
trading with or through Kenya must meet the costs of complying with
different standards and securing multiple certificates. (Kenya, for
instance, does not recognise the health and safety certificates
issued in other countries.) The institutional structure for
addressing standards issues in Kenya is often criticised for
preventing Kenyan businesses exporting efficiently, with the
specific responsibilities of the Kenya Bureau of Standards and
other parts of government poorly defined and often overlapping.
18. A mechanism for monitoring and eliminating these types of
non-tariff barriers to trade has been established by the EAC, but
there are currently no sanctions in place to support its
enforcement
Private sector and civil society engagement
19. Kenyas private sector and civil society is the largest and
most vibrant in the region, but is not always effectively engaged
in national decision-making related to regional integration and the
expansion of trade, or local decision making and dialogue in
Mombasa. There are concerns as a consequence that policies do not
always reflect the interests of the private sector, and both
individuals and businesses do not appreciate and are not prepared
for new regional trading opportunities. Past approaches to
addressing the problems of Mombasa port represent a particular
example of the neglect of private sector interests. Within Mombasa,
limited engagement with the wider stakeholders of the port,
including private employers, labour unions, the education sector
and other stakeholder groups has led to a perception of
disenfranchisement from policy related to the port and associated
wealth creation mechanisms. In Mombasa, with its particular coastal
culture and sporadic community violence, this represents a risk to
competitiveness, economic growth and development.Kenya Government
capacity to implement regional integration agreements
20. The EAC agenda is broad and complex, involving a large
number of government departments and requiring member states to
engage extensively with the EAC secretariat and with both private
sector and civil society. EAC negotiations, the implementation of
agreements, and consultation and monitoring processes place
significant strain on the limited resources available within the
Kenya administration. The Ministry of the East African Community
(MEAC), which takes the lead in managing and co-ordinating Kenyas
response, requires substantial support to develop its capacity,
alongside other Ministries involved in formulating policy that will
enable Kenya to maximise the benefits from regional integration. UK
Policy21. Support for regional integration in Africa is a priority
for UK policy. The 2011 White Paper on trade identifies support for
African trade and regional integration as essential to promote
growth and poverty reduction. The DFID 2011-2015 Business Plan has
commitments on regional trade, including a target to cut by 30% the
average time taken for goods to cross international borders in at
least five locations in Eastern and Southern Africa. 22. The UKs
strong support for integration in the Africa region is captured in
the Africa Free Trade Initiative (AFTi), which was launched by the
Secretary of State for International Development in February 2011.
This initiative aims to build on the political momentum for
economic integration in Africa and to help create a coalition of
public and private investors to overcome trade barriers. Major
commitments have been made to help cut the red tape that hinders
trade, to improve regional infrastructure, and to support the
reduction of tariffs through the negotiation of a Free Trade Area
covering the EAC, and two other African regional economic
communities, the Common Market fort East and Southern Africa
(COMESA) and the Southern African Development Community (SADC).
Support for integration and trade competitiveness through
TradeMark East Africa
23. In this context DFID financial support for regional
integration in East Africa has grown substantially in recent years.
TradeMark East Africa (TMEA), was launched by the UK Parliamentary
Under-Secretary of State for International Development in February
2011, with Kenyas Prime Minister Odinga, the President of Burundi,
the EAC Secretary General, representatives of the other EAC
community states, and the Head of DFID Kenya, as a mechanism though
which much of this support has been provided.24. TMEA is a company
limited by guarantee that has been created to design and implement
programmes to address obstacles to accelerating economic
integration and increasing East African trade. DFID played the lead
role in TMEAs establishment. It has its headquarters in Nairobi
with other offices in Arusha, Bujumbura, Dar es Salaam, Juba,
Kampala, and Kigali.
25. TMEAs focus is on interventions to improve regional
infrastructure, transport and trade facilitation (including customs
processing), the effectiveness of national and regional
institutions, and private sector and civil society engagement in
regional integration. 26. TMEAs strength lies in its single
dedicated focus, multi-donor funding and nimbleness in response to
need. It offers a unique mechanism for coordinated programming
across regional and country programmes.
27. Its operational strengths, based on this sharp focus, are
that it can:
promote a regional perspective in decisions about national
investments and bring national efforts together to secure shared
gains (for example by sharing facilities and systems at border
posts); promote regional interventions to replace separate
inefficient national systems (for example in the management of
customs bonds for transit traffic); help design mechanisms that can
be effective in enforcing EAC decisions and develop common systems
for monitoring implementation that can be easily aggregated;
ensure a consistent approach to building regional and national
capacity (that reflects the challenges in formulating and
implementing EAC decisions); pool finance from a number of donors
based on the single mission focus.28. DFID has so far committed a
total of 85.44 million from regional and country aid allocations
for TMEAs programmes. At the same time TMEA has also successfully
attracted almost exactly the same level of funding ($131.4 million)
from other donors Denmark, Sweden, Netherlands and Belgium. DFIDs
support currently includes an allocation of 3.75 million for TMEAs
Kenya country programme, alongside $10.56 million from Denmark.
Expanding DFID Kenyas programme support to regional integration29.
In the initial period following its establishment TMEA has
maintained a strong focus on creating the institutional framework
required to implement programmes including management and expert
staffing, accountable governance arrangements and appropriate
systems for planning, monitoring and evaluation. Essential networks
and partnerships have been created with national and regional
stakeholders in the integration process.
30. Progress has also been made in undertaking research and
gathering evidence on the impact of the programme, including
relationships between trade, growth and poverty reduction. All TMEA
funding partners are committed to contributing to economic
inclusion and poverty reduction, and the TMEA programme will affect
people across Kenya and East Africa. 31. Already in its Kenya
country programme TMEA has: developed bills to align Kenyan laws to
EAC commitments and modernize Kenyas trade policy;
developed new information systems that allows customs clearance
documentation to be obtained and submitted online before reaching
borders; strengthened implementation of EAC regional integration
policies through support to the Ministry of East African
Community;.
started to support private sector organisations (PSOs) in
complying with national and regional product standards, including
Kenyan tea growers;
started to support PSOs in advocating for policy change
including an advocacy campaign by Kenya Shippers Council that has
led to both a new approach to axle load harmonisation and important
changes in Mombasa port.
32. The first eighteen months of operation have highlighted the
potential TMEA has to make an impact on regional integration and
growth in East Africa the 2011 annual joint donor review reached
favourable conclusions about performance compared to other regional
trade and integration programmes. Planning based on detailed
appraisal of needs and priorities at both regional and national
level has highlighted the need for higher levels and greater
certainty of funding to build on the momentum that has been created
and make the investments that analysis highlights are essential in
the medium term.
33. Donor partners have endorsed TMEAs approach and strategy
through the TMEA Programme Investment Committee (PIC), which has
agreed to a scaled up programme for which the total operational
budget has at present been set at $465 million over the period
2010-2016, compared to funding of $264 million that is currently
committed. In taking this view, donors and the PIC have focused on
the need and opportunity to increase the scale of interventions to
achieve high level targets for reducing the costs and increasing
the volume of East Africa trade. This has also taken into account
provisional indications of the availability of extra funds from
DFID (see below). Table 2 shows the approved budget disaggregated
by country and regional programme and highlights funding gaps.
