Business Case and Summary 203357

Business Case and Intervention Summary
Intervention Summary
Title: Kenya Strengthening Regional Economic Integration
What support will the UK provide?
The UK will provide an additional 27.7 million for infrastructure and advice to strengthen
regional integration and improve trade competitiveness in Kenya, to be implemented primarily
by TradeMark East Africa (TMEA). This will bring our total commitment to regional economic
integration in Kenya to 31.45 million. The new resources will be used to address inefficiencies
and improve capacity at East Africas largest port, Mombasa, and in associated policy
changes, setting up future work on longer term improvements in port operations. This support
was foreseen in the DFID Kenya Operational Plan published in April 2011.
Why is UK support required?

Few countries have grown, reduced poverty, and increased job creation, without expansion of
trade. In East Africa, trade has been constrained by market size, and by problems that have
made the costs of trade high, including inefficiencies at borders. The East Africa Community
(EAC) was established in 1999, in part as an economic partnership to tackle common
constraints to trade and to strengthen East Africas trading with other regions. DFID took the
lead in 2010 in responding by creating TradeMark East Africa (TMEA). TMEA works with the
EAC and member states to strengthen economic integration and trade competitiveness.
In Kenya, DFID funding - with assistance from Denmark (15%) and others (5%) - is supporting
integration and competitiveness via TMEA. UK aid reduces trade costs along the transport
corridor from the coast, improves standards of Kenyan goods, helps government meet its
integration commitments, and supports the private sector/civil society to influence trade costs.
Poor port infrastructure, cargo clearance and customs procedures at Mombasa port contribute
as much as 40% to the cost of trade along the transport corridor to central Africa. A set of
priority interventions to reduce costs has been agreed with the Ministries of Transport and
Trade, and the Kenya Ports Authority. This will also provide a basis for agreement on longer
term improvements. The Kenyan Government is not responding in the face of multiple market
and governance failures. UK support is needed to allow this programme to go ahead.
Increased funding will be part of a wider expansion of DFID support for TMEA regionally,
recognising progress it has already made and opportunities to build momentum.
What are the expected results?

Investment in the port, alongside TMEAs existing programme, will reduce transport times
along the northern corridor by 15% and increase Kenyas exports by 10%. There will be
benefits for Uganda, Burundi, and Rwanda. Specific results by 2016 will include:
An increase of $750-800 million in Kenyas exports in sectors that will impact the poor.
A reduction of up to 1.5 days to clear imported goods through Mombasa Port.
A reduction of up to 4 days in the time it takes to move a container into/out of Kenya.
The programme will have an indirect effect on regional economic growth, jobs and incomes.
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Business Case
Strategic Case
A. Context and need for a DFID intervention
1.
The aim of this programme is to increase growth and reduce poverty in Kenya,
through greater regional economic integration and improved trade competitiveness.
East African regional economic integration
2.
There has been significant growth in East Africas exports in recent years 1 but the
regions share of world exports still remains below 0.1% 2. Small markets mean firms cannot
benefit from economies of scale and export costs are high it costs East African countries
twice as much to trade than East Asia and developed countries. Transport costs in particular
are excessive freight costs per kilometre in East Africa are more than 50% higher than in
the United States and Europe and add nearly 75% 3 to the price of exports from Uganda,
Burundi and Rwanda. The problem is not just one of distances inefficient customs
processes, excessive bureaucracy and poor infrastructure all impose substantial transport
delays and significantly increase costs.
3.
Table 1 from the World Banks 2012 Doing Business Report illustrates the extent of
the challenge which affects imports as well as exports. East African countries appear very
close to the bottom of international rankings both in terms of the particular challenge of
trading across borders as well as the more general ease of doing business.
Table 1
Doing Business 2012 report
Burundi
Kenya
Rwanda
Tanzania
Uganda
Ease of Doing Business Rank
169
109
45
127
123
Trading Across Borders Rank
174
141
155
92
158
Documents to export (number)
Time to export (days)
35
26
29
18
37
Cost to export (US$ per container)
2,965
2,055
3,275
1,255
2,880
Documents to import (number)
10
Time to import (days)
54
24
31
24
34
Cost to import (US$ per container)
4,855
2,190
4,990
1,430
3,015
4.
The East African Community (EAC) was established in 1999 by Kenya, Tanzania and
Uganda to increase trade by overcoming the challenges of small market size, and to
strengthen regional political cohesion. Burundi and Rwanda subsequently joined in 2009.
South Sudan announced its intention to join in mid-2011. Together the EAC grouping of
states have a total population of around 130 million and GDP of $79.5 billion 4. They share
2
similar resources and trade profiles and in many respects also share a common history.
5.
Protocols have been signed to establish both a customs union (2004) and common
market (2010) to transform East Africa into a single, larger economy. The customs union is
moving close to full implementation only a few exemptions from the common external tariff
are still in place, although considerable work remains to remove non-tariff barriers and
implement a revenue sharing arrangement. The common market is scheduled to be fully
implemented in 2014, although this timing is likely to slip. The creation of a larger market will
allow producers and traders across the region to exploit economies of scale, increase
investment and accelerate the introduction of new technologies. It is also expected to
increase political stability and provide a focus for shared legislative and regulatory reform 5.
6.
Since the customs union protocol was signed, intra-EAC trade has increased
significantly - between 2006 and 2010 total intra-EAC trade grew by 135% as many of the
internal tariffs between EAC member states were removed 6. Total trade grew by 62% in the
same period and intra-EAC trade as a share of total trade grew by 7.8% to 11.38% 7. Partner
states have grown faster on average than the rest of sub-Saharan Africa - annual per capita
growth averaged 6.3% between 2005 and 2010 8. But this average growth rate is insufficient
to unlock the necessary higher jobs and incomes growth needed to address the jobs gap,
which in Kenya alone, according to the World Banks Kenya Economic Update of December
2011, exceeds half a million new entrants to the labour market each year.
7.
Evidence from a range of studies points to improvements in the business environment
associated with trade competitiveness leading to improved growth, jobs, incomes and social
effects.9 The relationship between trade, growth and poverty reduction is complex and the
evidence is difficult to interpret however.10 This recent East African experience illustrates the
general point that very few countries have grown over long periods of time or secured a
sustained reduction in poverty without a significant change in competitiveness and a large
expansion of their trade11. Poverty reduction in broad terms has followed as a consequence
of increases in income, employment and government social expenditures. There are risks
and opportunities, however, for particular poor groups (and regions) as increased trade
changes the profile of livelihood possibilities. There are also different gender effects
women may benefit less from increases in formal employment but benefit more from
improved management of the informal economy and informal trade where they
predominate12. Whilst increased trade may be a necessary condition for economic
development it is not always sufficient.
Kenya and the EAC
8.
There is strong political support for East African integration in Kenya, with leaders
anxious to avoid the problems that led to the collapse of the original EAC in the late 1970s.
Kenya has so far set an example in a number of respects in implementing regional
agreements13 Building on this commitment is central to the challenge of accelerating
integration and increasing trade across the region. Kenya is by a significant margin the
largest economy in the EAC and accounts for nearly half of all its economic activity 14. It
provides a potentially large market for other countries and crucially is the geographical link to
markets outside the region for Uganda, Rwanda and Burundi - 95% of all trade to and from
Uganda, Rwanda and Burundi passes through the Northern Corridor which starts at
Mombasa Port and runs for 55% of its total distance across Kenyan soil. 15
9.
Like other EAC countries Kenyas trade with member states has grown significantly
since the agreement of the customs union protocol exports to EAC countries increased by
an annual average of 13.5% between 2004 and 2008 and imports from EAC countries
(although from a small base) quadrupled over the same period.
10.
But as Table 1 highlights (and as elsewhere in the region) a set of problems captured
under the broad headings of poor infrastructure and excessive red tape mean that Kenya
3
remains a difficult environment in which to do business and from which to trade with other
countries16 - in 2012 109 out of 183 countries on ease of doing business, and 141 on trading
across borders17. Addressing the continuing challenges that underlie these rankings is
central to the development of closer regional partnership and the growth of trade in both
Kenya and other EAC countries.
Transport infrastructure and inefficiency at Mombasa port
11.
The poor state of transport infrastructure within Kenya ensures that freight costs are
high and competitiveness is reduced. Road and rail networks are both in bad condition. But
the single biggest contributor to the cost of transporting along the northern corridor (40%) is
fixed port charges and time delays at Mombasa port 18 as a consequence of the inadequacies
of port infrastructure, and burdensome documentation, cargo clearance and customs
procedures19. In total more than 90% of all delays along the northern corridor are estimated
to be at the port20. Administratively these areas fall under the Kenya Port Authority, an
agency connected to the Ministry of Transport, and the Kenya Revenue Authority, an agency
connected to the Ministry of Finance.
12.
The port has already exceeded its design limits, but as trade grows is expected to
handle increasing volumes of imports and exports - traffic is forecast to grow by up to 400%
in the period to 203021. The port development programme set out in a port master plan is at
least 10 years behind schedule, and the master plan itself is outdated and takes no account
of wider sub-regional development issues (discussed below). High berth occupancy rates
and periodic episodes of extreme congestion illustrate that the port is already stretched to
beyond maximum capacity. Major improvements in efficiency alongside new investment are
essential to prevent further large increases in vessel delays, port congestion surcharges and
customer costs, and continued knock on effects on regional competitiveness and economic
growth22 23.
13.
A major investment in a new container terminal at Kipevu West is underway, funded
by Japan, which is due for completion in 2015. Officially gazetted plans to privatise port
operations through a landlord port authority are in place, enabling port and maritime
regulatory functions to be separated from port management and operations (which can then
be outsourced). These are not likely to proceed ahead of Kenyas elections in 2013. There
are a number of interventions that in the short term can improve the ports capacity to both
service ships at the quayside (reducing ship waiting delays) and move cargo more effectively
in and out of the port gates - with significant regional economic effects.
14.
These improvements need to take place in an environment that has been historically
difficult to reform as result of a complex set of economic, political and regional interests in
port operations. In particular
Kenya Port Authoritys role as an employer together with its resources have made it
extremely susceptible to political interference (at both board and management levels);
Kenya Revenue Authority and its management of the administrative procedures

applying to movement of goods are perceived to be dependent on uninterested and
distant administrators;
Plans to improve efficiency, including through privatisation and the mechanism of a

landlord authority, have been opposed by groups including the Dockworkers Union,
coastal politicians and indigenous coastal residents because of concerns it will allow
elite groups to acquire port assets and businesses, in a way that further marginalises
coastal communities24 25.
Those who benefit from inefficiency and delay (through legal services and charges as
4
well as corruption) have a vested interest in blocking change.

