“East Africa is getting its act together in terms of starting to realize that if they do things together, they can move faster,” oil and gas consultant Mwendia Nyaga said.
A compacted dirt road cut through the mangroves is the first sign of work at the site, where a Chinese firm has a US$470 million contract for Lamu port’s first three berths.
Those are the first of 32 planned berths at a port estimated to cost US$5.5 billion. Further funds will be needed for the planned roads and railway linking South Sudan and Ethiopia, a land-locked nation of 90 million people that is growing swiftly.
However, financing is merely trickling in. Battling a big budget deficit, Kenya allocated only about US$48 million to the project this fiscal year. China’s involvement with Lamu pales against its backing for Tanzania’s US$10 billion Bagamoyo port plan.
The World Bank, African Development Bank and the EU are funding roads linking Kenya with South Sudan and Ethiopia. Though this could help the Lamu project, these donors and concessionary lenders are not directly funding LAPSSET.
On the international markets, funding has become trickier as the US looks set to rein in its loose monetary policy, hiking interest rates for emerging market borrowers. Still, some South African banks and others are keeping an eye on the project.
“Given the ultimate size of the project, there will be considerable space for all lenders with African debt capacity to play [a role] in the funding,” said Mike Peo, head of infrastructure at Nedbank Capital, the investment banking arm of South Africa’s fourth-largest bank, Nedbank.
South Africa’s Rand Merchant Bank also said it was interested, while London-based emerging markets specialist Standard Chartered said it was watching progress.
The Development Bank of Southern Africa has said it is keen to be a lead arranger for funding. Kasuku said the bank could offer as much as US$1.5 billion to LAPSSET.
Some say Kenya must make a clearer case for creating a new container port over expanding and upgrading Mombasa.
“I don’t see how container shipment through Lamu port can be the business case for the port,” said Steve Felder, east Africa managing director of Danish shipping and oil group A.P. Moller-Maersk.
On the ground, the government faces worries the new port and surrounding development will harm delicate coastal vegetation and marine life, and could overwhelm the popular tourist destination of Lamu.
Residents fear a land grab by a wealthy elite as the project gets under way at the expense of locals, a perennial complaint in Kenya. Local officials insist they will not let this happen.
“We have learnt from the Mombasa port experience where everything goes to the central government,” Governor Issa Timamy said at a Lamu meeting where residents complained about seizures. “We are not willing to repeat that mistake in Lamu.”
Additional reporting by Helen Nyambura-Mwaura