Further financial commitments are particularly required for Kenya,
Uganda, Burundi and regional programmes affecting inter alia
investments in: Mombasa port; border posts between Uganda/South
Sudan and Burundi/Tanzania; and other regional infrastructure.
Table 2: TMEA budget and funding commitments 2010-2016
ProgrammeCurrent commitment
($ million)
Operational budget
($ million)
Funding gap
($ million)
Kenya16.52
57.94
41.42
Uganda
21.66
63.55
41.89
Tanzania
36.74
49.15
12.41
Rwanda
25.25
33.01
7.76
Burundi
29.64
49.81
20.17
South Sudan
20.28
20.28
0
Regional infrastructure (including border posts)
46.74
85.53
38.78
Other core regional funding
66.97
105.75
38.78
Total
263.8
465.02
201.21
34. DFID anticipated the strong case for scaling up support to
regional integration in the bilateral aid review. Additional
funding has been set aside in both country and regional operational
plans as part of this process. Table 3 shows this pipeline finance
by programme alongside existing commitments. In total the
additional resources provisionally set aside will increase DFIDs
commitments to TMEA over the period 2010-2016 from 85.44 million to
215.44 million. This will be sufficient to close funding gaps. It
will increase DFIDs share of total donor funding commitments to
TMEA sharply Table 3: TMEA DFID Funding
TMEA programme
DFID committed funding
( million)
Provisional additional DFID funding
( million)
Kenya
3.75
26.7
Uganda
7.5
27.0Tanzania
16.6
8.0
Rwanda
8.0
5.0
Burundi
6.5
13.0
South Sudan
6.59
0
Regional infrastructure (including the border post focused East
African Transit Improvement Programme)
30.0
25.0
Other core regional funding
6.5
25.0
Total
85.44
129.7
35. The commitment of additional DFID funds requires approval of
a number of separate business cases. This business case covers
proposed additional funding for the Kenya country programme which
will increase commitments to regional integration, mainly through
TMEA (who will receive 26.7m of the new 27.7m), from 3.75 million
to a total of 31.45 million and the current share of TMEA Kenya
funding from 35% to 81%. Other donors are continuing to commit
funds, including for example a recent commitment of an additional
$9m, but this is not specifically ring fenced for Kenya (although
it is currently planned for Kenya) so is not included in the
calculation of share. 36. It is anticipated that as implementation
proceeds, further proposed interventions will arise directly
related to the current project; for example in further work on rail
and other physical improvements, on technical ports management
advice, on Customs processes, and on longer term reform. In all
cases additional resource allocation will be subject to approval
through a separate submission. Longer Term Port Reform and Mombasa
Political Economy37. Mombasas port and nodal characteristics have
made it a centre for the logistics industry. Despite it being the
largest port on the East African coast, Mombasa civil society
groups indicate that there is a local perception of
disenfranchisement from economic benefits - and from decision
taking over the port and economy of Mombasa. Exacerbating this,
perception is the predominance of non-coastal appointees and
absence of maritime skills and knowledge on the Boards of Kenya
Ports Authority, Kenya Maritime Authority, and Kenya Revenue
Authority (who manage the port customs system).
38. It is recognised that over a long period of time a
combination of forces with different interests has worked to
undermine the pace and scale of reforms at Mombasa port. As part of
a wider approach of ensuring that programme strategies reflect a
sound understanding of their socio-economic and political setting,
TMEAs approach in Mombasa has been based on an initial analysis of
political economy issues, engagement on socio-economic and
political economy issues within the donor community, and with
stakeholders in Mombasa and elsewhere, all of which will be a
continuing feature of the programme.
39. TMEA has opted for an operational strategy of incremental
engagement to help address capacity and efficiency challenges and
support the processes of institutional and regulatory reform. The
programme that has been discussed with KPA is judged to be
uncontroversial, to provide a basis for effective intervention that
will produce real benefits but does not depend upon other change.
At the same time the programme can build positive momentum, trust,
and relationships which coupled with both external and internal
pressure can help lead to more transformative reform especially
KPAs conversion to a landlord authority.
40. As discussed previously the external forces pushing the port
towards modernisation include Presidential level attention shown by
Rwanda and Uganda, sustained lobbying by development partners,
competition from neighbouring ports, and the continuing rise in
regional trade. Strong Internal pressure is being applied by the
business community through business membership organisations. 41.
There is an expectation that after the election, now scheduled for
March 2013, the improving governance environment made possible by
Kenyas new constitution can provide a framework in which this
pressure will substantially increase and the modernisation agenda
move forward.
42. The current approach at a regional, national and local level
includes:
Regional:
engaging in Arusha and in national capitals in the region, with
Presidencies, relevant Ministries, and private sector stakeholders,
to build a coalition for change at the EAC level; already resulting
in Uganda and Rwanda pressuring Kenya; working closely with the
regional private sector to support their campaigns to improve port
performance, for example with the East Africa Business Council
(successful in getting high level attention on port problems;
already lobbying in tripartite meetings; working with the
international community to lobby for formal engagement on the port
and non-tariff barriers (NTBs); .National:
maintaining relationships with politicians, officials and
Ministers in Kenya (especially in the Ministry of Finance and
Ministry of Transport) while allowing other official partners,
especially JICA and the World Bank, to manage more formal policy
dialogue; Mombasa is now one of the main medium term policy (MTP)
dialogue points; the development of a strong working relationship
with KPA (and Kenya Revenue Authority (KRA)) delivering support
that is jointly agreed and managed; this has led to agreement on a
joint programme implementation management structure; developing
support through the private sector, with for example the Kenya
Manufacturers Association and the Kenya Private Sector Alliance
which take a lead in public-private dialogue in Kenya; that has
already secured 24 hour port working;
partnering in the formation of a donor co-ordination group for
Mombasa port with selected partners (Japan, World Bank and others,
which will form the core of a planning group for the post 2013
elections; which has now met under a DFID Chair; opening a broader
dialogue with Kenya Revenue Authority (KRA) to explore support to
impact inefficient customs and clearance processes (linked closely
to corruption) which account for the largest proportion of cargo
dwell time at the port; on which several meetings have been held,
and KRA have made an early positive response;Local:
closer engagement with the local business community and local
civil society in Mombasa, and businesses including shippers,
transport companies, including establishing a Mombasa stakeholder
forum; on which a first workshop has been held; regular dialogue in
Mombasa by TMEA senior management, particularly as the new devolved
governance system comes into play; the TMEA CEO and Country
Director have now held a series of meetings in Mombasa;Overall:
collaborate with the other members of the Kenya international
community on a political economy and reform strategy approach; and
extend political economy analysis to reflect devolution and other
changes in 2013 and beyond.43. The recent history of private
engagement in Mombasa and market distortions caused by lack of
reform and political interests, coupled with problems of public
ownership and land rights, mean that the private sector will not
engage in funding this kind of investment linked to a public body.
