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Emerging Oil Giant Kenya Gets Major Infrastructure Boost from China

Bottom Line: Rushing to get some massive infrastructure projects off the ground as oil discoveries move towards commercial production in Kenya, the Chinese launch a landmark multi-country railway project to compliment the port expansion at Mombasa.

Recommendation: This massive rail project—funded by Chinese soft power—will dramatically increase Kenya’s trade prospects and secure its position as a regional hub and economic powerhouse. Investment will respond in kind.

Analysis: The Chinese have officially begun construction on a $13.8-billion railway project that will connect the port of Mombasa, which is being expanded, and the capital city of Nairobi, and eventually possibly even link Kenya’s market with landlocked neighbors Uganda, Rwanda and South Sudan. So far, the Chinese have funded the first 450-kilometr sector of the project that runs from Mombasa to Nairobi for $5.2 billion, which is slated for completion by 2017.  Construction is being done by state-owned China Road and Bridge Corporation (CRBC), which in August completed the first stage of expansion at Mombasa’s port—a massive project in itself which included a new berth with a 50,000-ton container ship capacity. The new rail line will boost transport volumes between the port and the capital significantly by reducing the transit time from 36 hours to eight hours and resulting in a reduction in transport costs by about 60%.

Work has also begun on Kenya’s massively ambitious LAPSSET (Lamu Port-Southern Sudan-Ethiopia Transit Corridor) infrastructure project. Last year, Kenya started construction on the Lamu Port part of this project, which includes a port, railway and refinery in Lamu. The entire project will cost an estimated $24.5 billion and hopes to connect Ethiopia and oil-rich South Sudan.

The key elements of the $24.7 billion LAPSSET Corridor include:

•    Lamu Port in Kenya, with 32 berths costing $5.3 billion
•    A $2.8 billion oil refinery at Lamu Port (this will be Kenya’s second oil refinery, with the Mombasa Refinery at a 70,000bpd capacity)
•    A $3.9 billion, 1,300km oil pipeline running from Lamu to South Sudan, which will double as a fiber optic route
•    1,720km super highway connecting Ethiopia to South Sudan
•    An $8.08 billion, 1,620km (standard gauge) railway line running from Lamu to Juba, with a branch to Ethiopia; costs to be shared by Nairobi, Juba and Addis Ababa
•    Three international airports: Lamu, Isiolo, Lokichogio

The LAPSSET corridor will turn Kenya into a gateway for business in East Africa and the Great Lakes Region, as well as the key transport hub for the entire region. It will also provide access, via sea, to external markets for areas that are currently closed off, including Kenya’s north, Somalia’s south, Ethiopia’s south and South Sudan. The corridor will also establish an alternative sea route from the Indian Ocean, serving as a land bridge across the region and fostering what will potentially become a united economic and trade zone.




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