15.
Over time, however, change is becoming more difficult to resist.
Increasingly
pressure for port reform is building from a combination of external and internal forces that
include:
an improved governance environment partly a consequence of the new constitution;
high level political lobbying by the Presidents of both Rwanda and Uganda about the
impact of inefficiency on their economies and wider regional integration;
increased competition from neighbouring ports;
lobbying by the business community on the impact of inefficiency on growth, incomes

and employment;
pressure from global terminal operators; and
the increasing recognition of the scale of the problem as regional economic output
increases and traffic levels grow.
Weaknesses and delays in customs and clearance processes
16.
Delays faced by importers and exporters at Mombasa Port because of capacity
constraints are compounded by inefficient customs processes - which in many cases are
linked to entrenched corrupt practices26. The problem extends to customs operations at
Kenyas land borders. Traders are frequently unable to obtain and submit documents ahead
of arrival at border crossings. Requirements on either side of borders are often duplicated
(including the need to arrange transit bonds). There is little coordination between national
agencies and little sharing of information. Customs checks are onerous and do not take
sufficient account of risk.
Non-tariff barriers and product standards
17.
In addition to the problems caused by inefficiencies in Mombasa port and in its direct
customs and clearance processes:
18.
Kenyan traders spend substantial time visiting a large number of agencies fulfilling
requirements related to regulatory information permits and trade licenses as well as
certificates related to product standards27.
Excessive numbers of police checks and weighbridges (often linked to corruption and
the payment of petty bribes) add to delays and costs for both Kenyan traders and
traders from other EAC countries using the northern corridor 28. Between Mombasa
port and Malaba on the border with Uganda there are seven separate weighbridges.
Exporters face major challenges in understanding and meeting the product standards
required to trade with other countries. Within the EAC, standards frequently vary so
that, for example, those trading with or through Kenya must meet the costs of
complying with different standards and securing multiple certificates. (Kenya, for
instance, does not recognise the health and safety certificates issued in other
countries.)
The institutional structure for addressing standards issues in Kenya is often criticised
for preventing Kenyan businesses exporting efficiently, with the specific
responsibilities of the Kenya Bureau of Standards and other parts of government
poorly defined and often overlapping 29.
A mechanism for monitoring and eliminating these types of non-tariff barriers to trade
5
has been established by the EAC, but there are currently no sanctions in place to support its
enforcement
Private sector and civil society engagement
19.
Kenyas private sector and civil society is the largest and most vibrant in the region,
but is not always effectively engaged in national decision-making related to regional
integration and the expansion of trade, or local decision making and dialogue in Mombasa.
There are concerns as a consequence that policies do not always reflect the interests of the
private sector, and both individuals and businesses do not appreciate and are not prepared
for new regional trading opportunities. Past approaches to addressing the problems of
Mombasa port represent a particular example of the neglect of private sector interests.
Within Mombasa, limited engagement with the wider stakeholders of the port, including
private employers, labour unions, the education sector and other stakeholder groups has led
to a perception of disenfranchisement from policy related to the port and associated wealth
creation mechanisms. In Mombasa, with its particular coastal culture and sporadic
community violence, this represents a risk to competitiveness, economic growth and
development.
Kenya Government capacity to implement regional integration agreements
20.
The EAC agenda is broad and complex, involving a large number of government
departments and requiring member states to engage extensively with the EAC secretariat
and with both private sector and civil society. EAC negotiations, the implementation of
agreements, and consultation and monitoring processes place significant strain on the
limited resources available within the Kenya administration. The Ministry of the East African
Community (MEAC), which takes the lead in managing and co-ordinating Kenyas response,
requires substantial support to develop its capacity, alongside other Ministries involved in
formulating policy that will enable Kenya to maximise the benefits from regional integration.
UK Policy
21.
Support for regional integration in Africa is a priority for UK policy. The 2011 White
Paper on trade identifies support for African trade and regional integration as essential to
promote growth and poverty reduction.30 The DFID 2011-2015 Business Plan has
commitments on regional trade, including a target to cut by 30% the average time taken for
goods to cross international borders in at least five locations in Eastern and Southern Africa.
22.
The UKs strong support for integration in the Africa region is captured in the Africa
Free Trade Initiative (AFTi), which was launched by the Secretary of State for International
Development in February 2011. This initiative aims to build on the political momentum for
economic integration in Africa and to help create a coalition of public and private investors to
overcome trade barriers. Major commitments have been made to help cut the red tape that
hinders trade, to improve regional infrastructure, and to support the reduction of tariffs
through the negotiation of a Free Trade Area covering the EAC, and two other African
regional economic communities, the Common Market fort East and Southern Africa
(COMESA) and the Southern African Development Community (SADC).
Support for integration and trade competitiveness through TradeMark East Africa
23.
In this context DFID financial support for regional integration in East Africa has grown
substantially in recent years. TradeMark East Africa (TMEA), was launched by the UK
Parliamentary Under-Secretary of State for International Development in February 2011, with
Kenyas Prime Minister Odinga, the President of Burundi, the EAC Secretary General,
representatives of the other EAC community states, and the Head of DFID Kenya, as a
mechanism though which much of this support has been provided.
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24.
TMEA is a company limited by guarantee that has been created to design and
implement programmes to address obstacles to accelerating economic integration and
increasing East African trade. DFID played the lead role in TMEAs establishment. It has its
headquarters in Nairobi with other offices in Arusha, Bujumbura, Dar es Salaam, Juba,
Kampala, and Kigali31.
25.
TMEAs focus is on interventions to improve regional infrastructure, transport and
trade facilitation (including customs processing), the effectiveness of national and regional
institutions, and private sector and civil society engagement in regional integration.
26.
TMEAs strength lies in its single dedicated focus, multi-donor funding and nimbleness
in response to need. It offers a unique mechanism for coordinated programming across
regional and country programmes.
27.
Its operational strengths, based on this sharp focus, are that it can:
promote a regional perspective in decisions about national investments and bring
national efforts together to secure shared gains (for example by sharing facilities and
systems at border posts);
promote regional interventions to replace separate inefficient national systems (for

example in the management of customs bonds for transit traffic);
help design mechanisms that can be effective in enforcing EAC decisions and
develop common systems for monitoring implementation that can be easily
aggregated;
ensure a consistent approach to building regional and national capacity (that reflects
the challenges in formulating and implementing EAC decisions);
pool finance from a number of donors based on the single mission focus.
28.
DFID has so far committed a total of 85.44 million from regional and country aid
allocations for TMEAs programmes. At the same time TMEA has also successfully attracted
almost exactly the same level of funding ($131.4 million) from other donors Denmark,
Sweden, Netherlands and Belgium. DFIDs support currently includes an allocation of 3.75
million for TMEAs Kenya country programme, alongside $10.56 million from Denmark.
Expanding DFID Kenyas programme support to regional integration
29.
In the initial period following its establishment TMEA has maintained a strong focus on
creating the institutional framework required to implement programmes including
management and expert staffing, accountable governance arrangements and appropriate
systems for planning, monitoring and evaluation 32. Essential networks and partnerships
have been created with national and regional stakeholders in the integration process.
30.
Progress has also been made in undertaking research and gathering evidence on the
impact of the programme, including relationships between trade, growth and poverty
reduction. All TMEA funding partners are committed to contributing to economic inclusion
and poverty reduction, and the TMEA programme will affect people across Kenya and East
Africa.
31.
Already in its Kenya country programme TMEA has:
developed bills to align Kenyan laws to EAC commitments and modernize Kenyas
trade policy;33
developed new information systems that allows customs clearance documentation to

be obtained and submitted online before reaching borders 34;
7
strengthened implementation of EAC regional integration policies through support to

the Ministry of East African Community35;.
started to support private sector organisations (PSOs) in complying with national and
regional product standards, including Kenyan tea growers;
started to support PSOs in advocating for policy change including an advocacy

campaign by Kenya Shippers Council that has led to both a new approach to axle
load harmonisation and important changes in Mombasa port.
32.
The first eighteen months of operation have highlighted the potential TMEA has to
make an impact on regional integration and growth in East Africa the 2011 annual joint
donor review reached favourable conclusions about performance compared to other regional
trade and integration programmes. Planning based on detailed appraisal of needs and
priorities at both regional and national level has highlighted the need for higher levels and
greater certainty of funding to build on the momentum that has been created and make the
investments that analysis highlights are essential in the medium term.
33.
Donor partners have endorsed TMEAs approach and strategy through the TMEA
Programme Investment Committee (PIC), which has agreed to a scaled up programme for
which the total operational budget has at present been set at $465 million over the period
2010-2016, compared to funding of $264 million that is currently committed. In taking this
view, donors and the PIC have focused on the need and opportunity to increase the scale of
interventions to achieve high level targets for reducing the costs and increasing the volume
of East Africa trade. This has also taken into account provisional indications of the availability
of extra funds from DFID (see below). Table 2 shows the approved budget disaggregated by
country and regional programme and highlights funding gaps.
Further financial
commitments are particularly required for Kenya, Uganda, Burundi and regional programmes
affecting inter alia investments in: Mombasa port; border posts between Uganda/South
Sudan and Burundi/Tanzania; and other regional infrastructure.
Table 2: TMEA budget and funding commitments 2010-2016
Programme
Current
commitment
Operational
budget
($ million)
($ million)
Kenya
16.52
57.94
41.42
Uganda
21.66
63.55
41.89
Tanzania
36.74
49.15
12.41
Rwanda
25.25
33.01
7.76
Burundi
29.64
49.81
20.17
South Sudan
20.28
20.28
Regional infrastructure (including border posts)
46.74
85.53
38.78
Other core regional funding
66.97
105.75
38.78
Total
263.8
465.02
201.21
34.
Funding gap
($ million)
DFID anticipated the strong case for scaling up support to regional integration in the
8
bilateral aid review. Additional funding has been set aside in both country and regional
operational plans as part of this process. Table 3 shows this pipeline finance by programme
alongside existing commitments. In total the additional resources provisionally set aside will
increase DFIDs commitments to TMEA over the period 2010-2016 from 85.44 million to
215.44 million. This will be sufficient to close funding gaps. It will increase DFIDs share of
total donor funding commitments to TMEA sharply
Table 3: TMEA DFID Funding
TMEA programme
DFID committed
funding
( million)
Provisional
additional DFID
funding
( million)
Kenya
3.75
26.7
Uganda
7.5
27.0
Tanzania
16.6
8.0
Rwanda
8.0
5.0
Burundi
6.5
13.0
South Sudan
6.59
Regional infrastructure (including the border post focused