PPP legislation and policy may change these circumstances in some
five or more years, enabling other critical infrastructure to
proceed. Public bodies are constrained by perverse political
economy issues, and by the stasis induced by coalition government
and post-2007 election circumstances. Designing and budgeting for
reform work in KPA, a non-departmental public body controlled
through the Transport Ministry, is characterised by the fact that
no major physical changes have taken place at the port in recent
years (other than those externally funded), and no systematic
changes since the 1960s.
44. For these reasons, and given 90% of constraints are at the
port, DFID financial support is essential in the short term to make
progress delivering UK regional integration objectives. In the
longer term, policy and budgetary reform will be needed after the
election.
B. Impact and Outcome that we expect to achieveImpact
statementGrowth of Kenyan exports in sectors that will impact the
poorOutcome Statement Increased trade competitiveness in Kenya
Principal results by 2016 include:
Increase in total value of exports from Kenya to the rest of the
world of more than $789 million
Up to 1.5 day reduction in the average time it takes for
imported goods to be cleared from Mombasa port Up to 4 day
reduction in the time it takes to move a container into/out of
Kenya
70% of Kenyas EAC common market commitments implemented. 45. The
elements of the results chain (or intervention logic) that will
deliver the expected outcome and impact are presented below.
Results will be delivered through interventions that (a) reduce
transport and trade-related costs along the northern transport
corridor, including at Mombasa port; (b) support increased
implementation of Kenyas regional integration commitments; (c)
facilitate greater standards recognition, harmonisation and
compliance; and (d) support the private sector and civil society to
positively influence regional integration policies and practices
that facilitate increased trade.
Appraisal CaseA. What are the feasible options that address the
need set out in the Strategic case?46. There are three options,
detailed below. The process leading to the three detailed options
extends back to the 2008 post-election period prior to the
formation of TMEA. The results of the initial appraisal were
discussed and included in DFID bilateral aid review bids, and then
in the approved Operational Plan for DFID Kenya. Work on these
options was continued jointly with Africa Regional Division and
through TMEA. It has involved review of previous work in Mombasa
and on wider regional trade facilitation, detailed analysis with a
range of donor and Government stakeholders, and discussion with the
regional private sector. 47. Alongside the three options noted
below, a number of options have been considered and discarded. The
discarded options are:
Providing further resources toward roads improvement within
Kenya. This option was considered but discarded because the sums
involved to make roads improvements viable alternatives in
achieving the intended impact would be excessive compared to the
resources proposed below at Mombasa, where 90% of the physical
constraints lie. The option to raise PPP funds for roads is however
being appraised and tested over the next five years through the
World Bank/IFC, in a wider PPP programme, that DFID supports. On a
proposal to support border crossings, TMEA is already working on
the strategic border crossings and it has been agreed that the
results of this work will be tested prior to any further round of
border crossings in Kenya to avoid diminishing marginal
returns.
The option of doing nothing further. This would involve no
further release of funds. This would be inconsistent with
investments made in establishing TMEAs institutional capacity,
potentially undermine support it receives from other donors, and
suggest concerns about TMEAs performance. It would also contradict
the importance DFID attaches to regional integration. Critically,
since 90% of constraints lie in Mombasa, it would constrain
achievement of agreed regional goals.
The option of providing support for regional integration through
implementation mechanisms other than TMEA. This option would be
inconsistent with the decisions that have already been made to use
TMEA as the conduit for DFID support for regional integration in
East Africa. It would fail to take advantage of the institutional
capacity which has already been established and the understanding
of issues and the influence to address them, representing worse
value for money outcomes. Critically, the independent focus,
flexibility and responsiveness that is the TMEA core offer would be
put at risk, and this would slow up the rapid implementation
process that TMEA offers.48. Detailed appraisal and negotiation has
taken place with Ministries, KPA and others, based on the options
outlined below. Negotiations with KPA have led to both a
conditional MoU between KPA and TMEA, and the recent inclusion of
TMEA staff in management discussions at the port. Option 1:
Maintain support for TMEAs Kenya programme at the levels agreed in
2009 when DFID Kenyas PRIME programme, including core TMEA funding,
was approved 49. This option will concentrate funding on
interventions that will:
improve quality and reliability of transport data for the
northern corridor - contributing to better policymaking and
improved corridor performance; improve processes for managing
border traffic to complement regional investment in border posts
(integrated border management and customs risk management); ensure
Kenyan policy on standards is consistent with regional agreements,
and introduce equipment to improve testing of products; help
exporters meet standards that have been agreed across the region;
improve the governments trade policy capacity to implement EAC
commitments, especially on the customs union and common market;
increase support for regional integration through private sector
and civil society advocacy;
increase capacity of private sector organisations to help
members manage trade processes and improve product standards. 50.
The beneficiaries and implementing agencies are the Ministry of
Trade, Ministry of Transport, Ministry of East African Community,
Kenya Bureau of Standards (KEBS), and private sector and civil
society organisations (PSOs and CSOs) such as the Kenya Association
of Manufacturers (KAM), Kenya Private Sector Alliance (KEPSA), the
Kenya Shippers Council (KSC) and the Fresh Produce Exporters
Association (FPEAK).51. TMEA Kenya predicts that the combined
impact of the above interventions will enable them to achieve a 7%
reduction in transport times and a 5% increase in export growth in
Kenya (as well as make a significant contribution to similar
results in other EAC member states).Option 2: Significantly
increase DFID support to allow TMEA to make strategic investments
in Mombasa port that will reduce port congestion and transit delays
52. This option will maintain funding for the activities TMEA is
planning under option 1 and at the same time provide additional
finance for investments in physical improvements at Mombasa port
that individually reinforce each other to create a significant
enhancement in the port logistics chain. This option recognizes 90%
of delays along the northern corridor are at the port of Mombasa,
and these delays significantly reduce trade competitiveness in
Kenya and across the region. TMEA proposes to work with Kenya Ports
Authority in particular to make investments in: improvement of rail
infrastructure within the port, including for shunting and access
for mainline trains; thus shifting traffic from road to rail;
improving yard facilities, including by investment in equipment and
making berth repairs; upgrading port roads and port gates and
improving traffic flow arrangements within the port; upgrading
urban roads and truck waiting areas in the urban area; port-wide
productivity improvement (through assessment of actions to address
issues); building institutional capacity of port authorities
including specific TA and coordination to programme management of
port improvements.53. TMEA estimates that investments at Mombasa
port will enable them to achieve a 15% reduction in transport times
and a 10% increase in export growth. This additional impact will be
achieved by interventions that make the best use of existing
facilities and work within the current organisational framework to
increase capacity and improve efficiency (discounting the
possibility of privatisation in the short term). This option will
also facilitate engagement and relationships in Mombasa, and with
the Port stakeholders, facilitating the feasibility of longer term
improvements.Option 3: This option will provide further flexible
funds to TMEA in the immediate short term to enable them to react
to new and emerging need in the next year.54. This option will
maintain funding proposed under option 2, but will facilitate the
early engagement of TMEA on: additional physical infrastructure
works at the port and immediately outside the port; and early
technical assistance to KRA on customs. This option recognises the
urgent need for increased focus on moving from road to rail, and
will involve early realisation of potential investment plans
in:
further redesign and rerouting of train track around the main
rail access and egress points to the port; detailed design and
costing of works with KRA on customs systems and operations;
initiating full technical assistance work on improved customs
systems in advance of and in anticipation of selection and
procurement of new IT systems; procurement and installation of new
customs IT systems compatible with international standards and best
practice.55. The proposed interventions have not yet passed concept
stage and impact has not yet been appraised. The benefit that this
option offers is in the pre-commitment through TMEA to partners
that will enable TMEA to maintain the momentum of change at the
port and to make full or partial commitments as each element of the
above proposed next steps comes into play (likely over the next six
months). These interventions would be in line with the improvement
programme that KPA strategy envisages, the agreement with KPA, and
reflect current discussions with the KRA.56. Under option 2, and 3,
TMEA is committed to: work on closer engagement with the broad
stakeholder community in Mombasa to ensure that the do no harm
principle is addressed; work on TMEA private sector and civil
society dialogue directed specifically toward engaging
Mombasa-based business and civil society partners; TMEA is also
committed to work with partners, including the Dockworkers Union,
on establishing workers perceptions of benefits of reform at the
port, enabling engagement on future improvements to function more
effectively. TMEA is committed to supporting development of a
coalition of interest to lever longer term improvements at the
port. 57. Under these three options TMEA Kenyas proposed
investments will be closely co-ordinated with TMEA investments
regionally and in other countries to maximise their impact as part
of TMEAs wider efforts. TMEAs programmes will also be closely
co-ordinated with other initiatives including Japanese, Danish and
other donor support. Investment in Mombasa port under Option 2 and
3, in particular, will complement the construction of the new
Kipevu West container terminal, supported by Japan.
