Going Forward: Developing Regional Hub Ports in · shipping lines will maintain very similar services, tariffs and conditions, irrespective of the shipping company calling. The disadvantage

Introduction

This chapter draws on the key lessons fromthe preceding chapters to point the wayforward toward the development of regionalhub ports in Africa. The emergence of suchhub ports is important both for the regionaleconomic integration of African countries andfor their wider integration in the world trading

system. As discussed earlier, the gradualopening up of African economies and theirgrowing international integration have givenrise to a corresponding increase in thedemand for international transport services.However, few African ports are capable ofhandling the latest generation of post-Panamax vessels, and they are generally

C H A P T E R 6

Going Forward: Developing Regional Hub Ports in

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ill-equipped for the dramatic changes in tradeand shipping patterns that are currently underway.

In response, many African countries areaiming to modernize their ports and developthem into regional hubs through large-scaleinvestment programs, to providetransshipment services for cargo from otherorigins destined for third countries. Themomentum of modernization is beingfurther fueled by the growing presence andconsolidation of global shipping lines,integrated multimodal operators (coveringrail–road–sea transport), and internationalterminal operators in African ports. Theseoperators have been engaged in thesecountries for some time now and see thatthe time is ripe for an expansion of servicesin the African port sector.

Indeed, many African ports have thepotential to become regional hubs. However,this outcome depends on the capitalinjections and other related activities,including policy reforms, that governmentsare able to put in place toward portdevelopment and regeneration. Theseplanned investment and related activities alsooffer avenues for private sector participationin African port development. In particular,the dredging of African ports, many of whichare characterized as too shallow for the latestgeneration of container ships, could be afrontline area of intervention for the privatesector and development partners alike. Thisissue is elaborated upon later in this chapter.The aspiration of many governments andPort Authorities (PAs) to develop their portsinto regional hubs augurs well for theincreased competitiveness of the Africanshipping industry in the future; this will boost

trade in the region and strengtheningnational economies generally. However,Africa can support only a few regional hubsand the key issues of how African ports cantransform themselves into regional hubs, andwhere such hub ports should be located, is ofcritical importance.

This chapter examines this topic andfocuses on the relevant issues facing Africangovernments and International FinancialInstitutions (IFIs). The rest of the chapter isorganized as follows. The next sectionsummarizes the principal characteristics ofAfrican ports and the infrastructuralconditions and policy reforms required totransform them into regional hubs. Againstthis background, there follows anexamination of the comparative advantagesof a number of key ports becoming regionalhubs. The discussion then turns to thevarious key roles that IFIs can play in thisprocess. The chapter ends with a summaryof the key points impacting Africancountries in their efforts to modernize andtransform their ports, to more fully integrateinto the world trading system.

Developing African Ports intoRegional Hubs: PhysicalCharacteristics and PolicyRequirements

A hub port can be described as aninternational or regional port that, inaddition to the normal cargo-handlingfunctions of import and export trade, alsocaters for so-called transshipment cargoes(in particular containerized cargoes) to andfrom major intercontinental or regionalshipping routes, with the additionalprovision of services to a number of (usually

184 African Development Report 2010


smaller and / or shallower) African ports. Ananalysis of potential hub ports generallycenters on their physical characteristics(TEU capacity; depth of water; berthlengths; availability of quayside gantries andcontainer-handling equipment, etc.) andtheir road/rail/air linkages to the hinterland.

Practically all hub ports in the worldtoday handle a mixture of three main typesof cargo:

• captive cargoes (destined for and /or originating from the directhinterland of the hub port);

• transit cargoes (cargoes destined forand / or originating from the moreremote hinterland and / or landlockedcountries); and

• transshipment cargoes (sea–seacargoes).