East African Transit Improvement Programme)
30.0
25.0
Other core regional funding
6.5
25.0
85.44
129.7
Total
35.
The commitment of additional DFID funds requires approval of a number of separate
business cases. This business case covers proposed additional funding for the Kenya
country programme which will increase commitments to regional integration, mainly through
TMEA (who will receive 26.7m of the new 27.7m), from 3.75 million to a total of 31.45
million and the current share of TMEA Kenya funding from 35% to 81%. Other donors are
continuing to commit funds, including for example a recent commitment of an additional $9m,
but this is not specifically ring fenced for Kenya (although it is currently planned for Kenya)
so is not included in the calculation of share.
36.
It is anticipated that as implementation proceeds, further proposed interventions will
arise directly related to the current project; for example in further work on rail and other
physical improvements, on technical ports management advice, on Customs processes, and
on longer term reform. In all cases additional resource allocation will be subject to approval
through a separate submission.
Longer Term Port Reform and Mombasa Political Economy
37.
Mombasas port and nodal characteristics have made it a centre for the logistics
industry. Despite it being the largest port on the East African coast, Mombasa civil society
groups indicate that there is a local perception of disenfranchisement from economic benefits
- and from decision taking over the port and economy of Mombasa. Exacerbating this,
perception is the predominance of non-coastal appointees and absence of maritime skills
and knowledge on the Boards of Kenya Ports Authority, Kenya Maritime Authority, and Kenya
Revenue Authority (who manage the port customs system).
38.
It is recognised that over a long period of time a combination of forces with different
9
interests has worked to undermine the pace and scale of reforms at Mombasa port. As part
of a wider approach of ensuring that programme strategies reflect a sound understanding of
their socio-economic and political setting, TMEAs approach in Mombasa has been based on
an initial analysis of political economy issues, engagement on socio-economic and political
economy issues within the donor community, and with stakeholders in Mombasa and
elsewhere, all of which will be a continuing feature of the programme.
39.
TMEA has opted for an operational strategy of incremental engagement to help
address capacity and efficiency challenges and support the processes of institutional and
regulatory reform. The programme that has been discussed with KPA is judged to be
uncontroversial, to provide a basis for effective intervention that will produce real benefits but
does not depend upon other change. At the same time the programme can build positive
momentum, trust, and relationships which coupled with both external and internal pressure
can help lead to more transformative reform especially KPAs conversion to a landlord
authority.
40.
As discussed previously the external forces pushing the port towards modernisation
include Presidential level attention shown by Rwanda and Uganda, sustained lobbying by
development partners, competition from neighbouring ports, and the continuing rise in
regional trade. Strong Internal pressure is being applied by the business community through
business membership organisations.
41.
There is an expectation that after the election, now scheduled for March 2013, the
improving governance environment made possible by Kenyas new constitution can provide
a framework in which this pressure will substantially increase and the modernisation agenda
move forward.
42.
The current approach at a regional, national and local level includes:
Regional:
engaging in Arusha and in national capitals in the region, with Presidencies, relevant
Ministries, and private sector stakeholders, to build a coalition for change at the EAC
level; already resulting in Uganda and Rwanda pressuring Kenya;
working closely with the regional private sector to support their campaigns to improve
port performance, for example with the East Africa Business Council (successful in
getting high level attention on port problems; already lobbying in tripartite meetings;
working with the international community to lobby for formal engagement on the port
and non-tariff barriers (NTBs); .
National:
maintaining relationships with politicians, officials and Ministers in Kenya (especially in

the Ministry of Finance and Ministry of Transport) while allowing other official partners,
especially JICA and the World Bank, to manage more formal policy dialogue;
Mombasa is now one of the main medium term policy (MTP) dialogue points;
the development of a strong working relationship with KPA (and Kenya Revenue
Authority (KRA)) delivering support that is jointly agreed and managed; this has led to
agreement on a joint programme implementation management structure;
developing support through the private sector, with for example the Kenya
Manufacturers Association and the Kenya Private Sector Alliance which take a lead in
public-private dialogue in Kenya; that has already secured 24 hour port working;
partnering in the formation of a donor co-ordination group for Mombasa port with
selected partners (Japan, World Bank and others, which will form the core of a
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planning group for the post 2013 elections; which has now met under a DFID Chair;
opening a broader dialogue with Kenya Revenue Authority (KRA) to explore support
to impact inefficient customs and clearance processes (linked closely to corruption)
which account for the largest proportion of cargo dwell time at the port; on which
several meetings have been held, and KRA have made an early positive response;
Local:
closer engagement with the local business community and local civil society in
Mombasa, and businesses including shippers, transport companies, including
establishing a Mombasa stakeholder forum; on which a first workshop has been held;
regular dialogue in Mombasa by TMEA senior management, particularly as the new

devolved governance system comes into play; the TMEA CEO and Country Director
have now held a series of meetings in Mombasa;
Overall:
collaborate with the other members of the Kenya international community on a

political economy and reform strategy approach; and extend political economy
analysis to reflect devolution and other changes in 2013 and beyond.
43.
The recent history of private engagement in Mombasa and market distortions caused
by lack of reform and political interests, coupled with problems of public ownership and land
rights, mean that the private sector will not engage in funding this kind of investment linked to
a public body. PPP legislation and policy may change these circumstances in some five or
more years, enabling other critical infrastructure to proceed. Public bodies are constrained by
perverse political economy issues, and by the stasis induced by coalition government and
post-2007 election circumstances. Designing and budgeting for reform work in KPA, a nondepartmental public body controlled through the Transport Ministry, is characterised by the
fact that no major physical changes have taken place at the port in recent years (other than
those externally funded), and no systematic changes since the 1960s.
44.
For these reasons, and given 90% of constraints are at the port, DFID financial
support is essential in the short term to make progress delivering UK regional integration
objectives. In the longer term, policy and budgetary reform will be needed after the election.
B. Impact and Outcome that we expect to achieve

Impact statement
Growth of Kenyan exports in sectors that will impact the poor
Outcome Statement
Increased trade competitiveness in Kenya
Principal results by 2016 include:
Increase in total value of exports from Kenya to the rest of the world of more than
$789 million36
Up to 1.5 day reduction in the average time it takes for imported goods to be cleared
from Mombasa port37
Up to 4 day reduction in the time it takes to move a container into/out of Kenya
70% of Kenyas EAC common market commitments implemented.

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45.
The elements of the results chain (or intervention logic) that will deliver the expected
outcome and impact are presented below. Results will be delivered through interventions that
(a) reduce transport and trade-related costs along the northern transport corridor, including at
Mombasa port; (b) support increased implementation of Kenyas regional integration
commitments; (c) facilitate greater standards recognition, harmonisation and compliance;
and (d) support the private sector and civil society to positively influence regional integration
policies and practices that facilitate increased trade.
12
Improve
Improve quantity
quantity and
and quality
quality of
of
infrastructure
infrastructure (including
(including one
one stop
stop
border
border posts,
posts, roads,
roads, Mombasa
Mombasa port)
port)
Streamline
Streamline customs
customs
and
and border
border processes
processes at
at border
border posts
posts
and
and Mombasa
Mombasa port
port
Design
Design and
and establish
establish more
more efficient
efficient ICT
ICT
systems
systems
for
for goods
goods clearance
clearance
Simplify
Simplify transport
transport and
and
logistics
logistics processes
processes
Develop
Develop institutional
institutional capacity
capacity to
to identify
identify
and
and develop
develop time-bound
time-bound actions
actions to
to
eliminate
eliminate non-tariff
non-tariff barriers
barriers
Strengthen
Strengthen institutional
institutional capacity
capacity of
of the
the
Government
Government of
of Kenya
Kenya to
to formulate
formulate and
and
implement
implement regional
regional integration
integration policy
policy
and
and legislation
legislation
Develop
Develop capacity
capacity of
of bureaus
bureaus of
of standards
standards
on
on standards
standards recognition,
recognition, harmonisation
harmonisation
and
and compliance
compliance
Strengthen
Strengthen PSO
PSO and
and CSO
CSO advocacy
advocacy on
on
regional
integration policy
policy making
making and
and
processes
processes
Reduction
Reduction in
in time
time to
to
transport
transport goods
goods to
to
and
and from
from Kenya
Kenya
lowering
lowering transport
transport
and
and goods
goods costs
costs
Improved
Improved goods
goods
handling
handling
efficiency
efficiency lowers
lowers
transport
transport and
and goods
goods
costs
costs
Reduction
Reduction in
in nonnontariff
tariff barriers
barriers
lowers
lowers transport
transport and
and
goods
goods costs
costs
Increased
Increased
implementation
implementation of
of
regional
regional
integration
integration
commitments
commitments
More
More products
products meet
meet
regional
regional and
and
international
international
standards
standards
enabling
enabling trade
trade
Greater
Greater influence
influence on
on
regional
integration
policy
policy and
and practice
practice
by
by private
private sector
sector
and
and civil
civil society
society
Reduced
Reduced cost
cost of
of
trading
trading along
along
corridors
corridors in
in Kenya
Kenya
-- knocks
knocks onto
onto
prices
prices for
for goods
goods
and
and services
services
Increased
Increased access
access
to
to regional
regional and
and
international
international
markets
markets
-increases
-increases market
market
access
access for
for poor
poor
Increased
Increased market
market
size
size for
for Kenya
Kenya -facilitates
facilitates
inclusive
inclusive growth
growth
strategies
strategies
Increased
Increased
competitiveness
competitiveness
of
of Kenyas
Kenyas
economy
economy
Growth
Growth of
of
Kenyan
Kenyan
exports
exports in
in
sectors
sectors that
that
will
will impact
impact the
the
poor
poor
Greater
Greater
integration
integration into
into
the
the regional
regional
economy
economy
Improved
Improved quality
quality
of
of products
products and
and
services
services
-increases
-increases the
the
effectiveness
effectiveness of
of
household
household spend
spend
13
Appraisal Case
A. What are the feasible options that address the need set out in the Strategic case?
46.
There are three options, detailed below. The process leading to the three detailed
options extends back to the 2008 post-election period prior to the formation of TMEA. The
results of the initial appraisal were discussed and included in DFID bilateral aid review bids,
and then in the approved Operational Plan for DFID Kenya. Work on these options was
continued jointly with Africa Regional Division and through TMEA. It has involved review of
previous work in Mombasa and on wider regional trade facilitation, detailed analysis with a
range of donor and Government stakeholders, and discussion with the regional private
sector.
47.
Alongside the three options noted below, a number of options have been considered
and discarded. The discarded options are:
Providing further resources toward roads improvement within Kenya. This option was
considered but discarded because the sums involved to make roads improvements
viable alternatives in achieving the intended impact would be excessive compared to
the resources proposed below at Mombasa, where 90% of the physical constraints
lie. The option to raise PPP funds for roads is however being appraised and tested
over the next five years through the World Bank/IFC, in a wider PPP programme, that
DFID supports.
On a proposal to support border crossings, TMEA is already working on the strategic

border crossings and it has been agreed that the results of this work will be tested
prior to any further round of border crossings in Kenya to avoid diminishing marginal
returns.
The option of doing nothing further. This would involve no further release of funds.
This would be inconsistent with investments made in establishing TMEAs institutional
capacity, potentially undermine support it receives from other donors, and suggest
concerns about TMEAs performance. It would also contradict the importance DFID
attaches to regional integration. Critically, since 90% of constraints lie in Mombasa, it
would constrain achievement of agreed regional goals.
The option of providing support for regional integration through implementation