B. Assessing the strength of the evidence base for each feasible
option58. In response to discussions on the evidence base, it was
agreed that TMEA commission an on-going review of evidence with the
first report to be finalised in January 2013. This work has been
undertaken for TMEA by the Institute of Development Studies (IDS),
and has resulted in new draft evidence review papers. Information
includes: evidence on individual interventions in trade
facilitation and regional integration; evidence on growth effects
of regional integration and trade; links between trade, growth, and
poverty. 59. The evidence review provides a significant uplift in
the base on which to assess the likely impact of TMEA
interventions. Overall the review confirms that, as has been
discussed, trade facilitation programmes are necessary, but may not
be sufficient, to address poverty. The review concludes that the
extent of poverty and inclusion impact may depend on the extent to
which sectors that benefit from changes engage the poor; the impact
they have in a local context ie the way in which a local supply
chain is integrated into the sectors that will benefit from change;
the propensity for the changes to reduce consumer prices and/or
increase exports; and on the effects in the local labour market do
earnings and jobs numbers rise in the locality? 60. A question in
the context of Mombasa is thus: is the East Africa transport sector
structured in such a way as to pass benefits through to the poor,
or are they likely to be captured by cartels? Some evidence on
these issues is available from three studies: a World Bank
supported study on East African maize marketing costs in 2009; a
2012 TMEA port strategy document; and an IBRD transport prices
diagnostic study published 2009. Important conclusions from these
studies are that: the transport sector has a broader structure and
is competitive compared to West and Southern Africa (where cartels
control trade movement), with 60% of Mombasa container traffic
belonging to small traders that contract with a range of local
transport companies; that a reduction in transport costs will lead
to a reduction in transport prices to third parties, and that in
the maize study 76% of maize marketing costs were transport costs.
It is thus possible to conclude, as the three studies do, that
savings in time and costs are likely to be passed on - lower
marketing costs could be expected to benefit poor people through
lower prices. 61. The recent TMEA/IDS review papers conclude that
evidence is ambiguous on some interventions and dependent on local
circumstances. But TMEA has embarked on the process of testing the
evidence base, and is committed to bringing further evidence to
bear on assessment of the impact of its work. Further detail on
TMEA plans is provided in the monitoring and evaluation section at
the end of this business case.62. In Table 4 below the quality of
evidence for each option is rated as strong, medium or limited. The
evidence is provided for each of the projects that TMEA Kenya is
planning to implement under each option and indicates the
probability that each activity will achieve the desired output.
Table 4: Quality of EvidenceOption
Evidence rating
Justification
Option 1StrongMedium
Low/MediumLow
Medium
LimitedStrong
LimitedLimited
Regional integration and trade
The evidence linking regional integration with increased trade
is strong. According to an overview of the literature conducted by
IFPRI in 2009, empirical models overwhelmingly show that in
regional trade areas aggregate trade creation dominates trade
diversion. The models also indicate that welfare for all members
both current and potential increases when regional trade areas
expand. There are even bigger welfare gains when models incorporate
aspects of new trade theory such as increasing returns, technology
transfers, trade externalities, and dynamic effects such as links
between trade liberalization, total factor productivity growth, and
capital stock accumulation.Studies also suggest that regional trade
has a better poverty focus than other trade i.e. it comprises
products that involve the poor more directly.Trade and growthA
number of studies support a correlation between openness to trade,
levels of trade and growth.
It is also argued that trade is associated with productivity
gains and increased long-term growth as a result of technology
transfer and the impact of competition on incentives for learning
and innovation.
However systematic analysis of the relationship between trade
liberalisation and growth is difficult because of the problems of
identifying causality and isolating impacts (for example in growth
regressions).
Trade growth and poverty
Systematic empirical analysis of the link between regional
integration trade, and poverty is also difficult in practice,
particularly as translating the benefits of trade into poverty
reduction often depends upon complementary conditions such as
education and healthcare provision. However trade liberalisation
has been observed to be accompanied by reduced income inequality in
low-income countries.And very few countries have grown over long
periods of time or experienced a sustained reduction in poverty
without experiencing a large expansion of their trade.The Society
of International Development (SID) (2010) has calculated that in
Kenya a 1% increase in national income translates into a 0.59 %
increase in rural employment over the long-term, demonstrating that
growth benefits the poorest groups.
Transport ObservatoriesThere are a number of studies that
support the importance of transport data collection for
policy-making and the development of tools for road management.
Design of the transport observatory project for the Northern
Corridor is informed by the evaluation of previous monitoring
arrangements along the corridor based on annual surveys. This
assessment identified a number of shortcomings with the survey
approach, including the problems of adherence to agreed schedules
and formats for data collection and submission, and the
difficulties of ensuring data quality. The transport observatory
design replicates a model used successfully elsewhere. The 2008
evaluation of the South-East Europe Transport Observatory project
for example concluded that the observatory had successfully
contributed to the socio-economic development of the region.
Integrated Border Management
TMEA plans to establish One Stop Border Posts (OSBP) throughout
the East African region. Kenya will benefit from OSBPs at the
Kenya-Tanzania border at Taveta, and the Kenya-Uganda border at
Busia. OSBPs are developed within the context of a regional
Integrated Border Management (IBM) system, as the OSBP
infrastructure is not a solution to more efficient border crossing
in isolation. The development and implementation of a national IBM
system involves integration of border agency systems and as much
processing behind the border as possible.
