Country Report Kenya October 2012

Update Country Report Kenya 19 Sep 2012

New airport terminal wins cabinet approval

Event

The cabinet on September 13th sanctioned the construction of a new terminal and runway at Nairobi's Jomo Kenyatta International Airport (JKIA), costing KSh55bn (US$655m), although the project is running nine months behind schedule because of tendering disputes.

Analysis

A Chinese firm, Anhui Construction Engineering Group (ACEG), originally won the tender to build the Greenfield Terminal last December, but the transport minister, Amos Kimunya, moved to cancel the award a month later on the grounds that there were too few bidders (five) and the cost exceeded the initial KSh42bn specification. However, this sparked a series of disputes among stakeholders, including between the Kenya Airports Authority (KAA) board of directors, which backed Mr Kimunya, and the KAA's chief executive, Stephen Gichuki, who endorsed the tender. The board eventually suspended Mr Gichuki in mid-August before he was reinstated by the Industrial Court a week later.

Moreover, following a complaint by ACEG, the Public Procurement Oversight Authority ruled in late August that the tender was lawful and that the KAA must sign the contract within 30 days. This followed a separate probe by the Ethics and Anti-Corruption Commission that rejected allegations of bribes and kick-backs. However, the KAA board immediately launched a counter-challenge in the courts, contending that it should not be forced to sign the contract as the financing remained unsettled.

The cabinet ruling has brought an end to the squabbling (and to the KAA's legal challenge) and will allow the project to proceed. The financial details remain uncertain, although the China Development Bank is likely to participate. On the downside, fees and taxes paid by airlines are set to increase. Work on the new terminal-a flagship project under Kenya's Vision 2030 strategy-may start by the end of the year, for completion by early 2016. This will potentially lift capacity at JKIA from about 8m to 20m passengers a year, thereby relieving congestion and giving Kenya Airways a platform for expansion. The new terminal is separate from an ongoing KSh15bn expansion programme launched in 2008.

Impact on the forecast

The construction of a new terminal supports our economic growth forecast. Despite the delays, it will help to cement Kenya's standing as a key aviation hub in Africa, while boosting trade, tourism and growth in the medium term.

© 2012 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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