Kenya’s trailer market

While the fight against Ebola is still raging in West Africa, news about the continent’s economic progress can be easily overlooked. Beyond the crisis, however, it is developing a distinct technology edge that could stimulate investment into road transport and give the local trailer market a welcome boost.

Sub-Saharan Africa’s economy is forecast by the International Monetary Fund (IMF) to grow five per cent next year – one of the fastest rates in the world. Kenya and Nigeria are among 16 sub-Saharan countries whose economies are expected to expand more than six per cent, even though the disease is devouring much needed resources across the region.

According to Bloomberg’s David Malingha Doya and Mike Cohen, this new growth wave is not just commodity-driven anymore but more broad-based, with a thriving IT economy taking the lead. Almost 60 per cent of Kenya’s 40.7 million people now have Internet access, and 78 per cent have mobile phone subscriptions – fuelling business opportunities across industries.

“The engines of growth … are increasingly diverse,” Doya and Cohen explain. “You are not simply finding growth coming out of a single exporter or a single commodity, which has previously been the case in many countries. This allows for more income accumulation outside of a high-level political and economic elite.”

That ‘readiness’ for broad-based growth is especially noticeable in Kenya, where the controversial Kenyatta/ Ruto government is trying to set up a “conducive business environment” for local and foreign investors alike.

Benefitting from a relatively stable political environment since the 2013 election, business confidence in and around Nairobi is on the rise. At an international investment conference held in mid-November, Deputy President William Ruto noted that the nation was ready for the next stage of its economic development.

“We are interested in being more than a transit point and we are making necessary adjustments to propel Kenya to be the perfect investment spot,” said Ruto, whose speech was read by Industrialization Cabinet Secretary Adan Mohammed, as Ruto himself is currently standing trial in The Hague, accused of crimes against humanity in the wake of the 2008 election.

“Where there is a private sector that understands and translates official visions into appropriate interventions, economies have grown, wealth has been created and business has been harnessed. We are committed to creating a conducive environment for more investments into the country.”

Even though both Ruto and President Kenyatta are still facing court – both are denying all charges – the duo’s most recent stimulus package is already palpable across the nation. Investors in Kenya can now take only a day to register their business, file taxes electronically and access both regional and international markets easily, thanks to favourable business reforms and policies initiated by the government and private sector. In addition, large-scale infrastructure projects are now underway, and recent discoveries of large oil, coal, titanium and water reserves have further elevated Kenya’s future growth prediction.

Naturally, such buoyancy is attracting attention. While the Western influence in Kenya is still strong, Asia and the Middle East are slowly gaining ground in the region, with China taking the lead as a major development and trade partner – not just in Nairobi, but nation-wide. Already, it’s not unusual to see Chinese contractors undertaking large civil engineering projects or Chinese traders setting up shop in remote parts of the country, locals say.

Aware of the Chinese foray, Western governments have now taken the offensive again. In October, Kenya signed an economic partnership agreement (EPA) with the European Union, paving the way for duty-free trading between the two economies. While the EPA has been criticised by some for favouring the EU, the pact is widely considered a step forward. As Kenya’s largest trading partner, the EU imported 21 per cent of Kenya’s total exports in 2013. In turn, 16 per cent of Kenya’s total imports in 2013 originated from the EU.

On the road, Kenya’s reinvigorated relationship with the EU is immediately noticeable. In the heavy-duty sector, European models dominate the market. Securing a solid 57 per cent share of the new heavy truck market in 2013, Mercedes-Benz is the undisputed market leader, with MAN, Scania, Volvo and VW also representing European engineering. Japanese OEMs like Isuzu, Mitsubishi Fuso and Nissan UD are on their tail, in turn chased by Beiben, Dongfeng, FAW and Sinotruck from China.

According to Mike Duder, General Sales Manager at Mercedes-Benz commercial vehicles in Kenya, “The keys to succeeding in this market are a high-quality product, comprehensive after-sales services and exemplary resale value. The specifications need to be well-suited for East African conditions.”

Due to the high purchase price of new vehicles, which is due to costly import taxes, the vast majority of heavy trucks on Kenyan roads are used imports. In 2013, approximately 80 per cent of the prime movers registered in Kenya were second hand vehicles from abroad – with virtually all of them coming from the United Kingdom.

In contrast, the majority of trailers on Kenyan roads are locally manufactured. Last year, some 4,000 new trailers were registered in Kenya – bringing the total population to approximately 40,000 units at the end of 2013 and officially marking the end of the post-GFC slump.

In 2010, when the effects of the Global Financial Crisis began to reach Africa, slightly less than 2,400 new trailers were registered in Kenya, down 37 per cent from the previous year. Less than half a decade on, the growth forecast for 2014 is 7.5 per cent again – giving local manufacturing and overall productivity a much-needed boost.

But even though the strengthened trucking industry is contributing to economic growth, the resulting spike in congestion is causing grief amongst the population. Along the Northern Corridor, the highway that links Kenya’s Port of Mombasa with the landlocked eastern and central African countries of Uganda, Rwanda, Burundi, Congo and South Sudan, heavy trucks put a strain on local infrastructure.

Poorly managed and regulated, Kenya’s road transport industry is laden with corruption and laxity. Overloading, the most prevalent issue, is firmly rooted in the mind set of many operators – despite the Kenyan Government’s best efforts to remove it.

With massive investments in road infrastructure planned and underway, the Government of Kenya has taken a firm stance against overloading. Last year, new axle load and gross weight regulations, enforcement guidelines and overloading penalties were issued. These will soon be followed by new “weigh in motion” weighbridge systems, which will replace the existing antiquated systems along the Northern Corridor. But the success rate so far has been minimal.

With overloading deeply ingrained in the local transport culture, heavy truck dealers and trailer manufacturers are forced to configure and build their products for extra-heavy weights to avoid frequent breakdowns. Whereas the legal gross combination weight (GCW) in Kenya is limited to 56 tonnes over seven axles, authorities regularly encounter combinations weighing in excess of 100 tonnes each.

Ironically, the push to transport more freight by road – illegal or not – has urged the Kenyan Government to collaborate with China on the development of a new railroad from the Port of Mombasa to the nation’s capital, Nairobi, which is located some 500km away. The new railroad is expected to be ready by the end of 2016 and will ultimately connect with similar projects inland, creating a new rail network across Kenya as well as a new rail corridor for the landlocked eastern and central African countries – competing for a substantial share of the freight task currently handled by truck and trailer combinations.

Naturally, many road hauliers are apprehensive that the new railroads might herald the end of their unabated dominance on freight transport. And seeing as analysts predict freight charges to drop by 50-70 per cent once the new railroad is complete, their fears may not be unfounded. But even though a large-scale modal shift is expected, the Kenyan road transport sector is not doomed. Many experts expect the increased competition arising from the new rail line to compel industry to follow the current tech trend and seriously re-evaluate its business models in an effort to find new solutions to increase its efficiency and productivity. In that sense, the future may actually hold even greater promise for road transport in Kenya.