The OSBP established at the Zambia-Zimbabwe border at Chirundi
is the first and only operating OSBP in Africa and operates within
an IBM framework. The streamlining and harmonisation of border
procedures has reduced the average time to cross the border from 67
hours in 2007 to 10.5 hours in 2011. Traffic volume has increased
by 48.7% during the same period and average monthly revenue
collections have increased from ZMK102 billion to ZMK 133 billion.
Research on Integrated Border Management (IBM) alone highlights the
impact a well-implemented system can make in reducing clearance
delays and costs. The IBM system in Mauritius for example has:
reduced the processing time of customs declarations from an average
of four hours to about 15 minutes; resulted in greater transparency
of procedures, elimination of paper returns, and improved
productivity; and offered significant improvements in financial
efficiency and profits..
In the US better integrated border management activities have
similarly reduced costs for both the government and the trade
community through more simple, accurate, efficient, and predictable
processes. Government processing of international trade data has
also significantly improved. Dynamic Customs Risk Management
systems
Evidence on the impact of dynamic customs risk management
systems show significant returns for both government and traders
(in diverse contexts e.g. New Zealand and Cameroon). The benefits
for government have included improved governance based on objective
criteria rather than arbitrary controls: increased revenue through
greater efficiency; and improved performance monitoring of customs
officers and services. Benefits for traders have included reduction
in the time and costs associated with processing consignments and
improved predictability in the nature and level of controls
associated with particular consignments.Harmonisation of standards
and standards testingThere is strong evidence on the benefits from
harmonising regional product standards. A 2012 World Bank study
advocates the harmonisation of regional dairy standards in East
Africa as a method of increasing regional trade in dairy products,
improving technological capacity, and improving the quality of
products based on experience elsewhere. Within Mercosur, for
example, intra-regional exports in dairy products grew by 13.9%
between 1999 and 2000 as a result of a reduction in costs when
standards were harmonised. Harmonisation of standards had a similar
effect on intra-regional trade in a number of other areas including
cars and trucks, the food industry and cosmetics.
Support to national government
Technical assistance provided by DFID to the Kenyan Ministry of
East African Community between May 2009 and August 2010 led to the
strengthening of its organisational structure, HR systems and
strategy and policy functions (TMEA 2012 review). Elsewhere in the
region experience also shows that capacity building support to EAC
ministries has enabled them to play a critical role in coordinating
a wide regional integration agenda. In Uganda prior to TMEA support
being provided in 2010, the EAC ministry secured a score of 71%
against achievement of targets in a government wide performance
review. Following TMEA interventions this score increased to 80%
when a repeat survey was conducted at the end of 2011. Support to
PSOs and CSOs
Evidence demonstrating the impact of support to PSOs and CSOs in
the region is limited.
DFID has a number of regional programmes supporting CSO capacity
to advocate for policy change in particular areas. While there is
evidence these have improved institutional strength and the
organisation of advocacy campaigns there is much less evidence on
whether CSO advocacy has resulted in policy change.The evidence
base covering the impact of support to strengthen PSO advocacy is a
little stronger. An impact assessment of the Business Environment
Strengthening in Tanzania programme in 2011 for example concluded
that investments in capacity development and research and advocacy
had a positive impact on the business environment. There is some
evidence that the Business Advocacy Fund in Kenya has secured
similar effects. Support TMEA has already provided to the Kenya
Shippers Council to work with the governments Rapid Results
Initiative in identifying and eliminating causes of congestion at
Mombasa port had some limited success but did not result in any
significant or permanent changes to improve port productivityThere
is only a small amount of evidence that improving the capacity of
transporters associations, such as the Kenya Shippers Council, can
help improve transport industry business practices more widely.
There are for example anecdotal examples of improvements in the
levels of professionalism and knowledge of transport agents
following a major USAID-funded training programme implemented
through the Federation of East African Freight Forwarders
Association, but no reliable data has been collected.Option 2As
above +
LimitedMombasa port
Improving performance in Mombasa port has been the target of a
series of donor-funded programmes, since the establishment of KPA
in the wake of the break-up of the original EAC in 1977. The World
Bank and DFID (ODA) have been the funders. Short term success has
usually been associated with investment in port infrastructure and
equipment but long term institutional reform has been much more
difficult to achieve in the face of the complex mix of economic,
political and regional interests that exist in the ports
operations. There have been a number of failed attempts to impose
privatisation through conditionality.
TMEAs approach recognises the reasons why past efforts to
support reform in Mombasa Port have failed, but there is limited
evidence on which to judge its chances of success.
The evidence base for the immediate choice of investment is more
substantial. The programme is based on a detailed gap analysis that
has identified areas in which to work in the context of existing
funding, World Bank recommendations covering dos and donts in port
reform and the principals set out in the Eddington Transport Study.
A number of studies have examined port reform elsewhere in Africa
and provide evidence that increasing productivity through the type
of interventions proposed in Mombasa will have high returns.
Hummels (2012) estimates that one-day less in delivery times
whether associated with waiting time in ports or delays in
customson average around the world reduces landed costs of goods by
0.6-2.3 percent.
Looking forward there is recent evidence from both Nigeria and
Ghana of the favourable impact the landlord model can have on port
investment, operations and efficiency.Option 3As above +
limited
Option 3 represents an extended allocation of funds beyond
option 2, and is focused on extending the interventions, and
effects, as opportunity arises. The evidence thus builds on the
evidence for option 2.No detailed assessments have taken place on
the individual extended concepts, or on work with KRA.
There is indication from other countries that customs
improvements can have impact.
What is the likely impact (positive and negative) on climate
change and environment for each feasible option? Categorise as A,
high potential risk/opportunity; B, medium/manageable potential
risk/opportunity; C, low/no risk/opportunity; or D, core
contribution to a multilateral organisation.
Option
Climate change and environment risks and impacts, Category (A,
B, C, D)
Climate change and environment opportunities, Category (A, B, C,
D)
1
C
C
2
B
B
3BB63. Option 1 presents a low direct risk to the environment
and climate change in its implementation. However the expected
outcomes of TMEAs interventions may have second-order effects. A
reduction in road transport times, for example, will in the first
instance reduce carbon emissions. But over a longer period it could
also discourage the exploitation of opportunities to use greener
fuels and transport alternatives and lock Kenya into a
high-emissions growth path. Second order effects like this will be
influenced by a large number of factors including market dynamics,
technological change and regulatory frameworks. In practice risks
are very difficult to determine in advance.64. Option 2 includes
some construction at Mombasa Port (e.g. road widening and railway
upgrading) and therefore poses a greater direct risk to the
environment and climate change (e.g. through noise, water, air
pollution). In line with Kenyas national environment policy, TMEA
will address this risk by conducting an Environmental Impact
Assessment (EIA) prior to commencing infrastructure works. The EIA
will include a management plan for risk mitigation65. Both Options
1 and 2 provide opportunities for TMEA to contribute to climate
change mitigation in Kenya and to support work to improve the
environment and natural resource management especially in its
interventions with national and regional bodies to improve policy
making. TMEAs engagement in this agenda however is currently
significantly weaker than its focus on addressing risks. In
response TMEA is in the process of developing a climate change
strategy in particular to explore options for reducing carbon
emissions along East Africas transport corridors, including the use
of climate change finance to promote lower emission transport
systems (such as railways) and at the Port. 66. There is scope for
this work to be extended to cover a wider agenda which might
include for example the potential to: mainstream climate change
risks and opportunities in Kenyas policies on regional integration;
facilitate climate-smart insurance products and risk management
tools for foreign investors; and to promote low carbon and
renewable energy technologies.67. The strategy will identify the
full scope for TMEA to exploit green procurement opportunities in
its programming including the use of recycled or sustainably
sourced materials, low carbon technologies and materials which are
not harmful to the environment. The DFID Kenya Climate and
Environment adviser is engaged in this process.