The potential of African ports to becomeregional hubs is determined by severalfactors, including the shipping services itprovides, the port’s physical characteristicsand location, and the types of vessel it canhandle. Several characteristics facilitate thecreation and successful operation oftransshipment hubs (see Box 6.1). Theavailability of a considerable volume ofcaptive cargo is often cited as a CriticalSuccess Factor for a port seeking to become ahub. The reason for this is that transshipmentcargo tends to be “foot loose” and may easilybe shifted to another port if circumstances(e.g. facilities and tariffs) are better there.1

Investing in port capacity is not in itselfa sufficient condition to transform a port intoa hub unless it also enjoys a strategiclocation, adequate water depth, and thefacilities and performance to ensure lowhandling costs. A good corridor for transittraffic is another prerequisite, and this mayrequire measures to facilitate a fast andefficient flow of traffic on the main tradecorridors from the port to the landlockedhinterland. In this respect, a port’scompetitiveness depends not only on itsown physical capacity and the services it canoffer, but also on the quality and fluidity ofthe land transport networks that serve it(principally the regional interstate roads).Ports that benefit the most from thisemerging trade competition tend to belocated in countries that also possess goodroads (without roadblocks), operational raillines, and border posts with the leastadministrative formalities and swift customsclearance.

In effect, the most important policy con-siderations for governments looking toestablish hub ports are how best to foster andfinance integrated port and transport facilitiesand associated land uses. National port plansmust be developed to cover modalintegration and port-specific issues. A keyrequirement is the allocation of enough landfor integrated development in the earlystages of port planning, particularly for newports. Also, linkages between rail and port

Going Forward: Developing Regional Hub Ports in Africa 185

This relates to the function and location of this port.Salalah is located close to the convergence pointwhere the large sea trade lane between Asia andEurope, and the North–South connection betweenEurope, the Middle East and Africa meet.

1 A well-known exception to this Critical SuccessFactor is the Port of Salalah in the Sultanate of Oman.Practically all containers handled in this port (3.5million TEUs in 2009) are transshipment containers.


concessions should be made to provide thebest incentive for multimodal integration.This requires governments of both coastaland landlocked countries to decide whichtransit corridors to support and develop.Coordinated system development providesthe key to exploiting the major scope fortraffic growth. The Ghana Gateway and theMaputo Corridor between the port of Maputoand South Africa, Swaziland, and Zimbabweprovide useful examples of this. Landlockedcountries will likely want more than onealternative. Where the bottlenecks are at theseaports, the planning and development ofinland ports (dry ports) warrant considera-tion, particularly for landlocked transitcountries. The Ghana Boankra Inland Port isan example in the overall scheme of portdevelopment and trade facilitation.

Before the start of the global financialcrisis, almost all major shipping lines startedto order large numbers of 8,000+ and even12,000+ TEUs vessels to be employed in thevery lucrative and booming trade lane ofEurope–Asia in particular. This meant thatthe “smaller” container vessels, mainly in the4,000 to 6,000 TEU classes, began to bewithdrawn from this route and replaced bythe bigger sisters, in what is often referred toas the “cascading process,” following theeconomy of scale principle. The 4,000 to6,000 TEUs vessels were partly employed inthe African liner services. The problem,however, was that only a few ports in Africahad sufficient depth to receive such mid-sized vessels.

Although the global financial crisis hascaused some hiatus to this cascading


Box 6.1: Basic transshipment requirements of a hub port

Experience suggests that several port characteristics facilitate the creation of transshipment hubs:

• Location close to major world or regional shipping routes, leading to minimum deviation from that

shipping route;

• Preferably already handling a considerable volume of base import and export cargo;

• Land area available for cargo storage and / or value adding activities;

• Access to a large hinterland, preferably with more than one transport mode;

• Sufficient depths in approach channel and the port and the possibility to increase the depth if required

by the port users (shipping lines);

• Little or no queuing of ships (“the berth has to wait for the ship and not the other way around”);

• Safe and secure port access from land and sea and a secured (ISPS) port area;

• Efficient ship and cargo handling operations;

• Good relations between port employers and employees (unions);

• Reasonable level of port performance;

• Active port business community;

• Banking and communication facilities;

• Limited or rather no corruptive practices;

• Stable political systems; and

• Regional role.


process, there are signs (since mid-2010)that it may reemerge in areas wherebooming trade between the major economicand production blocs proves to besustainable. As such, an African port aimingto become a regional hub must ensure thedevelopment of a port with sufficient depthto receive the larger vessels that arebecoming more and more commonplace onAfrican shipping routes.