mechanisms other than TMEA. This option would be inconsistent with the
decisions that have already been made to use TMEA as the conduit for DFID support
for regional integration in East Africa. It would fail to take advantage of the
institutional capacity which has already been established and the understanding of
issues and the influence to address them, representing worse value for money
outcomes. Critically, the independent focus, flexibility and responsiveness that is the
TMEA core offer would be put at risk, and this would slow up the rapid implementation
process that TMEA offers.
48.
Detailed appraisal and negotiation has taken place with Ministries, KPA and others,
based on the options outlined below. Negotiations with KPA have led to both a conditional
MoU between KPA and TMEA, and the recent inclusion of TMEA staff in management
discussions at the port.
14
Option 1: Maintain support for TMEAs Kenya programme at the levels agreed in 2009
when DFID Kenyas PRIME programme, including core TMEA funding, was approved
49.
This option will concentrate funding on interventions that will:
improve quality and reliability of transport data for the northern corridor - contributing
to better policymaking and improved corridor performance;
improve processes for managing border traffic to complement regional investment in

border posts (integrated border management and customs risk management);
ensure Kenyan policy on standards is consistent with regional agreements, and

introduce equipment to improve testing of products;
help exporters meet standards that have been agreed across the region;
improve the governments trade policy capacity to implement EAC commitments,

especially on the customs union and common market;
increase support for regional integration through private sector and civil society
advocacy;
increase capacity of private sector organisations to help members manage trade

processes and improve product standards.
50.
The beneficiaries and implementing agencies are the Ministry of Trade, Ministry of
Transport, Ministry of East African Community, Kenya Bureau of Standards (KEBS), and
private sector and civil society organisations (PSOs and CSOs) such as the Kenya
Association of Manufacturers (KAM), Kenya Private Sector Alliance (KEPSA), the Kenya
Shippers Council (KSC) and the Fresh Produce Exporters Association (FPEAK).
51.
TMEA Kenya predicts that the combined impact of the above interventions will enable
them to achieve a 7% reduction in transport times and a 5% increase in export growth in
Kenya (as well as make a significant contribution to similar results in other EAC member
states).
Option 2: Significantly increase DFID support to allow TMEA to make strategic
investments in Mombasa port that will reduce port congestion and transit delays
52.
This option will maintain funding for the activities TMEA is planning under option 1 and
at the same time provide additional finance for investments in physical improvements at
Mombasa port that individually reinforce each other to create a significant enhancement in
the port logistics chain. This option recognizes 90% of delays along the northern corridor are
at the port of Mombasa, and these delays significantly reduce trade competitiveness in
Kenya and across the region. TMEA proposes to work with Kenya Ports Authority in
particular to make investments in:
improvement of rail infrastructure within the port, including for shunting and access for
mainline trains; thus shifting traffic from road to rail;
improving yard facilities, including by investment in equipment and making berth

repairs;
upgrading port roads and port gates and improving traffic flow arrangements within the
port;
upgrading urban roads and truck waiting areas in the urban area;
15
port-wide productivity improvement (through assessment of actions to address

issues);
building institutional capacity of port authorities including specific TA and coordination

to programme management of port improvements.
53.
TMEA estimates that investments at Mombasa port will enable them to achieve a 15%
reduction in transport times and a 10% increase in export growth. This additional impact will
be achieved by interventions that make the best use of existing facilities and work within the
current organisational framework to increase capacity and improve efficiency (discounting the
possibility of privatisation in the short term). This option will also facilitate engagement and
relationships in Mombasa, and with the Port stakeholders, facilitating the feasibility of longer
term improvements.
Option 3: This option will provide further flexible funds to TMEA in the immediate
short term to enable them to react to new and emerging need in the next year.
54.
This option will maintain funding proposed under option 2, but will facilitate the early
engagement of TMEA on: additional physical infrastructure works at the port and immediately
outside the port; and early technical assistance to KRA on customs. This option recognises
the urgent need for increased focus on moving from road to rail, and will involve early
realisation of potential investment plans in:
further redesign and rerouting of train track around the main rail access and egress
points to the port;
detailed design and costing of works with KRA on customs systems and operations;
initiating full technical assistance work on improved customs systems in advance of

and in anticipation of selection and procurement of new IT systems;
procurement and installation of new customs IT systems compatible with international

standards and best practice.
55.
The proposed interventions have not yet passed concept stage and impact has not yet
been appraised. The benefit that this option offers is in the pre-commitment through TMEA to
partners that will enable TMEA to maintain the momentum of change at the port and to make
full or partial commitments as each element of the above proposed next steps comes into
play (likely over the next six months). These interventions would be in line with the
improvement programme that KPA strategy envisages, the agreement with KPA, and reflect
current discussions with the KRA.
56.
Under option 2, and 3, TMEA is committed to:
work on closer engagement with the broad stakeholder community in Mombasa to

ensure that the do no harm principle is addressed;
work on TMEA private sector and civil society dialogue directed specifically toward
engaging Mombasa-based business and civil society partners;
TMEA is also committed to work with partners, including the Dockworkers Union, on
establishing workers perceptions of benefits of reform at the port, enabling
engagement on future improvements to function more effectively.
TMEA is committed to supporting development of a coalition of interest to lever longer

term improvements at the port.
16
57.
Under these three options TMEA Kenyas proposed investments will be closely coordinated with TMEA investments regionally and in other countries to maximise their impact
as part of TMEAs wider efforts. TMEAs programmes will also be closely co-ordinated with
other initiatives including Japanese, Danish and other donor support. Investment in
Mombasa port under Option 2 and 3, in particular, will complement the construction of the
new Kipevu West container terminal, supported by Japan.
B. Assessing the strength of the evidence base for each feasible option
58.
In response to discussions on the evidence base, it was agreed that TMEA
commission an on-going review of evidence with the first report to be finalised in January
2013. This work has been undertaken for TMEA by the Institute of Development Studies
(IDS), and has resulted in new draft evidence review papers 38. Information includes:
evidence on individual interventions in trade facilitation and regional integration; evidence on
growth effects of regional integration and trade; links between trade, growth, and poverty.
59.
The evidence review provides a significant uplift in the base on which to assess the
likely impact of TMEA interventions. Overall the review confirms that, as has been
discussed, trade facilitation programmes are necessary, but may not be sufficient, to address
poverty. The review concludes that the extent of poverty and inclusion impact may depend
on the extent to which sectors that benefit from changes engage the poor; the impact they
have in a local context ie the way in which a local supply chain is integrated into the sectors
that will benefit from change; the propensity for the changes to reduce consumer prices
and/or increase exports; and on the effects in the local labour market do earnings and jobs
numbers rise in the locality?
60.
A question in the context of Mombasa is thus: is the East Africa transport sector
structured in such a way as to pass benefits through to the poor, or are they likely to be
captured by cartels? Some evidence on these issues is available from three studies: a World
Bank supported study on East African maize marketing costs in 2009; a 2012 TMEA port
strategy document; and an IBRD transport prices diagnostic study published 2009. Important
conclusions from these studies are that: the transport sector has a broader structure and is
competitive compared to West and Southern Africa (where cartels control trade movement),
with 60% of Mombasa container traffic belonging to small traders that contract with a range of
local transport companies; that a reduction in transport costs will lead to a reduction in
transport prices to third parties, and that in the maize study 76% of maize marketing costs
were transport costs. It is thus possible to conclude, as the three studies do, that savings in
time and costs are likely to be passed on - lower marketing costs could be expected to
benefit poor people through lower prices.39 40 41
61.
The recent TMEA/IDS review papers conclude that evidence is ambiguous on some
interventions and dependent on local circumstances. But TMEA has embarked on the
process of testing the evidence base, and is committed to bringing further evidence to bear
on assessment of the impact of its work. Further detail on TMEA plans is provided in the
monitoring and evaluation section at the end of this business case.
62.
In Table 4 below the quality of evidence for each option is rated as strong, medium or
limited. The evidence is provided for each of the projects that TMEA Kenya is planning to
implement under each option and indicates the probability that each activity will achieve the
desired output.
17
Table 4: Quality of Evidence

Option
Evidence
rating
Option
1
Strong
Justification
Regional integration and trade
The evidence linking regional integration with increased trade is
strong. According to an overview of the literature conducted by
IFPRI in 200942, empirical models overwhelmingly show that in
regional trade areas aggregate trade creation dominates trade
diversion. The models also indicate that welfare for all members
both current and potential increases when regional trade
areas expand. There are even bigger welfare gains when models
incorporate aspects of new trade theory such as increasing
returns, technology transfers, trade externalities, and dynamic
effects such as links between trade liberalization, total factor
productivity growth, and capital stock accumulation.
Studies also suggest that regional trade has a better poverty
focus than other trade i.e. it comprises products that involve the
poor more directly.
Medium
Trade and growth

A number of studies support a correlation between openness to
trade, levels of trade and growth 43.
It is also argued that trade is associated with productivity gains
and increased long-term growth as a result of technology
transfer and the impact of competition on incentives for learning
and innovation44.
Low/Mediu
m
However systematic analysis of the relationship between trade

liberalisation and growth is difficult because of the problems of
identifying causality and isolating impacts (for example in growth
regressions)45.
Trade growth and poverty
Systematic empirical analysis of the link between regional
integration trade, and poverty is also difficult in practice 46,
particularly as translating the benefits of trade into poverty
reduction often depends upon complementary conditions such
as education and healthcare provision47.
However trade liberalisation has been observed to be
accompanied by reduced income inequality in low-income
countries48.
And very few countries have grown over long periods of time or
18
experienced a sustained reduction in poverty

experiencing a large expansion of their trade 49.
without
The Society of International Development (SID) (2010) has

calculated that in Kenya a 1% increase in national income
translates into a 0.59 % increase in rural employment over the
long-term, demonstrating that growth benefits the poorest
groups.
Low
Transport Observatories
There are a number of studies that support the importance of
transport data collection for policy-making and the development
of tools for road management 50. Design of the transport
observatory project for the Northern Corridor is informed by the
evaluation of previous monitoring arrangements along the
corridor based on annual surveys. This assessment identified a
number of shortcomings with the survey approach, including the
problems of adherence to agreed schedules and formats for data
collection and submission, and the difficulties of ensuring data
quality. The transport observatory design replicates a model
used successfully elsewhere. The 2008 evaluation of the SouthEast Europe Transport Observatory project for example
concluded that the observatory had successfully contributed to
the socio-economic development of the region 51.
Integrated Border Management
Medium
TMEA plans to establish One Stop Border Posts (OSBP)

throughout the East African region. Kenya will benefit from
OSBPs at the Kenya-Tanzania border at Taveta, and the KenyaUganda border at Busia. OSBPs are developed within the
context of a regional Integrated Border Management (IBM)
system52, as the OSBP infrastructure is not a solution to more
efficient border crossing in isolation. The development and
implementation of a national IBM system involves integration of
border agency systems and as much processing behind the
border as possible.
The OSBP established at the Zambia-Zimbabwe border at
Chirundi is the first and only operating OSBP in Africa and
operates within an IBM framework. The streamlining and
harmonisation of border procedures has reduced the average
time to cross the border from 67 hours in 2007 to 10.5 hours in
201153. Traffic volume has increased by 48.7% during the same
period and average monthly revenue collections have increased
from ZMK102 billion to ZMK 133 billion54.
Research on Integrated Border Management (IBM) alone
highlights the impact a well-implemented system can make in
reducing clearance delays and costs.
The IBM system in Mauritius for example has: reduced the
processing time of customs declarations from an average of four
19
hours to about 15 minutes; resulted in greater transparency of