Table 6: What are the costs and benefits of each option?
(NB costs and benefits relate to existing TMEA commitments and
additional TMEA investments)Option 1: To strengthen regional
integration and trade competitiveness in Kenya by maintaining
support for TMEAs Kenya programme at the levels agreed in 2009
(alongside investments TMEA is making across the East Africa
region)
Activities
Output BenefitsOutcome Benefits
Support to facilitate trade ($1.7 million) through:
Establishing a transport observatory along the Northern
Corridor
Training freight and transporter operators
Introducing Integrated Border Management at Taveta and Busia
border posts
Implementing a customs risk management system for the inspection
goods at Kenyas borders
Better information on the causes of transit delays along the
Northern Corridor. Freight operators are more efficient and
competition is increased. More efficient border processes at Taveta
and Busia border posts
60% reduction in customs inspections at borders Improved customs
compliance.Increased trade competitiveness in Kenya as a result
of:
Faster customs operations at borders;
Better understanding of customs processes by transporters;
Improved policy to address other bottlenecks along the Northern
corridor
Cost savings related to reduced transit/transport times;
Better compliance with regional and international standards
particularly in agricultural and manufacturing sectors.
Support to improve standards testing and legal framework ($1.3
million) through: Introducing new equipment for standards testing
Ensuring Kenyan policy and legislation on standards is consistent
with regional agreements on Standardisation, Quality Assurance,
Metrology and Testing (SQMT) 2 pieces of new testing equipment
installed in Kenya Bureau of Standards
10 staff trained in equipment use
Decrease in average time taken to test products and increase in
number of tests that comply with established procedures
New national policy and legislation on standards conforms with
the EAC Standards (SQMT) Act (National Quality Policy gazetted,
Technical Regulations Act receives assent)
Support to National Government ($6.2 million) for:
i. Ministry of East African Community
Providing staff development and external policy advice
Implementing EAC communications strategy
Monitoring implementation of EAC commitments
Developing and implementing EAC Common Market Implementation
Plan
ii. Office of the Prime Minister
Developing a Kenya Regional Integration Strategy
iii. Ministry of Trade
Reviewing legal and institutional reforms required to implement
EAC Common Market Protocol Improving capacity for trade policy
formulation and analysis MEACs performance in Kenya governments
assessment system rated as excellent Increase in awareness
campaigns covering the content of EAC integration and the
implications/opportunities for Kenya. Greater compliance with
detailed actions required by EAC Common Market Protocol at least
70% of the 165 actions that have been identified are implemented on
schedule.
Better harmonisation of Kenyan laws and policies with the Common
Market Protocol - 27 have been identified as requiring attention
Ministries and Departments include regional integration in their
strategic plans and budgets
50 % of recommended reforms in Kenya National Trade Policy
implemented on time. Improved capacity for trade policy analysis
and trade negotiations
Enactment of new trade development legislation Improved
government leadership and coordination of regional integration
agenda;
Implementation of a comprehensive regional integration
policy;
Strong public support for regional integration;
Improved access to regional markets;
Strong private sector understanding of regional trading
opportunities;
More effective Kenyan participation in regional and global trade
negotiations.
Support to the Private Sector and Civil Society ($5m) for:
Technical assistance to improve standards of small-scale
horticultural production (through Fresh Produce Exporters
Association of Kenya)
Technical assistance to improve standards of tea production
(through East Africa Tea Traders Association - EATTA)
Advocacy training
Advocacy research and campaigns on issues including:
Reducing the cost of tax compliance;
Reducing the cost of quality compliance;
The role of regulatory bodies for manufacturing;
Investment Climate reform
Efficiency of regional transport systems
Knowledge sharing and collaboration between PSOs and CSOs on
shared interests (including at regional level)
Establishing Kenya Shippers Council as a one stop information
centre for transport, logistics and trade-related information.
10 groups of Kenyan small-scale horticultural growers certified
compliant with East Africa Good Agricultural Practice Standards
(EAGAP)
400 growers trained in EAGAP
140 internal auditors/country trainers certified in EAGAP
20 auditors/lead trainers receiving certification in EAGAP 3000
farmers reached with good agricultural practice training 10
research papers on specific EAC issues published by PSO/CSO
organisations
500 PSO/CSO staff and association members trained in regional
integration and advocacy
5 PSO/CSO advocacy campaigns conducted
Increase in access to trade facilitation information containing
up-to-date and accurate trade facilitation information. Increased
awareness of policymakers of challenges facing private sector
Greater engagement of Kenyan civil society at a regional level
(through establishment of a Kenyan chapter of the East African
Civil Society Forum)
Stronger accountability of Kenyan government to its citizens on
the impact of regional integration 10% increase in volumes of tea
sold by EATTA
US $2 increase in average price of tea auctioned at Mombasa tea
auction
Shippers are able to transport goods more efficiently
Option 2: Significantly increase DFID support to allow TMEA to
make strategic investments in Mombasa port that will reduce port
congestion and transit delays
ActivitiesOutput BenefitsOutcome Benefits
All activities under option 1 plus interventions at Mombasa
port
Support to Mombasa port ($43.8m) for:
Investment in rail infrastructure within the port, gates
(including for shunting and mainline access)
Upgrading port roads and port gates;
Improving traffic flow arrangements within the port;
Upgrading urban road linkages;
Upgrading truck waiting areas;
Improving yard facilities ( including by investment in
equipment); Institutional capacity building focused in particular
on implementing the recommendations of a port-wide productivity
improvement study and on labour force training. Improving laws and
regulations governing port operations; and. Developing
Public-Private Partnerships (PPPs) for infrastructure investment
3000 metres of new rail lines in Kipevu port area (container
traffic);
1500 metres of new rail lines in Kilindini port area (general
cargo);
Improved gates for rail access and associated facilities in both
Kipevu and Kilindini;
Rehabilitation/widening of 1.3 km of the Kipevu access road;
Rehabilitation/widening of 3.4 km of the Shimanzi access
road
Improved truck waiting areas/parking for Kipevu and Shimanzi
access roads;
Improved Port gates for access on Kipevu and Shimanzi roads;
30,000 sq metres of yard repairs/resurfacing in berths 11-14
(Kipevu container area)
740 metres of repairs to fenders, bollards and other facilities
in berths 11-14Improved road and rail access and improved
productivity will together significantly reduce traffic transit
times through the Port. TMEA estimates that the specific
investments it will finance will reduce delays by up to 34 hours
per tonne. These savings comprise:
12 hours from improved rail linkages and space
rationalisation
3.7 hours from improving port road access
6.5 hours as a result of improving and expanding yard facilities
and stacking areas
12 hours as a result of institutional capacity building
1000 metres of repair to quays and stone revetments in port
section G (general cargo)
20,0000 sq metres of repair of aprons (light paving) in port
section G
Detailed feasibility assessment and design of a dry port
facility at Miritini rail marshalling yard.