Traditionally, high sea freight costs havebeen a major impediment to the develop-ment of ports in Africa, which have typicallybeen served by “Liner Shipping” and“‘Conference Services.” Liner services haveboth advantages and disadvantages. Onemajor advantage is that the tariffs arenegotiated beforehand and usually main-tained during the contract period, which actsas a risk mitigation factor in terms ofunexpected costs. The liner contract is aguarantee that each port of the line will becalled at, irrespective of the volume of cargoto be loaded and/or unloaded. ConferenceService agreements have a similar effect.Sometimes a number of shipping companiesenter into a Conference Agreement,meaning that ships belonging to differentshipping lines will maintain very similarservices, tariffs and conditions, irrespectiveof the shipping company calling. Thedisadvantage of the systems is that the tariffsare usually high.

In this context of traditionally highfreight rates, a port hub in Africa shouldhelp to lower the cost of trade for shippinglines and cargo owners. This would entailthe move away from Africa’s currentmultiple gateway system of medium-sizedports, toward the model of transshipment

hubs with larger gateway feeder ports. Forcargo owners, hub ports would offer savingsin total yearly supply chain costs throughincreased shipping line competition andimproved service levels and delivery times,while greater maritime activity wouldimprove access to regional and globalmarkets. The shipping lines would seebetter utilization with fewer stops andincreased port efficiency and speed at thehub.

The necessity for a conducive environ-ment for the creation of port hubs enjoinsAfrican governments to determine how bestto develop state-of-the-art ports, and how toequip them with appropriate technologiesand management skills. This determinationshould certainly involve the internationalprivate sector, particularly in the containerterminal business. The prevalence of state-owned service ports in Africa has long beenassociated with low operational efficiency aswell as a low concentration of globaloperators. A policy of attracting majorinternational container lines and terminaloperators — who are well acquainted withthe advantages of scale in terminaloperations and with the benefits of anefficient hub-and-feeder structure in thedeep-sea trade — will serve to increaseefficiency and lower costs.

In the last 10–15 years, the African portsector has witnessed a considerable numberof reforms, including a scaling-up ofpublic–private partnerships involving some ofthe major international players in portdevelopment. The reforms in Africa, aselsewhere, have suggested that the landlordport model has generally enjoyed greatersuccess than the public services port model,



and is the best way to attract private sectorparticipation.2 On the other hand, the numberof African countries that have introduced thelandlord port model is very limited. TheWorld Bank’s Africa Infrastructure CountryDiagnostic (AICD) Report of 2006 cites onlytwo countries, Nigeria and Ghana, as having“comprehensively adopted the favoredlandlord port model.”3

For government policies and reforms toachieve optimal efficiency in Africa’s ports,they need to consider how best to introduce/incentivize competition. Over the last twodecades, lessons from global port reformshave indicated the need to avoid mono-

polistic practices in ports privatization. Thespecific cases of Colombia, Argentina, andthe United Kingdom show that buildingcompetitive environments tends to makeports more efficient and to lower costs,which benefits not just the Port Authorities,but also shipping lines, terminal operators,cargo owners, private investors, and endconsumers. On the other hand, port reformsin several African countries seem to havebeen designed to minimize competition.Indeed, some African governments are evenpreserving government monopolies(Durban) or creating private ones (Tema).

