The new economic imperatives of African railways (2)
African railways primarily fall into four different categories – (1) Mineral railways, (2) New railways, (3) Legacy railways, and (4) Commuter railways. The transportation of minerals from mines to ports continue to be a major motivation for African railway infrastructure. There are new railways, however, that are not motivated by mining. These are either for moving passengers or freight or both. African railways, some built during the colonial era, continue to be operational across all the categories. Trams have been moving urban commuters in the cities of North Africa for a very long time, for example. More recently, commuter intra-city light rail transport (LRT) and modern inter-city rail have come up in several cities – most recently in Addis Ababa, and for over a decade now in Johannesburg.
As of 2019, sub-Saharan Africa (SSA) had a total rail network of 65,760km spread across 32 countries, based on research by the World Bank. 18 of the 32 countries, which gave out railway concessions with 15 to 30-year durations since 1992, had mixed results. No surprise then that investors have not been particularly interested in African railways. Incidentally, those who did invest have lost their money. Anticipating these challenges, concession contracts included mitigants. Governments, which were supposed to make up for actual variances from revenue expectations, for instance, did not come through in many cases.
In any case, African governments are having to bear more of the financial burden of railways nowadays, as most non-mineral related ones barely breakeven, and concessionaires become more cautious. Even so, some governments have been forced to run the railways themselves, especially the new ones. Most of Africa’s legacy railways are in various states of disrepair. According to the World Bank, the key challenges include aging tracks, rail wear, deteriorating earthworks, poor civil works, obsolete signalling, and telecommunications equipment, and scarcity of spare parts. A huge disincentive to tackling these challenges relates to the lack of commercial viability of most of these rails, as traffic volumes are inadequate to breakeven, even if prices were liberalised. In fact, African rail networks with a density of over a million traffic units are just about 6 to 8, with others mostly under 500,000 (World Bank, 2020). This lack of scale is a major drawback. European systems average 2-5 million traffic units, for instance (World Bank, 2020).
For African governments that have to manage tight budgets, road infrastructure often takes priority over rail. That is because investment in railways come with higher fixed costs and takes much longer to recover
Data for the most recent year compiled by the World Bank show African railways carried 300m tons (181bn net ton-kilometers) of freight and 305 million passengers (12bn passenger kilometers), with mineral lines accounting for more than half of freight traffic. South Africa accounts for the largest rail network in Africa (over 23,000 route km). As far as commercial viability goes, freight volume is probably the key determinant. This is because more than 90% of total rail traffic units are owed to freight (World Bank, 2020).
In the African case, the most significant competition to rail is road transportation, which has last-mile connectivity at competitive prices. For African governments that have to manage tight budgets, road infrastructure often takes priority over rail. That is because investment in railways comes with higher fixed costs and takes much longer to recover. For long-distance haulage and intra-city commute, however, rail is much more economically viable. But it needs to be modelled well. There are some fundamental economic and financial considerations in determining the choice of gauge for a new railway, for instance. Would there be enough passenger traffic or freight volume to warrant the much more significant upfront investment? If the fixed costs are high then what fares can be fixed to cover those costs? Will the users be able to afford those fares? Would passengers and firms be willing to pay more for a Standard Guage Railway (SGR)?
Although most new African railways have been of the wider standard-gauge (1.435m), instead of the Cape-gauge (1.067m) or meter-gauge (1.000m) that characterize the legacy ones, the size of the gauge itself is not material. Some advanced economies continue to maintain old railways and build new systems based on narrow gauges, for instance. While the wider standard gauge is more suitable for higher speed operations, the assessment has to be whether the speed is differential to the economic goals of the railway project. There might be no need for a high-speed rail to carry freight, for instance.
It costs four to eleven times more to build a new SGR than to repair an old meter-gauge rail. Adopting a narrow gauge for a short-distance rail to match a longer existing network would make more economic sense than a more expensive SGR to replace the entire network, for instance. If the thinner gauge is sufficient for the purpose of the railway, there is no reason to invest in a wider one. For example, the planned Nigerian Port Harcourt-Maiduguri (Eastern Line) SGR project, which was estimated to cost US$11-14bn, has been discarded in favour of the rehabilitation of the existing narrow gauge rail, which could cost as little as US$3.2bn. Although circumstances clearly forced the hand of the Nigerian government towards a cheaper alternative, had the economic imperatives been properly analysed earlier, there would probably have been no need for an SGR in the first place.
Avoiding the error of digging in on an SGR in the face of economic constraints may have been easily achieved in this case of the Eastern line owing to the mixed Nigerian experience with the ongoing US$8.3bn 2,700km Western Lagos-Kano SGR project. Awarded to China Civil Engineering Construction (CCECC) in 2006, the Lagos-Kano SGR has come under severe financial constraint. To manage the funding encumbrances, the Nigerian authorities opted to construct the Western line in phases, securing financing in tandem. Two phases of the Western line, the Lagos-Ibadan and Abuja-Kaduna segments, which are already operational, have suffered myriad operational problems, however.
An edited version of this article was first published by Nanyang Business School’s NTU-SBF Centre for African Studies, Singapore. References, figures, and tables are in the original article. See link viz: https://www.ntu.edu.sg/cas/news-events/news/details/the-new-economic-imperatives-of-african-railways