Gowling WLG's infrastructure team, led by partner Jonathan Brufal and senior associate Tom Gray, have been working with TradeMark East Africa and the government of Rwanda to improve transport infrastructure to and from Rwanda. Here they discuss the flagship Kigali Logistics Programme, a game-changing new internal port that will have wide-reaching benefits for trade and Rwanda when it comes online in mid-2017, and the future of trade and infrastructure in the region.
Freight costs in East Africa can be as much as 50% higher than those in Europe or America. Journeys across borders and through roadblocks take days when they could take hours. A lack of suitable infrastructure, technology and expertise affects everything from road maintenance to customs and excise, storage to onward transportation. But does the construction of new transport networks, such as the standard gauge railway which will eventually link Kenya, Uganda and Rwanda, various toll roads planned or already developed, or the recently signed Kigali Logistics Platform (KLP) concession, herald a new era for trade and logistics in East Africa and beyond? With a growing regional economy and innovative infrastructure transactions such as the KLP concession, the potential exists for significant change.
Rwanda's Ministry of Trade and Industry (MINICOM), with Gowling WLG advising in conjunction with Deloitte and TradeMark East Africa, recently completed a concession agreement with DP World for the development and operation of the KLP - an inland port for the collation and onward distribution of goods. DP World has been awarded a 25-year concession to construct and then operate the facility, which will link with Rwanda's existing road trade corridors, as well as potential future rail development. TradeMark East Africa, a not-for-profit company, funded the mandate.
The project is one of the first competitively tendered PPPs to close in Rwanda, and the first logistics project of its kind in Africa. Rwanda will benefit from the establishment of a world class logistics facility that will increase the efficiency of its trade routes from and to the surrounding countries of Uganda, Tanzania, Kenya and Burundi and the central African region, but the government will only cover a limited amount of the cost while receiving a concession fee from DP World.
The concessionaire has a portfolio of 70 logistics terminals, both marine and inland, on six continents. Its flagship Jebel Ali facility in Dubai has been voted 'Best Seaport in the Middle East' for the last 20 years. It's the KLP's potential that has attracted this major player to Rwanda.
The development will sit on 30 hectares and include container and goods storage facilities, space for stakeholders such as freight forwarders, shippers and transport operators, customs inspection, tax offices, maintenance and repair, banking and IT infrastructure. Situated outside the city centre, the KLP will ease congestion in Kigali. Currently lines of trucks wait to offload goods, causing long delays.
Rwanda's Minister of Trade and Industry has commented that offloading containers under the current system takes up to a week, and consequently, trucks may make only two journeys per month. The KLP will have sufficient space, storage and staff to decrease offload times so that trucks can make up to five journeys per month. This significant reduction in transport costs will increase profits and facilitate the flow of goods within the region.
The development of the facility will positively impact the local economy and employment levels. The KLP will have storage facilities for goods manufactured by local industries, which up until now have only been able to produce items to order, due to a lack of adequate storage. KLP's warehouses will be able to house both finished products and raw materials, allowing small businesses to increase output and deliver further economic benefit to the region.
We advised MINICOM on the KLP PPP and continue to do so on a series of further logistics projects in Rwanda and other East African Community countries.
Using PPP structuring to develop a logistics facility is a relatively new concept, but if planned and executed properly, it could help support the development of emerging African economies. If procured correctly, with a transparent bidding and evaluation process, and balanced project agreements, the model attracts world class logistics operators who will build facilities that encourage trade, all at minimal cost to government.
To ensure fair competition, world class customer service at affordable prices, and facilitate further development by other players in the logistics sector in Rwanda, the agreement imposes a series of performance standards and tariff caps upon the concessionaire, as well as incentives to attract third party operators to the KLP.
From the trends we are seeing in Africa's infrastructure, and the focus on increasing trade efficiencies and linkages, we expect this model will prove popular. Concession agreements can help to create local jobs and facilitate the movement of goods, while de-risking the development of large facilities for the public sector. It's in the concessionaire's best interests to make the logistics facility profitable, and the increased flow of imports and exports through the region helps grow the local economy. It's a win-win situation.
As a model for future prosperity, the KLP is a visible and critical first step, and its operation and ability to turn a profit will no doubt be examined in great detail within Africa and further afield.
This article was originally published on the Partnerships Bulletin website in January 2016.