Certainly, where cargo volumes arerelatively low, as is the case in most Africanports, inducing competition can be difficult.In such cases, an appropriate regulatoryframework is essential. But again in anumber of African ports, monopoliesoperate without there being a regulatoryframework in place to monitor foranticompetitive activities (e.g., Maputo,Mozambique). Most countries in Africa lacka regulatory framework and tools to preventanticompetitive practices on the part of portand multimodal operators. Only South Africais currently taking steps to establish anEconomic Regulator to address port anticom-petitive behavior.4


4 Regulation that ensures fair competition is rare.Only Peru, Australia, Colombia, and perhaps Mexicohave well-established Economic Regulators toaddress pricing regulation. Authorities in manycountries, even those of the European Union, seemunwilling to manage port anticompetitive behavior,despite their authority to do so. Given the difficultyregarding regulation, it may be essential for Africangovernments to consider this in initial concessioncontracts with partners.

2 In Nigeria, for example, the Federal Governmenthas made colossal savings of US$ 2.5 billion fromport reforms. The Bureau of Public Enterprises (BPE)indicates that the Nigerian economy would save afurther US$ 2.5 billion following the concessioningof the nation’s ports over a 10-year period. Thisamount, which is equivalent to 5 percent of thecountry’s Gross Domestic Product, is required by theFederal Government to maintain the ports. Thesuccessful implementation of the port reforms wouldquadruple cargo-handling productivity at the ports,reduce port operating costs by US$ 65–80 millionyearly (about 20–25 percent) and reduce portcharges by 20–30 percent, thereby saving port usersbetween US$ 70 and US$100 million annually. Thereforms would reduce the cost of Nigeria’s importsby as much as 5–13 percent per annum, throughincreased efficiency, improved service delivery,modernized port development, and a general fall inthe cost of shipping and clearing goods at the ports.

3 Other countries engaged in the process ofchanging their port management system includeLiberia and Sierra Leone. Also, the Tanzaniangovernment has amended the National Port Law,while the Tanzania Ports Authority is in the processof changing from a public services port model tolandlord port model.


Comparing African Ports forRegional Port Hub Status

A considerable number of ports in Africahave the potential to develop intotransshipment hubs. These are analyzedbelow, according to their geographicallocations. On the Mediterranean coast ofAfrica, the main contenders are: Tangiers(Morocco), Damietta (Egypt) and Suez CanalContainer Terminal (or Port Said East). Insub-Saharan Africa, the following portshave the potential to become major regionalhubs: Dar-es-Salaam (Tanzania), Port Louis(Mauritius), Djibouti (Djibouti), Mombasa(Kenya), Abidjan (Côte d’Ivoire), Durbanand Cape Town (South Africa), Tema(Ghana), Douala (Cameroon), Lagos(Nigeria), and Dakar (Senegal).

(i) Mediterranean Coast

Tangiers (Morocco) has already beentransformed into a “Pure TransshipmentPort” (PTP), which is providing regionalfeeder services, especially to the WestAfrican coast. Tangiers’ development into aPTP exhibits most of the key criteriahighlighted earlier for successful regionalport hub development. The port is wellpositioned — sitting at the western end ofthe Strait of Gibraltar, which divides Africaand Europe. Container traffic lies at the heartof the strategy of the port, with containervolumes reaching 1.2 million TEUs in 2009.The two container terminals already openedare each managed by a consortium ofinternational terminal operators. The porthas the physical infrastructure in place tohandle more than 3 million TEUs a year,thus Tangiers will have spare capacity forsome time to come. Much of Tangiers’ initial

appeal lay in its lower labor costs. As well aspolitical stability, Morocco boasts abusiness-friendly legal system, attractiveincentives for FDI, advanced infrastructure,and a competent and highly trainedworkforce. This has attracted more than2,500 foreign companies to locate theirbusinesses in the country.

(ii) West African Coast

Along the West African coast, in terms of sizeand activity, the Port of Lagos (Nigeria) isthe most important. Its annual merchandisetraffic, in excess of 30 million tonnes,represents approximately 55 percent ofNigeria’s port activity (excluding hydro-carbon exporting terminals) and 25 percentof the combined ECOWAS membercountries’ port activity. However, the Port ofLagos essentially serves the national hinter-land and only the outlying areas of Niger,Cameroon and Benin, an area that accountsfor more than half of the population.However, the concentration of port activity islargely on the national hinterland, whichlimits the port’s importance as a regionalhub.