procedures, elimination of paper returns, and improved
productivity; and offered significant improvements in financial
efficiency and profits.55.
In the US better integrated border management activities have
similarly reduced costs for both the government and the trade
community through more simple, accurate, efficient, and
predictable processes. Government processing of international
trade data has also significantly improved 56.
Dynamic Customs Risk Management systems
Limited
Evidence on the impact of dynamic customs risk management

systems show significant returns for both government and
traders (in diverse contexts e.g. New Zealand and Cameroon) 57.
The benefits for government have included improved
governance based on objective criteria rather than arbitrary
controls: increased revenue through greater efficiency; and
improved performance monitoring of customs officers and
services. Benefits for traders have included reduction in the time
and costs associated with processing consignments and
improved predictability in the nature and level of controls
associated with particular consignments.
Harmonisation of standards and standards testing
Strong
There is strong evidence on the benefits from harmonising

regional product standards. A 2012 World Bank study advocates
the harmonisation of regional dairy standards in East Africa as a
method of increasing regional trade in dairy products, improving
technological capacity, and improving the quality of products 58
based on experience elsewhere. Within Mercosur, for example,
intra-regional exports in dairy products grew by 13.9% between
1999 and 2000 as a result of a reduction in costs when
standards were harmonised. Harmonisation of standards had a
similar effect on intra-regional trade in a number of other areas
including cars and trucks, the food industry and cosmetics 59.
Support to national government
Limited
Technical assistance provided by DFID to the Kenyan Ministry of

East African Community between May 2009 and August 2010 led
to the strengthening of its organisational structure, HR systems
and strategy and policy functions (TMEA 2012 review).
Elsewhere in the region experience also shows that capacity
building support to EAC ministries has enabled them to play a
critical role in coordinating a wide regional integration agenda. In
Uganda prior to TMEA support being provided in 2010, the EAC
ministry secured a score of 71% against achievement of targets
in a government wide performance review 60. Following TMEA
interventions this score increased to 80% when a repeat survey
was conducted at the end of 2011.
20
Support to PSOs and CSOs

Evidence demonstrating the impact of support to PSOs and
CSOs in the region is limited.
Limited
DFID has a number of regional programmes supporting CSO

capacity to advocate for policy change in particular areas. While
there is evidence these have improved institutional strength and
the organisation of advocacy campaigns there is much less
evidence on whether CSO advocacy has resulted in policy
change61.
The evidence base covering the impact of support to strengthen
PSO advocacy is a little stronger. An impact assessment of the
Business Environment Strengthening in Tanzania programme in
2011 for example concluded that investments in capacity
development and research and advocacy had a positive impact
on the business environment. There is some evidence that the
Business Advocacy Fund in Kenya has secured similar effects. 62
Support TMEA has already provided to the Kenya Shippers
Council to work with the governments Rapid Results Initiative in
identifying and eliminating causes of congestion at Mombasa
port had some limited success but did not result in any significant
or permanent changes to improve port productivity
There is only a small amount of evidence that improving the
capacity of transporters associations, such as the Kenya
Shippers Council, can help improve transport industry business
practices more widely. There are for example anecdotal
examples of improvements in the levels of professionalism and
knowledge of transport agents following a major USAID-funded
training programme implemented through the Federation of East
African Freight Forwarders Association, but no reliable data has
been collected.
Option
2
As above +
Mombasa port
Limited
Improving performance in Mombasa port has been the target of

a series of donor-funded programmes, since the establishment
of KPA in the wake of the break-up of the original EAC in 1977.
The World Bank and DFID (ODA) have been the funders. Short
term success has usually been associated with investment in
port infrastructure and equipment but long term institutional
reform has been much more difficult to achieve in the face of the
complex mix of economic, political and regional interests that
exist in the ports operations. There have been a number of
failed attempts to impose privatisation through conditionality.
21
TMEAs approach recognises the reasons why past efforts to

support reform in Mombasa Port have failed, but there is limited
evidence on which to judge its chances of success.
The evidence base for the immediate choice of investment is
more substantial. The programme is based on a detailed gap
analysis that has identified areas in which to work in the context
of existing funding, World Bank recommendations covering dos
and donts in port reform and the principals set out in the
Eddington Transport Study63.
A number of studies have
examined port reform elsewhere in Africa and provide evidence
that increasing productivity through the type of interventions
proposed in Mombasa will have high returns. Hummels (2012)
estimates that one-day less in delivery times whether
associated with waiting time in ports or delays in customson
average around the world reduces landed costs of goods by 0.62.3 percent64.
Looking forward there is recent evidence from both Nigeria and
Ghana of the favourable impact the landlord model can have on
port investment, operations and efficiency65.
Option
3
As above +
limited
Option 3 represents an extended allocation of funds beyond

option 2, and is focused on extending the interventions, and
effects, as opportunity arises.
The evidence thus builds on the evidence for option 2.
No detailed assessments have taken place on the individual
extended concepts, or on work with KRA.
There is indication from other
improvements can have impact. 66
countries
that
customs
What is the likely impact (positive and negative) on climate change and environment for each
feasible option?
Categorise as A, high potential risk/opportunity; B, medium/manageable potential risk/opportunity; C,
low/no risk/opportunity; or D, core contribution to a multilateral organisation.
Option
Climate change and environment risks

and impacts, Category (A, B, C, D)
Climate
change
and
environment
opportunities, Category (A, B, C, D)
63.
Option 1 presents a low direct risk to the environment and climate change in its
implementation. However the expected outcomes of TMEAs interventions may have second22
order effects. A reduction in road transport times, for example, will in the first instance reduce
carbon emissions. But over a longer period it could also discourage the exploitation of
opportunities to use greener fuels and transport alternatives and lock Kenya into a highemissions growth path. Second order effects like this will be influenced by a large number of
factors including market dynamics, technological change and regulatory frameworks. In
practice risks are very difficult to determine in advance.
64.
Option 2 includes some construction at Mombasa Port (e.g. road widening and railway
upgrading) and therefore poses a greater direct risk to the environment and climate change
(e.g. through noise, water, air pollution). In line with Kenyas national environment policy,
TMEA will address this risk by conducting an Environmental Impact Assessment (EIA) prior to
commencing infrastructure works. The EIA will include a management plan for risk mitigation
65.
Both Options 1 and 2 provide opportunities for TMEA to contribute to climate change
mitigation in Kenya and to support work to improve the environment and natural resource
management especially in its interventions with national and regional bodies to improve
policy making. TMEAs engagement in this agenda however is currently significantly weaker
than its focus on addressing risks. In response TMEA is in the process of developing a
climate change strategy in particular to explore options for reducing carbon emissions along
East Africas transport corridors, including the use of climate change finance to promote lower
emission transport systems (such as railways) and at the Port.
66.
There is scope for this work to be extended to cover a wider agenda which might
include for example the potential to: mainstream climate change risks and opportunities in
Kenyas policies on regional integration; facilitate climate-smart insurance products and risk
management tools for foreign investors; and to promote low carbon and renewable energy
technologies.
67.
The strategy will identify the full scope for TMEA to exploit green procurement
opportunities in its programming including the use of recycled or sustainably sourced
materials, low carbon technologies and materials which are not harmful to the environment.
The DFID Kenya Climate and Environment adviser is engaged in this process.
23
Table 6: What are the costs and benefits of each option?

(NB costs and benefits relate to existing TMEA commitments and additional TMEA investments)
Option 1: To strengthen regional integration and trade competitiveness in Kenya by maintaining support for TMEAs
Kenya programme at the levels agreed in 2009 (alongside investments TMEA is making across the East Africa region)
Activities67
Output Benefits
Support to facilitate trade ($1.7 million)

through:
- Establishing a transport observatory along the
Northern Corridor
- Training freight and transporter operators
- Introducing Integrated Border Management at
Taveta and Busia border posts
- Implementing a customs risk management
system for the inspection goods at Kenyas
borders
Support to improve standards testing and legal

framework ($1.3 million) through:
- Introducing new equipment for standards
testing
- Ensuring Kenyan policy and legislation on
standards
is
consistent
with
regional
agreements on Standardisation, Quality
Assurance, Metrology and Testing (SQMT)
Outcome Benefits
Better information on the causes of transit Increased

trade
delays along the Northern Corridor.
competitiveness in Kenya
Freight operators are more efficient and as a result of:
competition is increased.
More efficient border processes at Taveta - Faster
customs
and Busia border posts68
operations at borders;
Better understanding of
60% reduction in customs inspections at
customs processes by
borders
transporters;
Improved customs compliance.
Improved
policy
to
address
other
bottlenecks along the
Northern corridor
2 pieces of new testing equipment installed - Cost savings related to
in Kenya Bureau of Standards
reduced transit/transport
10 staff trained in equipment use
times;
Decrease in average time taken to test - Better compliance with
products and increase in number of tests
regional
and
that comply with established procedures
international standards
New national policy and legislation on
particularly
in
standards conforms with the EAC
agricultural
and
Standards (SQMT) Act (National Quality
manufacturing sectors.
Policy gazetted, Technical Regulations Act
receives assent)
24
Support to National Government ($6.2 million)
for:
i. Ministry of East African Community
- Providing staff development and external policy
advice
- Implementing EAC communications strategy
- Monitoring
implementation
of
EAC
commitments
- Developing and implementing EAC Common
Market Implementation Plan
ii. Office of the Prime Minister
- Developing a Kenya Regional Integration
Strategy
iii. Ministry of Trade
- Reviewing legal and institutional reforms
required to implement EAC Common Market
Protocol
- Improving capacity for trade policy formulation
and analysis
MEACs
performance
in
Kenya
governments assessment system rated as
excellent
Increase in awareness campaigns covering
the content of EAC integration and the
implications/opportunities for Kenya.
Greater compliance with detailed actions
required by EAC Common Market Protocol
at least 70% of the 165 actions that have
been identified are implemented on
schedule.
Better harmonisation of Kenyan laws and
policies with the Common Market Protocol 27 have been identified as requiring
attention
Ministries
and
Departments
include
regional integration in their strategic plans
and budgets
50 % of recommended reforms in Kenya
National Trade Policy implemented on time.
Improved capacity for trade policy analysis
and trade negotiations
Enactment of new trade development
legislation
Improved
government
leadership
and
coordination of regional
integration agenda;
Implementation of a
comprehensive regional
integration policy;
Strong public support for
regional integration;
Improved access to
regional markets;
Strong private sector
understanding
of
regional
trading
opportunities;
More effective Kenyan
participation in regional
and
global
trade
negotiations.
25
Support to the Private Sector and Civil Society
($5m) for:
- Technical assistance to improve standards of
small-scale horticultural production (through
Fresh Produce Exporters Association of Kenya)
- Technical assistance to improve standards of
tea production (through East Africa Tea Traders
Association - EATTA)
- Advocacy training
- Advocacy research and campaigns on issues
including:
Reducing the cost of tax compliance;
Reducing the cost of quality compliance;
The role of regulatory bodies for
manufacturing;
Investment Climate reform
Efficiency of regional transport systems
- Knowledge sharing and collaboration between
PSOs and CSOs on shared interests (including
at regional level)
- Establishing Kenya Shippers Council as a one
stop information centre for transport, logistics
and trade-related information.
10
groups
of
Kenyan
small-scale
horticultural growers certified compliant with
East Africa Good Agricultural Practice
Standards (EAGAP)69
400 growers trained in EAGAP
140 internal auditors/country trainers
certified in EAGAP
20
auditors/lead
trainers
receiving
certification in EAGAP
3000
farmers
reached
with
good
agricultural practice training
10 research papers on specific EAC issues
published by PSO/CSO organisations
500 PSO/CSO staff and association
members trained in regional integration and
advocacy
5
PSO/CSO
advocacy
campaigns
conducted
Increase in access to trade facilitation
information containing up-to-date and
accurate trade facilitation information.
Increased awareness of
policymakers
of
challenges
facing
private sector
Greater engagement of
Kenyan civil society at a
regional level (through
establishment
of
a
Kenyan chapter of the
East
African
Civil
Society Forum)
Stronger accountability
of Kenyan government
to its citizens on the
impact
of
regional
integration
10%
increase
in
volumes of tea sold by
EATTA
US $2 increase in
average price of tea
auctioned at Mombasa
tea auction
Shippers are able to
transport goods more
efficiently
26
Option 2: Significantly increase DFID support to allow TMEA to make strategic investments in Mombasa port that will
reduce port congestion and transit delays
Activities
Output Benefits
Outcome Benefits
All activities under option 1 plus interventions at Mombasa port

