Currently, African governments take on expensive loans to finance public transport development, threatening financial stability for the future. A better way is to develop a profitable business model that draws private investment in infrastructure.
As the Nairobi-Mombasa Standard Gauge Railway enters its third year of operations, it is becoming a popular option for Kenyans looking to travel between the country’s two largest cities comfortably and cheaply. Of course, plenty of complaints exist at the top level, with Kenyan leaders debating the problems associated with repaying the massive Chinese debt from constructing and operating the country’s largest infrastructural undertaking. But for the casual users of the Railway, a more pressing problem affects the affordability and convenience of using the twice-a-day cross-country trains.
Specifically, the question concerns the transport between central Nairobi, where most passengers live, and the southern suburb of Syokimau, where the new railway station is located. With Nairobi streets clogged with traffic during the rush hours, passengers for the railway risk missing their trains due to delays in getting from the city center to the station. The solution of Kenya Railways has been to run train services between the old Nairobi station at the center of the city to and fro the new station in time to meet the intercity train to Mombasa. But the solution is only a measure to transport people between the city and the trains, without adding much value to the overall city planning of Nairobi to make getting around the city easier for the average resident.
It is difficult to discount the real infrastructural need facing a growing city. With the majority of the population unable to afford private vehicles and the city relying on narrow roads lied down based on colonial town plans that no longer make sense for a million-plus population, it is no wonder that city residents languish daily on crowded minibusses stuck in unmoving traffic during rush hours. Like many other African metropolises suffering the same problem, Nairobi needs nothing less than a comprehensive overhaul of its urban public transport system to help people get around the city quickly. The socioeconomic costs of having people stuck in traffic day in and day out has become a damper for the development of a sustainable future-facing urban area.
Yet, at the same time, the Kenyan government, as is the case for many other African countries, face significant financial difficulties to cobble together funds needed to build public transport assets, instead relying on international loans that burden future generations with repayment obligations. Ethiopia’s Addis Ababa Light Rail, the first intra-city rail rapid transit system in sub-Saharan Africa, is a case in point. Built with a 475 million USD loan from China, the light rail has changed the nature of commuting in the city, but at the expense of taking away the Ethiopian government’s ability to fund other worthy causes such as education and healthcare. The lack of experience among local staff in operating the light rail means lost ticket revenues combined with added maintenance costs, making it difficult for the light rail to “pay for itself” over time.
Private investors observing the financial difficulties of Addis Ababa Light Rail would think twice about sinking money into financing expensive public transport projects on the continent. Without a good business model with a clear projection for enough returns to cover the initial investment, private firms justifiably refrain from participating in infrastructural developments in African cities. Hence, African governments have no choice but to rely on foreigners like the Chinese to finance public transport projects, detrimentally affecting their already precarious financial situations for often intangible economic gains.
What is necessary for a city like Nairobi to develop impactful public transport without the threat of debt is to incentivize private investors to fund public transport development by helping them to create a business model that allows a significant amount of profit to be made from investing in infrastructure.
Thankfully, such a business model already exists in Japan. Japan’s many private railway firms operate commuter lines in its major urban areas, complementing the services of the national railways and local subway operators. These private railway firms make money, not by ticket sales on their commuter trains. Instead, they operate as real estate firms, developing the land adjacent to their railway tracks and stations. As frequent and convenient commuter services make plots of land next to the commuter lines much more valuable and highly trafficked, the apartments and shopping centers built by the railway company on these plots help the company reap major revenues, enough to offset losses the company suffers from running frequent commuter trains at relatively low ticket prices. By using the railway as a loss leader to increase revenues from real estate, Japanese private railway firms, when looked as a conglomerate of railway operations and a real estate company, can still make significant profits as a whole.
The Nairobi metro area is unique, even among African cities, for introducing the tried-and-test business model of Japanese private railway companies to the African continent. First, unlike other African cities like Addis Ababa, which have to build intra-city rail from scratch, Nairobi already has a meter-gauge intra-city railway system in the form of the Nairobi suburban train service. While the colonial-era rail tracks do need additional renovations to achieve the carrying capacity needed for rapid transit, the very fact that the rails and the real estate above and around them are already available means that there is no need to build rails by displacing existing residents. Second, due to the existing intra-city railroads’ importance in the colonial and early post-colonial eras, the railroads run through some of the most densely populated areas in the city. If a rapid transit system is built using the old rails, there will be a ready market of eager commuters, who can board the trains in close proximity of their homes.
The sense presence of a large population of potential train riders also increase the possible revenues that can be earned from real estate near the proposed rapid transit system. Imagine commercial properties and residences built directly as high-rises on top or next to the train stations. With heavy foot traffic around the metro stations, retail outlets will be willing to pay a premium to secure shopfronts next to the stations. Similarly, given the high frequency, punctuality, and affordability of the trains, people will be willing to pay a premium to secure apartments next to the stations. Using good train services in already highly populated areas to drive up the real estate prices, whatever private firms that decided to make the investment would reap enormous financial rewards after the trains start running.
There will certainly also be difficulties that can derail such a sanguine outlook for a Nairobi metro system using existing railroads in the city. The prospect of insecurity around highly trafficked areas is quite real given recent terrorist attacks by the al-Shabab. People may be deterred from shopping or living around the stations even if they use the stations to commute. At the same time, the middle-class Nairobi residents that should make up the bulk of the potential apartment buyers may rather put their money into bigger real estate in the suburbs, where they can get away from the noise of the big city and take advantage of massive suburban malls. Convincing people that real estate next to the metro stations is worthy of and safe to buy may be quite difficult.
Yet, the assessment that people will not want to shop and live next to metro stations is based on Nairobi of today, not Nairobi with a functioning rail-based rapid transit service. The example of Addis Ababa shows that however imperfect the system may be, the fact that there are frequent train services available to the common people can quickly cause the city to realign along the train lines and businesses to sprout around stations. People quickly change their lifestyles to adapt to the idea of taking the train to work and travel around the city. There is no reason what is happening in Addis Ababa because of its light rail cannot happen in Nairobi if it gets its own rapid transit system. When that lifestyle transformation occurs, it would be ridiculous to question the financial viability of renting out or selling real estate next to the train stations.
Recent developments in African infrastructure have been fueled by foreign loans that threaten the very financial stability of African government. But if African governments can incentivize private investors to put their money into infrastructure development as a way to earn healthy profits, then it becomes possible to develop needed roads and railways without additional loans. The success of the private railway firms in Japan that uses loss-making railroad operations to drive offsetting revenues in real estate can be applied to cities like Nairobi where both the rails and a middle class already exist. It is time to think about how to implement the new business model to spur on private investment in African infrastructure developments.
Image Credit: http://www.urbanrail.net/af/addis-ababa/addis-ababa.htm