The Nigerian authorities are undertakinginvestment programs with the aim of trans-forming the port into a regional hub. Underthe Lagos Free Trade Zone (LFTZ) initiative,the Nigerian Ports Authority and the LagosState Government are to build the first privatedeepwater port in Lekki, 60 km distant fromthe Lagos metropolis. The total cost isestimated at US$ 6 billion and the port isexpected to be ready in 2011. The rationalebehind the port is to provide a deepwaterport for Nigeria, thereby allowing largervessels to berth. It is also intended to relieve



the congestion in the Lagos/Apapa ports.Also the port is located to take advantage ofthe future development of the new LagosFree Trade Zone.

By contrast, the ports of Abidjan, Tema,and Dakar play a more regional role in WestAfrica. These ports do not rely solely ontheir national hinterland in order to thrive.The development of the West African roadnetwork, together with an increasingnumber of alternative transport servicesrendered to the landlocked regions, haveincreased their regional roles but placedthem in direct competition with each other.

Considering the fact that regional hubs areusually established in ports with substantialcargo volumes, Abidjan (Côte d’Ivoire),with a capacity of 640,000+ TEUs, appears amore likely candidate to serve as the regionalhub. The Ivorian government aims to expandthe port further from an import–export pointto a gateway for landlocked countries in WestAfrica. The Port Authorities aim to developthe port’s capacity to handle volumes forBurkina Faso, Niger, and Mali, which isexpected to grow strongly over the next fiveyears, as will transshipments for ports in thesubregion. To this end, a bond issued byAbidjan Port has been oversubscribed by over30 percent, raising 30 billion CFA francs (US$56 million) to finance port development.

However, Tema (Ghana), which is anew and highly mechanized terminal, offerssubstantially more efficiency and berthproductivity, compared to other ports on thewest coast of Africa. Tema is the first to offera terminal with the efficiency required forregional hub services. Though Tema haslower volumes (about 350,000 TEUs), this isenough to attract main regional feeder

services, thus assigning Tema regional hub status. Significantly, the port is currentlyexpanding its berthing facilities and workingon achieving greater depth in order to attractmore cargo. The government is aiming toachieve 14 m depth (currently it stands at11.5 m) and has dredged berths 1-6. Theport is also focused on reducing the turn-around time for vessels which currentlystands at 1.7 days and to ensure that the costof doing business is one of the lowest in thesubregion (Otal Trade Watch, July 2010).

(iii) East African Coast

Along the East African coast, Dar-es-Salaam(Tanzania), Port Louis (Mauritius), Maputo(Mozambique), Durban (South Africa),Djibouti, and Mombasa (Kenya) are themajor ports with the potential to becomeregional hub ports. The successful comple-tion of planned investment programs inthese ports will determine the extent towhich they are transformed into regionalhubs.

At present Durban (South Africa)emerges as a frontrunner in terms of size andactivity. Durban is Africa’s busiest generalcargo port and home to one of the largest andbusiest container terminals in the southernhemisphere. The port handles the greatestvolume of seagoing traffic of any port insouthern Africa. However, Durban’s cargo-handling demand has exceeded the terminal’shandling capacity, causing berth congestionand forcing carriers to impose penaltysurcharges. Under the government’s currentprogram for the port, an additional capacityof 600,000 TEUs is being developed to bringthe total container capacity of the port to 3.6million TEUs by 2011. This project includes



Durban container terminal’s reengineeringproject, which will realize the true potentialcapacity of this premier port.