Land use mapping report
New regulations for Kenya Ports Authority
Development of PPP strategiesIn addition funding for design work
will provide a base from which additional time savings can be
secured in future.
Option 3: This option will provide further flexible funds to
TMEA in the immediate short term to enable them to react to new and
emerging need in the next year.
ActivitiesOutput BenefitsOutcome Benefits
All activities under option 1 and 2 plus further design and
development of interventions at Mombasa port and with KRA
Support to Mombasa port and KRA ($62.2m) for:
As option 2 above, plus:
redesign and rerouting of train track around the main rail
access and egress points to the port (inside port);
detailed design and costing of works with KRA on customs systems
and operations;
initiating full technical assistance work on improved customs
systems in advance of and in anticipation of selection and
procurement of new IT systems
installation of new customs IT systems compatible with
international standards and best practice Additional 1000m of new
track Design and specification of new customs IT systems, systems
analysis and paperflow, and bridge to international systems
full engagement on technical assistance in transition management
and training on systems
procurement of full IT systems and support and associated works
for customs systemImproved rail access will increase rail
productivity enhancing work under option 2, and improved Customs
productivity will significantly reduce traffic transit times
through the port. Estimates of time saved and impact are at an
early stage, but would be anticipated to have a reinforcing and
significant impact of a similar scale to the improvements under
option 2 above, when implemented in conjunction with the proposed
physical improvements
Balance of costs and benefits
Cost of Options
68. DFIDs options are to fund different proportions of TMEAs
budget for 2012-16. TMEASs overall expenditure would respond to
different levels of funding. TMEAs budget is predicated on DFID
funding broadly in line with that in the Operational Plan. Most
other donors do not earmark their resources to specific country
windows or the regional window, as DFID does.
69. TMEAs budget for 2012-16 is presented below.
Table 7: TMEA Kenyas Programme Budget, 2012-2016 ($000s) (see
Financial Case)Calendar Year
2012
2013
2014
2015
2016
Total
Improved infrastructure and institutional capacity at Mombasa
Port
3,55018,43315,6857,3501,10046,118Better Trade Facilitation
1,0001,075180138852,478Improved Kenyan implementation of the
regional integration agenda
9464202902952252,176Improved regulation of product standards
1,200150
10050501,550Strengthened role of Kenyas PSOs and CSOs
1,3359004253382003,198Programme Management
6613022154242581,860Central Overheads
8392,3332,4721,4051877,236Monitoring and Evaluation
133
268
372
181
53
1,007
Total
9,66423,88119,73910,1812,15865,62370. Under Option 1, DFID
funding would become a smaller share of a reduced budget. Under
Option 3, funding would be a larger share of an increased budget.
The actual changes to the Kenya programme would depend on how TMEA
reallocates resources, as other sources of funding are fungible to
a degree across windows. Indicative discussions are underway with
other donors, and it is likely that the proportionate support from
DFID will reduce as and when other donor funding is agreed.Benefits
of TMEA interventions71. An assessment of impact of trade
facilitation interventions found that while generally evidence of
impact was low this was due in part to the lack of studies actually
assessing impact and the quality of those undertaken. But the
existing evidence is of positive impacts of trade facilitation
instruments on reducing trade costs and trade flows.72. TMEAs Kenya
programme comprises (figures include DFID contributions to
programme management, central overheads, M&E): Mombasa
infrastructure and institutional capacity Trade facilitation e.g.
customs risk management, transport observatory GOK capacity in
regional integration e.g. reforms to implement EAC Protocol Support
to improve standards testing and legal framework Support to private
sector and civil society
73. The following two sections look at Mombasa port and then
other interventions.Indicative cost-benefit analysis of Mombasa
port74. With respect to port reform the type of impacts expected
and seen in the studies are summarised below:Type of Study
Impact
Robustness
Study 1
Ex post evaluations on impact of port efficiency
Positive impact on shipping costs and trade costs
High
Study 2
Ex post evaluations on impact of port reform programmes
Positive impact on port efficiency
High
Study 3
Ex ante simulation of increasing port efficiency
Positive impact on trade flows
Not applicable, ex ante simulation without verification of main
assumptions
75. TMEAs technical work with the Mombasa Port Authority to
identify priority interventions has implicitly constituted a cost
effectiveness analysis (finding the least cost to achieve programme
objectives). These prioritised activities are presented in the
table on activities, outputs and outcomes above. The brief analysis
that follows is an indicative cost-benefit analysis. Cost-benefit
analyses of ports look at: (i) time savings and reductions in
operating costs; and (ii) trade induced, the impact on prices and
the extent to which these are due to changes in costs related to
port interventions.
76. For Mombasa port, an estimate of the value of incremental
benefits of the investment can be disaggregated in to two parts:
firstly, the economic value of time saved on current traffic
through the port; secondly, the producer surplus or profit on
induced trade due to the interventions.
77. It is important to note that these estimates are highly
indicative and depend on a number of parameters. The parameters
shown such as delay times are also central estimates within wide
ranges that depend on a number of factors. However, the analysis
still gives a sense of what amount of change in terms of port
efficiency investments need to achieve to be worthwhile.
78. The first type of benefit (valuing time saved) depends on:
port traffic, time saved due to interventions, value of time saved.
The second (profit on induced trade) depends on: value of trade
generated due to reduced trade costs, and the profit on this
created trade.
79. The table below shows an indicative cost-benefit analysis of
the port. The assumptions are drawn from TMEAs economic appraisal
of its work programme. They are informed by TMEAs own analysis of
Kenya Ports Authority data and the CPCS Northern Corridor study. A
TMEA estimate is that port interventions will collectively lead to
a 0.8 day reduction in dwell time. In the base case presented
below, half of this value is used.
Notes: Shipments are standardised as Twenty foot container
equivalents80. Under the base case, the internal rate of return is
49% when only time saving benefits are included, rising to 61% when
profit on induced trade is factored in. Very high economic rates of
return can be expected for such projects because (i) port traffic
volumes are very large and growing with or without increases in
port efficiency; and (ii) current port efficiency is so poor that
priority interventions are likely to make some impact on port delay
times. It is important to note that these returns can be achieved
independent of other actions.81. The most meaningful type of
sensitivity analysis is to model the minimum level of reduction in
dwell time necessary to break even at the discount rate (10%). Time
savings need to be only 0.1 day for this investment to be justified
based only on time savings and not induced trade.
