Kenya's Competitiveness at Great Risk

Posted Aug 11, 2009 | 0 | Filed under: Work

Kenya currently is the leading economy in East Africa. However, this is under great threat from the neighboring countries. For a couple of years now, the country has been losing it's flower farms to Ethiopia due to high labor and infrastructure costs relative to the northern Neighbor.

Of even greater threat to Kenya is the cost of doing business, particularly energy costs and energy reliability. Uganda's Bujagali hydro project promises to bring power costs in Uganda down from $0.14 per kWh to $0.08 per kWh. Equally important, the project will generate enough power to meet the country's demand and provide for export. Additionally, Uganda has now over one billion barrels of proven oil reserves. One can anticipate that the relatively high cost of petrol and other fossil fuels will be a thing of the past.  

Tanzania is working hard to harness it's natural gas reserves. Anecdotally, they are considering a 500MW Natural Gas electricity plant. Assuming a $0.06 per kWh cost of generation, their energy costs will be quite competitive. And Natural gas being a solid base load source, black outs will be a thing of the past (assuming their distribution infrastructure is up to the task).

As a manufacturer doing a cost benefit analysis of working in Kenya, Uganda or Tanzania, the availability and cost of energy will be a critical component in that analysis. While neither of the two countries has a work force to march that of Kenya, the fact that regional integration will allow for free movement of labor, that might no longer be a competitive advantage for Kenya.

It is not too late, and a lot of work in going on behind the scenes particularly on Geothermal and other renewable sources such as the feed in tariff. I am told that there is also a very good chance of a 300MW or 600MW ( depending on who you ask ) coal plant in the works. So all is not lost - as long as Kenya as a country moves fast from the drawing board to action.

And if the work that has been done on the roads network over the last few years is anything to go by, there is great reason for optimism in the energy sector as well. But first, a lot of pain for the next sevaral months until we get some heavy rainfall.