The port of Dar-es-Salaam (Tanzania)is also well placed as a transshipment hub,ideally located to meet the export andimport needs of Tanzania’s landlockedneighbors, namely Burundi, Malawi,Rwanda, and Zambia. Also, Dar-es-Salaamhas a number of inland depots forlandlocked countries that import and exportvia the port. However, Dar-es-Salaam hasnot been able to take full advantage of itsposition due to limited capacity, which hasled to the diversion of consignments to theneighboring port of Mombasa. Besides,most of the inland depots are currentlylocated close to the port, leading to seriousroad congestion and pollution.

To remedy the situation, the TanzaniaPort Authority is aiming to strengthen theport’s container-handling capacity. ANational Port Strategy Study undertaken in2008 recommended two options: (i)development of two additional containerberths in the port of Dar-es-Salaam (Berths13 and 14); and (ii) development of adeepwater port along the coast (severallocations have been identified). Theexpansion program to build the secondcontainer terminal is estimated to costaround US$ 400–650 million.

Furthermore, Tanzania is investigatingthe feasibility of the development of a dryport (also known as an inland port) facilityas a solution to the problem. The majorobjective is to decrease the usually longdwell times of containers destined forlandlocked countries by moving them by rail(under bond) to the dry port located some

40 km away from the Port of Dar-es-Salaamas soon as basic administrative procedureshave been completed. Movement by rail willreduce the need for road transport which, inturn, will result in less road congestion inand around the port and the city and reduceits pollution effect. The development of thedry port opens opportunities for privateinvestments in terms of development and/ormanagement, as well as participation by thelandlocked countries that will benefit fromthis initiative. Moreover, it will open the wayfor investment in upgrading and repairingthe Dar-es-Salaam railroad, which wouldhave large spillover effects, notably byrevitalizing traffic at the port of Bujumbura.

In respect to Mombasa (Kenya), theKenya Ports Authority (KPA) has finalized aVision 2030 that includes PPP participationin the development of port infrastructureand provision of services. The schemeprovides for the dredging of the Port ofMombasa to allow larger vessels to the portand the benchmarking of facilities andservices to international standards. Anotherelement of Vision 2030 is the developmentof a new deepwater port at Lamu Island. InMay 2010 the Kenyan government awardeda contract to Japan Port Consultants (JPC) tocarry out a feasibility study for Lamu Port,which experts hope will position thecountry as a major transshipment hub. Thefirst port at Lamu is being developed withassistance from the governments of Qatarand China and is scheduled for completionat the end of 2011.

The Port of Djibouti is creating anadditional 3 million TEUs, to achieve a totalcapacity of 3.4 million TEUs. In June 2000 thegovernment of Djibouti signed a management



contract with Dubai Port World (DPW), tostrengthen the import and export function ofthe port (some 90 percent of all cargohandled is Ethiopian cargo). DPW developedplans to build a large deepwater containerfacility at Doraleh (some 10 km from the Portof Djibouti). The maximum capacity of thisterminal will be 1.7 million TEUs (comparedto the 250,000 TEUs of the present terminal inDjibouti). The project will be built on thebasis of a BOO (Build-Own-Operate) contractand the estimated cost of the project is aboutUS$ 350 million. The first phase of Doraleh(Phase 1-A) was opened for business in May2009. Phase 1-A (capacity 800,000 TEUs) wasfinanced through equity. Phase 1-B (capacity1.1 million TEUs) will be financed throughcash reserves and bank loans. The anticipatedcontainer flows are import/export, transit andtransshipment.

(iv) The Role of Public–Private

Partnerships

Thus far, it is apparent that the potentialdoes exist for a number of African ports tobecome regional hubs, although asindicated earlier, this will depend on thesuccess of planned investments and relatedmodernization of these ports. Thedevelopment of Tangiers demonstrates thesuccessful role that public-privatepartnerships can play toward the desiredoutcomes and point the way forward forother African governments and portauthorities to replicate. In effect, theinvestment programs in those other portscall for similar partnerships in portdevelopment in Africa.