Benefits of other interventions82. Some 3% of TMEAs 2012-16
programme will support customs processes. Two ex post evaluations
of customs processes in other countries found positive impacts on
reductions in customs clearance times, the number of documents used
and on trade flows.
83. 7% will be used to support GOKs implementation of Common
Market Protocols and 2% on improving regulations of product
standards. A review of global evidence on impact of regional
integration on trade, economic growth and poverty reduction
suggests that measures other than reducing tariffs lead to gains
from regional integration. So called deep integration involves
measures such as regulatory harmonisation or adopting common
policies and institutions that can increase investment and trade
between members. Empirically the evidence of impact for South-South
RTAs and deep integration is thin although the scope for benefits
in East Africa through increased investment and trade in services
is wide.
84. The other component of expenditure is support to civil
society institutions in advocacy and broadening participation in
trade policy making. Despite the growth in these programmes in the
last decade there have not been evaluations. A study on trade
policy processes by KIPPRA and ODI in 2007 found insufficient
coordination between state and non-state actors and information
asymmetry between those involved in trade negotiations and other
stakeholders. This suggests the need for more advocacy and
participation of civil society.85. Gauging the economic benefit of
these specific interventions ex ante is not possible. TMEA have
laid the groundwork for looking at programme impact with thorough
reviews of global evidence of the impact of trade facilitation
interventions and regional integration.Choice of Option86. The
choice of option needs to be made on the basis of strategic
considerations including:
expected effectiveness of TMEA interventions; absorptive
capacity of TMEA; DFID share of total funding of the TMEA Kenya
programme
87. On expected effectiveness, TMEA interventions are well
designed as suggested by project reviews to date. Interventions
address known capacity and infrastructure bottlenecks that affect
large volumes of traffic. The starting point in terms of regional
integration and integration of the EAC with the rest of the world
suggests that high returns can be realised by interventions that
improve efficiency of institutions that support regional
integration and trade. Impact assessments will be required to
assess this, and are planned.88. On absorptive capacity, TMEAs rate
of implementation is increasing. The scale of contracts will
increase as TMEA moves into Mombasa. There is a risk of slow
contracting, but also the potential to increase rate of
implementation.
89. The DFID share of total funding is high, but this does not
affect negatively the strength of engagement of other stakeholders,
especially other TMEA donors, in the work programme.
90. The preferred option, Option 2, represents the best option
within DFID Kenyas current resource framework. It represents a risk
given the limited evidence on impact, particularly on poverty. The
risk is worth taking, given UK Ministers commitment to increased
trade across Africa. The real benefits that can be derived do not
depend on other wider reform or economic changes taking place in
parallel. With reform momentum, the benefits could be even greater.
Option 3 is viable and may be preferable if DFID wishes to achieve
greater impact in this sector and chooses to allocate greater
resources to TMEA. But it needs further design and appraisal.
D. What measures can be used to assess Value for Money for the
intervention?91. With DFID advice, TMEA is currently refining its
approach to assessing and ensuring value for money from its
interventions with support from external consultants (see
Management Case). Implementation processes have been designed to
have a value for money approach at their heart, in particular as a
result of:
ensuring wherever possible that contracts are awarded and
finance provided on a competitive basis (see Commercial Case);
using a wide range of sources to establish benchmarks against which
the individual elements of contracts and grants can be assessed and
negotiated ; and
ensuring all forms of value that an intervention will deliver
are taken into account in decision-making (including implementation
speed).
Economy and Efficiency92. The main cost drivers of TMEAs
programme in Kenya are the costs of professional consultants
engaged in design, advisory and implementation services (both in
Mombasa Port and in work with government, the private sector and
civil society), the costs of information systems - and the costs of
infrastructure work in Mombasa. 93. TMEA undertakes procurement of
consultants in line with DFID requirements and OJEU regulations
and, following DFID practice, undertakes regular procurements on a
framework basis to enable rapid and flexible call down of services
as required to meet need. 94. Output benchmark prices have been
developed as the basis for budgeting in TMEA intervention areas,
based on prior experience elsewhere. These will also form the basis
for actual performance to feedback into the budget cycle. Important
output prices that have been applied in the Kenya programme are
summarised in Table 8.
Table 8: Benchmark output prices applied in the Kenya
programmeOutput Area Unit costIntegrated Border Management systems
(including hardware, software and training) $500,000 per border
postRoad rehabilitation and widening in Mombasa port $2 million per
kilometre(total $2.6 million)Replacement rail and improved rail
access in Mombasa Port $1 million per kilometre(total $4.5
million)Yard repairs and re-surfacing in Kipevu container terminal
at Mombasa port$ 300 per square metre(total $9million) Repair of
quays and stone revetments in port Section G $1.5 million per
kilometre(total $1.5 million)Repair of aprons in port Section G$50
per square metre(total $1 million)95. TMEA report these estimated
output unit costs are based on experience both within East Africa
and in other environments (although the source of these estimates
has not been verified in detail). They provide a guide for
assessing the efficiency with which actual outputs are achieved in
practice. But TMEA has emphasised that unit prices are very
sensitive to the particular environment in which an investment is
made and it is extremely difficult to standardise for a wide range
of variables that include timing; location; project scope; and
project and contract type. The actual output prices TMEA will pay
crucially depend upon detailed design and the quality of the
competitive process through which implementation takes place.
Efficiency also depends upon the time period in which outputs are
delivered. The measures in Table 8 do not include efficiency
indicators for TMEAs capacity building programmes with government,
the private sector and civil society where outputs are extremely
difficult to quantify.96. It is part of TMEAs planned approach to
improving its assessment of value for money to consider how to
better capture economy and efficiency metrics in the analysis of
its contracts and funding agreements, in way that comparisons can
be effectively drawn between different parts of its programme and
with similar programmes in other environments
Effectiveness97. The cost-benefit analysis presented in Section
C above assesses effectiveness in terms of both savings in
transport time as a result of TMEA Kenyas interventions and the
consequent increase in export trade. These measures provide, ex
ante, a strong justification for Option 2 (indicating maximum
possible benefits in the analysis of the whole Kenya programme
which total $2.2 billion in constant prices through until 2026 -
the equivalent of nearly 7% of Kenyas GDP in 2011. Even reduced to
10% these would represent value.).98. It follows that measuring the
impact of TMEA Kenyas interventions on transport time in practice
and relating these savings to project expenditure (for example in
terms of cost per unit of time saved) is essential to be able to
judge value for money, especially in Mombasa port. This analysis
will also provide a basis for better future investment decisions.
TMEA are currently considering how best to collect information to
make this assessment possible, including the possibility of surveys
of those intended to be the primary beneficiaries. (Later sections
deal with measurement and validation related to ultimate
beneficiaries.)99. There are, however important TMEA interventions
where time savings are not the primary objective and quantification
of impact is difficult. This includes in particular TMEAs projects
to strengthen the engagement of the private sector and civil
society and to build the capacity of government in leading the
regional integration agenda. TMEA is also reviewing how best to
measure effectiveness in these contexts, although it is not clear
there is a model that has been established from similar
interventions in other sectors.
E. Summary Value for Money Statement for the