Support to Mombasa port ($43.8m)70 for:
- Investment in rail infrastructure within the port,
gates (including for shunting and mainline
access)
- Upgrading port roads and port gates;
- Improving traffic flow arrangements within the
port;
- Upgrading urban road linkages;
- Upgrading truck waiting areas;
- Improving yard facilities ( including by investment
in equipment);
- Institutional capacity building focused in particular
on implementing the recommendations of a portwide productivity improvement study and on
labour force training.
- Improving laws and regulations governing port
operations; and.
- Developing Public-Private Partnerships (PPPs)
for infrastructure investment
3000 metres of new rail lines in Kipevu

port area (container traffic);
1500 metres of new rail lines in Kilindini
port area (general cargo);
Improved gates for rail access and
associated facilities in both Kipevu and
Kilindini;
Rehabilitation/widening of 1.3 km of the
Kipevu access road;
Rehabilitation/widening of 3.4 km of the
Shimanzi access road
Improved truck waiting areas/parking for
Kipevu and Shimanzi access roads;
Improved Port gates for access on
Kipevu and Shimanzi roads;
30,000
sq
metres
of
yard
repairs/resurfacing in berths 11-14
(Kipevu container area)
740 metres of repairs to fenders,
bollards and other facilities in berths 1114
Improved road and rail access

and improved productivity will
together significantly reduce
traffic transit times through the
Port. TMEA estimates that the
specific investments it will
finance will reduce delays by
up to 34 hours per tonne.
These savings comprise:
12
hours
from
improved rail linkages
and
space
rationalisation
3.7
hours
from
improving port road
access
6.5 hours as a result of
improving
and
expanding
yard
facilities and stacking
areas
12 hours as a result of
institutional
capacity
building
27
Option 2: Significantly increase DFID support to allow TMEA to make strategic investments in Mombasa port that will
reduce port congestion and transit delays
-
1000 metres of repair to quays and

stone revetments in port section G
(general cargo)
20,0000 sq metres of repair of aprons
(light paving) in port section G
Detailed feasibility assessment and
design of a dry port facility at Miritini rail
marshalling yard.
Land use mapping report
New regulations for Kenya Ports
Authority
Development of PPP strategies
In addition funding for design

work will provide a base from
which additional time savings
can be secured in future.
Option 3: This option will provide further flexible funds to TMEA in the immediate short term to enable them to react to
new and emerging need in the next year.
Activities
Output Benefits
Outcome Benefits
All activities under option 1 and 2 plus further design and development of interventions at Mombasa port and with KRA
28
Option 3: This option will provide further flexible funds to TMEA in the immediate short term to enable them to react to
new and emerging need in the next year.
Support to Mombasa port and KRA ($62.2m) for:
- As option 2 above, plus:
redesign and rerouting of train track around the

main rail access and egress points to the port
(inside port);
detailed design and costing of works with KRA on

customs systems and operations;
initiating full technical assistance work on improved customs systems in advance of and in
anticipation of selection and procurement of new
IT systems
installation of new customs IT systems

compatible with international standards and best
practice
Additional 1000m of new track

Design and specification of new
customs IT systems, systems analysis
and
paperflow,
and
bridge
to
international systems
full engagement on technical assistance
in transition management and training
on systems
procurement of full IT systems and
support and associated works for
customs system
Improved rail access will

increase
rail
productivity
enhancing work under option
2, and improved Customs
productivity will significantly
reduce traffic transit times
through the port. Estimates of
time saved and impact are at
an early stage, but would be
anticipated
to
have
a
reinforcing and significant
impact of a similar scale to
the
improvements
under
option
2
above,
when
implemented in conjunction
with the proposed physical
improvements
29
Balance of costs and benefits

Cost of Options
68.
DFIDs options are to fund different proportions of TMEAs budget for 2012-16.
TMEASs overall expenditure would respond to different levels of funding. TMEAs budget is
predicated on DFID funding broadly in line with that in the Operational Plan. Most other
donors do not earmark their resources to specific country windows or the regional window, as
DFID does.
69.
TMEAs budget for 2012-16 is presented below.
Table 7: TMEA Kenyas Programme Budget, 2012-2016 ($000s) (see Financial Case)
Calendar Year
2012
2013
2014
2015
2016
Improved
infrastructure
and
institutional capacity at Mombasa
Port71
3,550
18,433
15,685
7,350
1,100
46,118
Better Trade Facilitation
1,000
1,075
180
138
85
2,478
946
420
290
295
225
2,176
product
1,200
150
100
50
50
1,550
Strengthened role of Kenyas PSOs

and CSOs
1,335
900
425
338
200
3,198
Programme Management72
661
302
215
424
258
1,860
Central Overheads
839
2,333
2,472
1,405
187
7,236
Monitoring and Evaluation
133
268
372
181
53
1,007
9,664
23,881
19,739
10,181
2,158
65,623
Improved Kenyan implementation of

the regional integration agenda
Improved
standards
regulation
of
Total
Total
70.
Under Option 1, DFID funding would become a smaller share of a reduced budget.
Under Option 3, funding would be a larger share of an increased budget. The actual changes
to the Kenya programme would depend on how TMEA reallocates resources, as other
sources of funding are fungible to a degree across windows. Indicative discussions are
underway with other donors, and it is likely that the proportionate support from DFID will
reduce as and when other donor funding is agreed.
Benefits of TMEA interventions
71.
An assessment of impact of trade facilitation interventions found that while generally
evidence of impact was low this was due in part to the lack of studies actually assessing
impact and the quality of those undertaken 73. But the existing evidence is of positive impacts
of trade facilitation instruments on reducing trade costs and trade flows.
72.
TMEAs Kenya programme comprises (figures include DFID contributions to
programme management, central overheads, M&E):
Mombasa infrastructure and institutional capacity

Trade facilitation e.g. customs risk management, transport observatory
GOK capacity in regional integration e.g. reforms to implement EAC Protocol
73.
Support to improve standards testing and legal framework

Support to private sector and civil society
The following two sections look at Mombasa port and then other interventions.
Indicative cost-benefit analysis of Mombasa port

74.
With respect to port reform the type of impacts expected and seen in the studies are
summarised below:
Type of Study
on
Impact
Robustness
Positive impact on
shipping costs and trade
costs
High
Study 1
Ex post evaluations
impact of port efficiency
Study 2
Ex post evaluations on
impact of port reform
programmes
Positive impact on port

efficiency
High
Study 3
Ex ante simulation of
increasing port efficiency
Positive impact on trade

flows
Not applicable, ex ante simulation

without verification of main
assumptions
75.
TMEAs technical work with the Mombasa Port Authority to identify priority
interventions has implicitly constituted a cost effectiveness analysis (finding the least cost to
achieve programme objectives). These prioritised activities are presented in the table on
activities, outputs and outcomes above. The brief analysis that follows is an indicative costbenefit analysis. Cost-benefit analyses of ports look at: (i) time savings and reductions in
operating costs74; and (ii) trade induced, the impact on prices and the extent to which these
are due to changes in costs related to port interventions 75.
76.
For Mombasa port, an estimate of the value of incremental benefits of the investment
can be disaggregated in to two parts: firstly, the economic value of time saved on current
traffic through the port; secondly, the producer surplus or profit on induced trade due to the
interventions.
77.
It is important to note that these estimates are highly indicative and depend on a
number of parameters. The parameters shown such as delay times are also central
estimates within wide ranges that depend on a number of factors. However, the analysis still
gives a sense of what amount of change in terms of port efficiency investments need to
achieve to be worthwhile.
78.
The first type of benefit (valuing time saved) depends on: port traffic, time saved due
to interventions, value of time saved. The second (profit on induced trade) depends on:
value of trade generated due to reduced trade costs, and the profit on this created trade.
79.
The table below shows an indicative cost-benefit analysis of the port. The
assumptions are drawn from TMEAs economic appraisal of its work programme. They are
informed by TMEAs own analysis of Kenya Ports Authority data and the CPCS Northern
Corridor study. A TMEA estimate is that port interventions will collectively lead to a 0.8 day
reduction in dwell time. In the base case presented below, half of this value is used.
Notes: Shipments are standardised as Twenty foot container equivalents
80.
Under the base case, the internal rate of return is 49% when only time saving benefits
are included, rising to 61% when profit on induced trade is factored in. Very high economic
rates of return can be expected for such projects because (i) port traffic volumes are very
large and growing with or without increases in port efficiency; and (ii) current port efficiency is
so poor that priority interventions are likely to make some impact on port delay times. It is
important to note that these returns can be achieved independent of other actions.
81.
The most meaningful type of sensitivity analysis is to model the minimum level of
reduction in dwell time necessary to break even at the discount rate (10% 76). Time savings
need to be only 0.1 day for this investment to be justified based only on time savings and not
induced trade.
Benefits of other interventions
82.
Some 3% of TMEAs 2012-16 programme will support customs processes. Two ex
post evaluations of customs processes in other countries found positive impacts on
reductions in customs clearance times, the number of documents used and on trade flows.
83.
7% will be used to support GOKs implementation of Common Market Protocols and
2% on improving regulations of product standards. A review of global evidence on impact of
regional integration on trade, economic growth and poverty reduction suggests that
measures other than reducing tariffs lead to gains from regional integration. So called deep
integration involves measures such as regulatory harmonisation or adopting common
policies and institutions that can increase investment and trade between members.
Empirically the evidence of impact for South-South RTAs and deep integration is thin
although the scope for benefits in East Africa through increased investment and trade in
services is wide.
84.
The other component of expenditure is support to civil society institutions in advocacy
and broadening participation in trade policy making.
Despite the growth in these
programmes in the last decade there have not been evaluations. A study on trade policy
processes by KIPPRA and ODI in 2007 found insufficient coordination between state and
non-state actors and information asymmetry between those involved in trade negotiations
and other stakeholders77. This suggests the need for more advocacy and participation of civil
society.
85.
Gauging the economic benefit of these specific interventions ex ante is not possible.
TMEA have laid the groundwork for looking at programme impact with thorough reviews of
global evidence of the impact of trade facilitation interventions and regional integration.
Choice of Option
86.
The choice of option needs to be made on the basis of strategic considerations
including:
expected effectiveness of TMEA interventions;