The Role of IFIs in theDevelopment and Improvementof Ports and RelatedInfrastructure

As African countries contemplate strategiesfor transforming their ports into regionalhubs, they should pay heed to the importantrole that IFIs, such as the AfricanDevelopment Bank, can play in the process.IFIs can facilitate private sector participationas well as provide finance for portdevelopment. These issues are discussed atgreater length below.

Provision and /or Facilitation ofExpertise, Training and Education

Expertise: As indicated earlier, port reformand the introduction of PPPs, especiallyleading to the establishment of landlord portmanagement systems, are highly complexexercises. They require expertise in manydisciplines such as legal, operations, finance,economy, etc. Selecting the best professionalexpertise is a difficult task in itself and canonly be done adequately when professionalinsight, oversight, and market knowledge areavailable. IFIs can support governments andnational Port Authorities to produce therequisite documents; they can also availexperts in the port reform processes. Also, theexperienced and professionally qualifiedconsultants that governments and portauthorities rely on are expensive and IFIs maybe prepared to contribute financially to thesecosts.

Training and Education: In order tocreate a good working relationship betweenthe government, national Port Authority, theconsultant, and the potential private sector



participants, the public party should havesufficient in-house expertise to meaningfullyengage in the process. If such expertise isnot available, education and training areextremely important. Workshops andseminars on dedicated topics are a verygood means to point out the essential stagesof the processes to be followed. This isanother area where IFIs may provide auseful function, either with the involvementof their own staff or in the role of a financierand/or facilitator.

Arranging /Facilitating Financing DealsDredging: As indicated earlier, manyAfrican ports are characterized as rathershallow. Developments in the internationalshipping market require ports to havesufficient water depth to allow larger vesselsto call. Experience shows that initial capitaland/or maintenance dredging projects aredifficult to realize and can be expensiveundertakings in relatively remote areas. IFIs,and the AfDB in particular, could assistAfrican ports that have similar dredgingproblems to jointly enter into a dredgingcontract with a dredging company. TheBank could facilitate the introduction ofPerformance Based Maintenance (PBM)dredging contracts between the Africancountries and a dredging company (see Box6.2). The cost of this to the African countrieswould be lower than if they were to draw upa contract on an individual country basis;moreover the ports would be assured, forthe duration of the contract, that theguaranteed water depth would always beavailable.

Regional Investment: In the context ofregional cooperation, IFIs could assist

countries, both coastal and landlocked, toinvest, possibly through an internationalconsortium, in major new port developmentinvestment projects. The plans of thegovernments of Kenya and Tanzania tobuild a new deepwater port on theircoastline represent such an initiative. Such a


Box 6.2: Performance Based Maintenance

(PBM) dredging contract

A PBM dredging contract is an agreement

between a client (for instance a Port Authority)

and a dredging company. The contract

stipulates that the dredging company, at all

times during the contract period, guarantees

that the agreed water depth is always available.

The dredging company regularly surveys the

depth in the contract area. If the contract depth

in a certain location, due to sedimentation, is

about to be reached, the dredging company

dredges that area. The client also makes

regular soundings (depth surveys). If these

show that at a certain location the dredging

company is in default (i.e., the depth is less than

the contract depth), the dredging company is

liable to pay a fine.

Unlike contracted capital or maintenance

dredging campaigns, the dredging company is

not paid for the number of cubic meters of silt it

has removed. The agreement between the

parties is made on the basis of a long-term

estimate of the dredging quantities during the

contract period. This may result in higher

dredging costs per cubic meter than in case of

a single dredging campaign. But the principal

advantage is that the Port Authority is

guaranteed that the required contract depth is

always available. The costs of the bidding

process of a dredging campaign may,

moreover, well outbalance the possibly higher

cubic meter dredging costs of the PBM

contract.


facility, including efficient and sufficienthinterland connections, will requiresignificant financial capital outlay, which theIFIs may be able to provide or facilitate.

