Sunday, February 21, 2016

Africa and Transportation

Transport is a perpetual problem in Africa. Intra-regional trade accounts for just 13 per cent of total commerce, compared with 53 per cent in emerging Asia, according to The Economist.

Landlocked countries suffer the most. Transport costs can make up 50 to 75 per cent of the retail price of goods in Malawi, Rwanda and Uganda. Shipping a car from China to Tanzania on the Indian Ocean coast costs US$4,000, but getting it from there to nearby Uganda can cost another $5,000.

“Many good mineral deposits are in remote locations and getting them to market requires rail and port infrastructure – this can cost up to $3.5 billion alone to build, just for one operation,” says Haaris Zafar, the principal mining adviser for Africa at Johannesburg’s Nedbank. “I can’t see this happening in the current commodity climate.”

One example is a giant iron ore mine planned by the Australian company Sundance Resources. The project straddles the border of Cameroon and the Republic of Congo in Central Africa in a remote, inland jungle area. The mine would be an enormous lift to the economies of both countries – if it is ever built. Two years ago, Sundance announced a partnership with China Gezhouba Group to finance and construct a 510-kilometre railway and a dedicated mineral export terminal. The project had the backing of the Chinese premier, Xi Jinping, following a state visit to Ghana last year. But this January, Gezhouba said it would put the project on hold indefinitely after the collapse in the iron ore price. The project had seemed a good prospect when iron ore reached the giddy heights of nearly $188 a tonne in 2011, and the almost $4bn price tag for transport infrastructure seemed justified. Today, iron ore struggles along at $40 a tonne and the port and railway line are unlikely to be laid down anytime soon. As China slows, project finance will be harder to come by.

“The emergence of an Africa-wide railway network is a dream that will be difficult to fulfil,” John Welborn, the chief executive of Resolute Mining. Welborn has been active in rail developments in west Africa, a region that could potentially rival Australia’s iron-rich Pilbara area in potential for iron ore. He said that the cost of developing rail and port facilities from scratch, however, made it unlikely this would happen soon.

Even if funds were to be found, laying down railway lines that cross multiple borders is a formidable undertaking. At the same time, mining companies are reluctant to share lines with other users, fearing it could harm ore shipping schedules. In Australia, where iron miners are king, rival producers have built their own tracks running parallel to each other to carry ore from up to 1,300 kilometres inland to coastal ports. “Two companies in the Pilbara have two railways running side by side, and third wanting to get in had to build its own,” Mr Welborn says.

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