absorptive capacity of TMEA;
DFID share of total funding of the TMEA Kenya programme
87.
On expected effectiveness, TMEA interventions are well designed as suggested by
project reviews to date. Interventions address known capacity and infrastructure bottlenecks
that affect large volumes of traffic. The starting point in terms of regional integration and
integration of the EAC with the rest of the world suggests that high returns can be realised by
interventions that improve efficiency of institutions that support regional integration and trade.
Impact assessments will be required to assess this, and are planned.
88.
On absorptive capacity, TMEAs rate of implementation is increasing. The scale of
contracts will increase as TMEA moves into Mombasa. There is a risk of slow contracting,
but also the potential to increase rate of implementation.
89.
The DFID share of total funding is high, but this does not affect negatively the strength
of engagement of other stakeholders, especially other TMEA donors, in the work programme.
90.
The preferred option, Option 2, represents the best option within DFID Kenyas current
resource framework. It represents a risk given the limited evidence on impact, particularly on
poverty. The risk is worth taking, given UK Ministers commitment to increased trade across
Africa. The real benefits that can be derived do not depend on other wider reform or
economic changes taking place in parallel. With reform momentum, the benefits could be
even greater. Option 3 is viable and may be preferable if DFID wishes to achieve greater
impact in this sector and chooses to allocate greater resources to TMEA. But it needs further
design and appraisal.
D. What measures can be used to assess Value for Money for the intervention?
91.
With DFID advice, TMEA is currently refining its approach to assessing and ensuring
value for money from its interventions with support from external consultants (see
Management Case). Implementation processes have been designed to have a value for
money approach at their heart, in particular as a result of:
ensuring wherever possible that contracts are awarded and finance provided on a
competitive basis (see Commercial Case);
using a wide range of sources to establish benchmarks against which the individual
elements of contracts and grants can be assessed and negotiated ; and
ensuring all forms of value that an intervention will deliver are taken into account in
decision-making (including implementation speed).
Economy and Efficiency
92.
The main cost drivers of TMEAs programme in Kenya are the costs of professional
consultants engaged in design, advisory and implementation services (both in Mombasa Port
and in work with government, the private sector and civil society), the costs of information
systems - and the costs of infrastructure work in Mombasa.
93.
TMEA undertakes procurement of consultants in line with DFID requirements and
OJEU regulations and, following DFID practice, undertakes regular procurements on a
framework basis to enable rapid and flexible call down of services as required to meet need.
94.
Output benchmark prices have been developed as the basis for budgeting in TMEA
intervention areas, based on prior experience elsewhere. These will also form the basis for
actual performance to feedback into the budget cycle. Important output prices that have been
applied in the Kenya programme are summarised in Table 8.
Table 8: Benchmark output prices applied in the Kenya programme
Output Area
Integrated Border Management
systems (including hardware, software
and training)
Unit cost
$500,000 per border post
Road rehabilitation and widening in

Mombasa port
$2 million per kilometre

(total $2.6 million)
Replacement rail and improved rail

access in Mombasa Port
$1 million per kilometre

Yard repairs and re-surfacing in Kipevu

container terminal at Mombasa port
$ 300 per square metre

(total $9million)
Repair of quays and stone revetments

in port Section G
$1.5 million per kilometre

Repair of aprons in port Section G
$50 per square metre

(total $1 million)
95.
TMEA report these estimated output unit costs are based on experience both within
East Africa and in other environments (although the source of these estimates has not been
verified in detail). They provide a guide for assessing the efficiency with which actual outputs
are achieved in practice. But TMEA has emphasised that unit prices are very sensitive to the
particular environment in which an investment is made and it is extremely difficult to
standardise for a wide range of variables that include timing; location; project scope; and
project and contract type. The actual output prices TMEA will pay crucially depend upon
detailed design and the quality of the competitive process through which implementation
takes place. Efficiency also depends upon the time period in which outputs are delivered. The
measures in Table 8 do not include efficiency indicators for TMEAs capacity building
programmes with government, the private sector and civil society where outputs are
extremely difficult to quantify.
96.
It is part of TMEAs planned approach to improving its assessment of value for money
to consider how to better capture economy and efficiency metrics in the analysis of its
contracts and funding agreements, in way that comparisons can be effectively drawn
between different parts of its programme and with similar programmes in other environments
Effectiveness
97.
The cost-benefit analysis presented in Section C above assesses effectiveness in
terms of both savings in transport time as a result of TMEA Kenyas interventions and the
consequent increase in export trade. These measures provide, ex ante, a strong justification
for Option 2 (indicating maximum possible benefits in the analysis of the whole Kenya
programme which total $2.2 billion in constant prices through until 2026 - the equivalent of
nearly 7% of Kenyas GDP in 2011. Even reduced to 10% these would represent value.).
98.
It follows that measuring the impact of TMEA Kenyas interventions on transport time
in practice and relating these savings to project expenditure (for example in terms of cost per
unit of time saved) is essential to be able to judge value for money, especially in Mombasa
port. This analysis will also provide a basis for better future investment decisions. TMEA are
currently considering how best to collect information to make this assessment possible,
including the possibility of surveys of those intended to be the primary beneficiaries. (Later
sections deal with measurement and validation related to ultimate beneficiaries.)
99.
There are, however important TMEA interventions where time savings are not the
primary objective and quantification of impact is difficult. This includes in particular TMEAs
projects to strengthen the engagement of the private sector and civil society and to build the
capacity of government in leading the regional integration agenda. TMEA is also reviewing
how best to measure effectiveness in these contexts, although it is not clear there is a model
that has been established from similar interventions in other sectors.
E. Summary Value for Money Statement for the preferred option
100. In summary the proposed programme of additional finance for TMEAs programmes in
Kenya will deliver value for money by:
providing resources for programmes that ex ante analysis shows will have a very high
rate of return through their impact on Kenyas trade competitiveness and exports,
while at the same time addressing problems that reduce the trade competitiveness of
Kenyas neighbours;
focusing in particular on the challenge of improving efficiency in Mombasa port where

potential returns to investment are particularly high;
taking due account of Mombasa ports political economy in the formulation of a
programme and the approach to its implementation;
ensuring investments that provide measurable trade competitiveness benefits directly

(especially from savings in transport time and costs benefits) are adequately
complemented and reinforced by investments in the capacity of government, civil
society, and the private sector which are required to maximise the gains;
monitoring the unit costs of delivering programme outputs to ensure they are
comparable with unit costs in other settings taking into account important contextual
factors;
monitoring results, especially in Mombasa port, in comparison with expectations;
working closely with other development partners.
Commercial Case
Indirect procurement
A. Why is the proposed funding mechanism/form of arrangement the right one for this
intervention, with this development partner?
101. The programme will be delivered through a Contribution Agreement with TMEA (and
indirect procurement). This choice of funding mechanism reflects that:
the programme is too large and complex for DFID to contemplate contracting directly
with programme implementers;
TMEA has been established as a specific vehicle for the implementation of joint donor
support for regional integration in East Africa, working on a range of issues in a coordinated way to maximise impact. It is recognised and supported by the EAC
secretariat and by all the EAC member states. As discussed here and in the Financial
and Management Cases it has established or is establishing the systems and
capacity needed to deliver results in a way that provides accountability and value for
money, and effectively manage risk. It has also established relationships with a range
of partners in government, the private sector and civil society to manage relationships
around the implementation cucle;
direct contracting of an alternative programme manager (or managers) by DFID

(following an OJEU competitive bidding process) would undermine the investment
already made in TMEA and the partnership between governments, donors, the
private sector and regional institutions on which it is based. The creation of a parallel
structure would be unlikely to deliver value for money.
B. Value for money through procurement

102. Programme implementation will take place through a mix of procurement by TMEA
and procurement by partner agencies under the specific terms of TMEA grant agreements.
As discussed in the Financial Case there are currently five grant agreements in TMEAs
Kenya programme with a total value of 2.338 million. Kenya Ports Authority has indicated
they will use TMEAs processes for the procurement that will take place on Mombasa. Most
procurement under TMEAs Kenya programme is therefore expected to be managed directly
by TMEA.
103. Within TMEAs procurement guidelines (see below) there is a requirement for
procurement staff and programme managers to ensure that partners follow the standards set
for direct procurement by TMEA where they undertake procurement with TMEA funding on
their own account. The Financial Case discusses in more detail the way in which TMEA
manages fiduciary risk in the operations of partners including their procurement operations.
The Management Case discusses the content of grant agreement and memorandum of
understanding guidelines and the provisions these make for financial and physical reporting
linked to the release of funds.
104. TMEAs own procurement guidelines are designed to ensure value for money through
detailed provisions that:
follow international practice (drawing where appropriate on World Bank procurement

guidelines and the EUs directive on public procurement), and require the use of an
open competitive bidding process for all large contracts (defined as contracts
expected to exceed $150,000);
set out in detail the elements of open competitions for large contracts running through
requirements - advertising to seek expressions of interest; short listing; issuing of
invitations to tender; bid evaluation; contract negotiation and award; handling of
complaints; and the process whereby bid evaluation is required to identify the most
economically advantageous tender balancing price with other considerations
including experience and track record; and require the involvement of partners in bid
assessment panels while maintaining TMEAs representation at a minimum of 50%;
stipulate a restricted competitive bidding process for awarding medium sized

contracts between $40,000 and $150,000 with detailed obligations covering short
listing, bidding, evaluation and contract award. Although scope is provided in
exceptional circumstances for waiver of competition by the Deputy Chief Executive of
corporate services subject to a fair price declaration by the supplier;
provide more scope for waiving competition below $40,000 subject to an obligation to
secure value for money;
recommend the use of framework contracts where there is a requirement for