Railroad Corridors: The importance of therailroad in Africa for freight movement hasalready been demonstrated (see Chapter 4).However, even though the concessioning ofrailroads has met with some success and hasincreased traffic volumes as well as increasedlabor productivity, this mode of transportremains poorly developed across thecontinent. Yet railroads are an economicallysound choice for long-distance transport oflarge volume bulk commodities, agriculturalproducts, and general and containerizedcargoes across the continent for onwardtransit to African ports and beyond. Inaddition to helping to mobilize funding forstrengthening and expanding this inlandtransport mode, IFIs can provide advice andexpertise to countries that enter into railroadconcessioning agreements.

Provision of Other Catalytic and DirectFinancing for Port DevelopmentAs there is a great need to attract more externalinvestment to the port sector in Africa, IFIs cangalvanize the private sector in other ways andparticipate directly in port finance. IFIs mayhave differing aims, and this will play animportant role in their choice of projects.However, these institutions have the commondual mission of “transitionality” (supportingthe move from state to market economy) and“additionality” (providing “something more”than a commercial lender would on a givendeal). In this context, IFIs may be wellpositioned to provide assistance to Africangovernments in the reform process through

the design of appropriate port frameworks;restructuring and divesting port institutions;and capacity building for port planning andregulation. In addition, IFIs can assist Africangovernments by attracting and negotiatingwith private partners to assure substantialbenefits for the African partner country.Another consideration is that IFIs are wellexperienced in the area of risk mitigationmechanisms, which acts as a further incentiveto attract private capital into port projects.

IFIs could also directly finance criticalelements of port infrastructure. As indicatedearlier (Chapter 5), the AfDB has since 1973successfully participated in infrastructurefinancing and port development in Africa.IFIs, including the AfDB, are well placed tofocus directly on the private sector segmentof port infrastructure in African countries,using instruments such as the traditionallines of credit to increase private investment.The long-term tenor of such lines of creditwill allow borrowers to extend the maturityof their lending operations, thereby makingthe port development programs morecommercially attractive to investors.

In addition, IFIs could use varied instru-ments, including equity and quasi-equityproducts and guarantees to increase theparticipation of the private sector. Throughthese, IFIs would bring in other investorswith the capital, skills, and know-howneeded for African port development. TheAfDB Local Currency Project is an exampleof a successful mechanism that could beemployed to increase private participationin ports. This project brings increasedinvestor attention to Africa and bringsvisibility to African currencies and bondmarkets. It addresses the need for local



currency loans that eliminate currency riskfor borrowers and promotes internationalbest practices. A wider application of thisactivity focused on African ports could beinstrumental in contributing to the financingneeds for port development.

Concluding Remarks

This chapter has highlighted the require-ments for the development of regional hubsin Africa, analyzed the potential of specificAfrican ports to become regional hubs,pointed to the opportunities available forprivate sector participation, and has outlinedsome of the contributions that IFIs can makein the process.

African ports are presently characterizedby high sea freight rates and high levels ofcongestion. Their transformation into moreefficient port hubs will not only reducethese rates but also contribute toward inter-African economic integration, as well as thecontinent’s fuller integration into the worldtrading system. Several African governmentsand Port Authorities are aiming to develop

their ports into hubs. Improvementsplanned in many other ports in the continentwill also offer opportunities for privateparticipation.

Key measures in the process to trans-form ports into regional hubs includefostering and financing integrated port andtransport facilities and associated land use.Also, policies that introduce and/or enhancecompetition are necessary to increaseefficiency. In both these areas, globalexperiences have shown that the trans-formation of a public services port into alandlord port model often leads to a highlysuccessful outcome.

In this context, IFIs can play a major rolethrough the provision and/or facilitation ofexpertise, training and education, wherebyexperienced professionals can assist Africangovernments in the preparation of their portreforms. In addition, IFIs are well placed toassist in arranging and/or facilitatingpublic–private financing deals that are badlyneeded to carry out major rehabilitation andexpansion programs for African ports.



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Going Forward: Developing Regional Hub Ports in · shipping lines will maintain very similar services, tariffs and conditions, irrespective of the shipping company calling. The disadvantage