SGR Phase 2 Operations begin despite viability & funding concerns

Kenya has recently launched the second phase of the Standard Gauge Railway (SGR) despite concerns over its viability and funding. The SGR project, initiated in 2013 by heads of state in the region, aimed to bring about socio-economic transformation. The first phase, connecting Nairobi and Mombasa, is already complete, while the second phase connecting Nairobi to Malaba has now been partially launched, with the passenger section operational. However, delays in upgrading the old railway and constructing the required infrastructure have raised questions about the project's viability, especially regarding cargo services, which are crucial for the line's success. Passengers have also faced challenges with last-mile connectivity, necessitating additional modes of transport to reach their final destinations. Although the SGR has the potential to resolve logistical issues, funding uncertainties, particularly from Uganda and concerns about regional cooperation, cast doubt on the project's future. Furthermore, with neighboring countries like Ethiopia, Tanzania, and Djibouti pursuing their own railway initiatives, the future of the SGR remains uncertain. Moreover, the rejection of a bill seeking to retain interest rate caps by President Uhuru Kenyatta has sparked a debate. The bill aimed to maintain the caps introduced in 2016 to make credit more affordable in the economy. However, the president cited negative impacts on SME lending, economic growth, and the rise of unregulated lenders as reasons for his decision. Despite this, some experts argue that the caps have not significantly affected SMEs' access to finance, pointing instead to banks' stringent collateral requirements and the introduction of IFRS 9 accounting standards as limiting factors. Meanwhile, Kenya's efforts to establish warehouses in neighboring countries like Rwanda, Burundi, and DRC to boost exports and improve cargo clearance have drawn attention. The move is seen as a strategy to enhance market share in the region, particularly targeting the DRC's 81 million population and maintaining trade relations with Burundi and Rwanda. However, concerns linger over the competitiveness of Kenyan products in the market and whether setting up warehouses is the most effective approach to drive export growth. As the government encourages private sector participation in the initiative, questions remain about the optimal utilization of these facilities and addressing non-tariff barriers to trade. In conclusion, while Kenya's SGR operations and export expansion plans hold promise for economic development, challenges related to funding, regional cooperation, and trade competitiveness must be addressed to ensure the long-term success of these initiatives.