Kenya could have saved Ksh.117B on SGR costs - World Bank

In its latest economic update for November, the World Bank notes that Kenya performs poorly relative to its peers on corruption and observes that the Asian economies whose success Kenya hopes to replicate first tackled corruption and implemented public administration reforms.

The report cites the Standard Gauge Railway (SGR), which it says cost Kenyan taxpayers significantly more than comparable railway projects in neighbouring countries. At the same cost metric as the Tanzanian railway, Kenya could have saved up to Ksh.117 billion.

That Kenya got a raw deal on the Standard Gauge Railway, stretching from Mombasa to Nairobi and later from Nairobi to Naivasha, has long been a subject of public discourse.

Comparisons have been made with infrastructure in neighbouring countries, which was reportedly built at significantly lower costs, fuelling demands for transparency over the contract terms, including through court proceedings.

In its November Economic Update, the World Bank uses the SGR as an example of how corruption can undermine economic growth and public earnings.

The report notes that the 472-kilometre line connecting Mombasa to Nairobi cost Ksh.987 million per kilometre, despite being diesel-powered.

This compares with Ksh.740 million per kilometre for the electrified Dar es Salaam-Dodoma line in Tanzania and Ksh.688 million per kilometre for the electrified Djibouti-Addis Ababa railway.

The World Bank further observes that, using the same cost metric as the Tanzanian railway, Kenya could have saved up to US$900 million in initial construction costs, equivalent to approximately Ksh.117 billion.

The report attributes at least 30 per cent of the cost differences to factors including the preference for direct contracting over competitive tendering, land speculation and alleged fraud involving land titling, valuation and compensation payments, rather than topographical or technical differences.

The inflated cost of the SGR is not the only example the report gives of how corruption weighs on Kenya's economy.

Turning to the Port of Mombasa, the World Bank notes that multiple inspections and associated corruption risks have contributed to its low competitiveness.

The port is ranked 375th out of 403 ports in the World Bank's Global Container Port Performance Index.

The report also identifies multiple weighbridge stops and police checks as additional challenges affecting the efficiency of transport and trade.

Kenya's high electricity costs are another concern highlighted in the report. The World Bank observes that power remains expensive compared to structural and aspirational peers, costing businesses more than twice as much as in Vietnam and nearly 50 per cent more than in Uganda.

Once again, the report links the high costs to governance challenges, pointing to the absence of a comprehensive and competitive framework for awarding Power Purchase Agreements (PPAs).

It notes that conflicts of interest and a lack of transparency in contract management create an environment that allows higher-cost power purchase agreements.

The World Bank warns that unless Kenya reforms how it conducts public affairs and manages its economy, corruption will continue to undermine its competitiveness and limit its economic potential.