consultancy services on a regular basis. No contracts exceeding $500,000 can be
awarded under a framework contracts of this size go to open international
competition.
105. A central procurement directorate within the corporate services division manages all
TMEA procurement.
It takes responsibility for ensuring that partners undertaking
procurement on their own account meet TMEA standards for ensuring value for money. This
directorate has 4 fully qualified members of staff and in addition draws in short term support
from procurement interns when required to deal with peaks in work volume. A separate
tender committee which includes the Deputy Chief Executive Officer in charge of corporate
services, and the Finance Director, has responsibility for reviewing all procurement over
$150,000 to ensure that proper procedures have been followed prior to the award of a
contract.
106. The procurement directorate is able to draw on technical advice from staff within
TMEAs implementation divisions. In the case of Mombasa these resources include a Ports
Manager based in Mombasa alongside a Ports Consultant based in Dar es Salaam (see
Management Case). TMEA is conscious that where procurement contracts are large internal
resources need to be supplemented by specialist procurement support. For this reason
Charles Kendall, a DFID approved procurement agent, have been subcontracted to
undertake some procurement on TMEAs behalf (for example the purchase of testing
equipment for national standards bureaus). TMEA also accesses short term technical
support to advise on procurement of specific items such as information systems.
107. KPMG, as custodian (see Management case), undertook an internal audit of TMEAs
procurement process at the end of 2011. A number of recommendations were made to
address delays that have meant in some cases procurement has not taken place within
agreed internal targets. These recommendations have been acted upon. Maintaining up to
date departmental and country office procurement plans is recognised as a particular priority
that needs careful monitoring.
Infrastructure procurement and Mombasa Port
108. TMEA has already undertaken infrastructure procurement in the construction of One
Stop Border Posts under the (regional) East Africa Transport Infrastructure Programme
(involving the competitive recruitment of consulting design engineers and the subsequent
contracting of civil engineers through international tender). TMEA recognises, however, that
as its infrastructure portfolio expands, there is a need to further build its capacity in this area.
For this reason Adam Smith International has been contracted to provide specialist advice
on:
standard procurement documents for the procurement and management of

consultants on: feasibility studies; provision of legal and financial advice; project
management; civil works; purchase of equipment;
policies and processes to follow in the procurement and management of consultants

delivering infrastructure services, including: advertising prequalification, selection,
negotiation and dispute resolution;
advice on how TMEAs infrastructure procurement policies and procedures are

affected by national procurement rules (whether undertaking procurement directly or
providing resources for partners to procure);
recommendations on the staff and other resources required for TMEA to maximize
value for money and minimise risk associated with its infrastructure procurement.
109. Following the completion of this contract TMEA is preparing a detailed procurement
plan for investments in Mombasa that clearly sets out the methods, processes and resources
that will be deployed to build on the wider framework of procurement policy TMEA already
has in place, to ensure value for money. This plan includes a timetable that can be regularly
reviewed and updated.
Financial Case
A. What are the costs, how are they profiled and how will you ensure accurate
forecasting?
110. Table 9 below shows the estimated costs of TMEAs programme in Kenya between
2012 and 2016. Figures are presented in US dollars, the unit of currency TMEA uses for its
financial accounting. $37.301 million is programmed for Mombasa Port (excluding
management, overheads and evaluation costs).
111. These cost estimates reflect the detailed activities set out in TMEAs Kenya country
strategy for 2012-2016, including its plans in Mombasa Port. The costs of infrastructure
investments in Mombasa Port are based on experience elsewhere and costing built up by
port consultants. The costs of running TMEAs Kenya office (see Management Case) are
separately identified as direct programme management expenditure. In addition TMEAs
Kenya budget makes provision for central TMEA overhead charges (covering the costs of
TMEAs governance arrangements, financial management, human resource management,
procurement etc.) and for monitoring and evaluation - also managed centrally. Overheads
are calculated on the basis of 6% of all other costs and, in total, programme management
and overheads account for less than an estimated 12% of planned expenditure. Provision for
monitoring and evaluation is made on the basis of 2% of other costs. ARD will continue to
monitor these costs across TMEA as a whole.
Table 9: TMEA Kenyas Programme Budget, 2012-2016 ($000s)
Calendar Year
2012
2013
2014
2015
2016
Improved
infrastructure
and
institutional capacity at Mombasa
Port78
3,550
18,433
15,685
7,350
1,100
46,118
Better Trade Facilitation
1,000
1,075
180
138
85
2,478
946
420
290
295
225
2,176
product
1,200
150
100
50
50
1,550
Strengthened role of Kenyas PSOs

and CSOs
1,335
900
425
338
200
3,198
Programme Management79
661
302
215
424
258
1,860
Central Overheads
839
2,333
2,472
1,405
187
7,236
Monitoring and Evaluation
133
268
372
181
53
1,007
9,664
23,881
19,739
10,181
2,158
65,623
Improved Kenyan implementation of

the regional integration agenda
Improved
standards
Total
regulation
of
Total
112.
Table 10 shows DFIDs proposed contribution to regional economic integration in
Kenya by each UK financial year between 2012/13 and 2015/16 based on commitments in
this business case. 27.7million represents the new Regional Economic Integration
commitment recommended in this business case. TMEA already has a commitment through
the PRIME programme to 3.75m, bringing DFIDs overall recommended commitment to the
Kenya Regional Economic Integration programme to 31.45 million.

Table 10: DFIDs contribution to the REI Kenya programme ( 000s)
UK Financial Year
2012/13
2013/14
2014/15
2015/16
Total
Resource
200
1,200
1,300
1,000
3,700
Capital
3,500
9,000
9,000
2,500
24,000
Total
3,700
10,200
10,300
3,500
27,700
113. DFIDs funding direct to TMEA (at 26.7m) will be provided as an unearmarked
contribution to a pooled donor fund, in Kenya, to maximise TMEAs flexibility in managing its
Kenya programme. A further 1m is set aside to provide possible management support, and
support research and evidence on poverty and regional economic integration. Annual
financial statements, annual business plans and quarterly financial and progress reports will
provide a basis for regular updating of financial forecasts. Regular management liaison on
monitoring and forecasting will take place between DFID Kenya staff and TMEA Kenya
financial staff to ensure plans are realistic.
114. As the programme develops further funding proposals may come forward, and funding
may continue over an extended period. Further funding to TMEA or on any wider aspect of
programme will be subject to a separate submission linked to this business case.
B. How will it be funded: capital/programme/admin?
115. The DFID expenditure figures show the break down between resource and capital
expenditure - the latter providing finance in particular for TMEAs investments in Mombasa.
In aggregate the amounts shown reflect those provided for in DFID Kenyas operational plan
(agreed in 2011) and in updated internal financial forecasts that cover the period to 2014/15
(which marks the end of the current resource allocation round). The profile of capital
expenditure, reflects the profile of TMEAs expected expenditure in Mombasa port.
C. How will funds be paid out?
116. Currently DFID Kenya makes annual releases in December ahead of each new TMEA
calendar year business period. A contribution agreement capturing this provision was signed
between DFID and TMEA in May 2010 and runs to December 2013.
117. The substantially larger contribution to TMEAs Kenya programme proposed in this
business case, however, highlights a risk in this arrangement of DFID providing funding
significantly ahead of need. It is proposed instead that with the release of additional funds
payments should be made on a quarterly basis, and this has been agreed with FCPD. As at
present, payments will depend upon a detailed breakdown of the estimated future costs
against which the payment will be applied together with a financial statement of the use of
funds from the previous payment, including interest. These documents will link to TMEA
Kenyas annual business plans, financial reports and reports of progress to the Programme
Investment Committee and to TMEAs annual audited accounts.
118. TMEA will in turn make funds available in accordance with the terms of its grant
agreements, and the arrangements established for procurement under its own contracts.
119. All the resources TMEA releases will be provided as grant funding, including the
resources from which Kenya Ports Authority will benefit. Kenya Ports Authority is a
commercially managed agency with its own capital budget but it is still appropriate for it to
access grant resources from TMEA because of the potential for TMEA funding to accelerate
the implementation of investments that will have significant benefits for all port users and not
just Kenya Ports Authority.
D. What is the assessment of financial risk and fraud?
120. Financial risk and the risk of fraud are judged to be low, but present, because a
culture of political and economic self-interest pervades wider operations in Mombasa subregion and around the port. Risk is expected to be low because:
design development, costing and procurement processes for all interventions are
taking place through TMEA, TMEAs financial management and procurement systems
were designed with support from KPMG in their role as Custodian for TMEA, and
systems have been reviewed by PwC in 2011 and judged to be satisfactory;
KPMG is responsible for day to day oversight of financial management, internal

audit, procurement and fiduciary risk, and this role includes the conduct of full
Fiduciary Risk Assessments for any TMEA public sector partner that requests
financial aid. These assessments follow the standardised methodology used by DFID
(including the use of 8 good practice principles and 15 benchmarks);
KPMG conducts a full Fiduciary Risk Assessment of private sector or civil society
organisations that request grant aid in excess of $1 million. Decisions follow the same
rules established for financial aid. There are currently no cases in TMEAs Kenya
programme of grants in excess of 1 million;
for grant aid of less than 1 million KPMG conducts due diligence ssessments which
follow a standard methodology using interviews with members of the organisation,
documentation review, and sample testing of internal controls to assess fiduciary risk;
Where fiduciary risk is judged to be high funding is not provided until measures to
address weaknesses have been implemented and tested in a follow up assessment.
Where risk is judged to be substantial, funding is linked to mitigation measures;
where due diligence judges risk to be low or moderate funding is still likely to be
linked to the implementation of measures to strengthen financial systems.
KPMG is responsible for carrying out a regular programme of internal audits. Over
the last year this has included internal audits of TMEA cash management and
procurement processes. Implementation of internal audit recommendations is
overseen by the Board of Directors
TMEA NOC and PIC play an essential role, with donor representation, in oversight.
E. How will expenditure be monitored, reported, and accounted for?

121. An annual business plan and budget is prepared by TMEA Kenya and approved by
the Programme Implementation Committee. The Programme Implementation Committee will
in turn receive quarterly and annual reports of progress and expenditure (management
accounts) to provide the basis for monitoring spend against budget and assessing the
reasons for any variance. TMEA is currently finalising a new management information
system that will allow expenditure to be clearly linked to progress against outputs at
programme level.
122. In order to be able to report effectively to the Programme Investment Committee all
TMEAs funding agreements with partners make very clear provision for regular reporting on
operational and financial progress which is linked to the release of funds. Agreements also
make very clear provision for the preparation of annual financial statements and audits.
123. TMEAs accounts are audited annually by Ernst and Young in accordance with
international standards. TMEAs Board of Directors is responsible for ensuring the issues that
are highlighted are addressed under the guidance of the Programme Implementation
Committee.
124. DFIDs overall TMEA programme across East Africa (including regional funding and
funding for other country programmes in addition to Kenya) is overseen by members of a
small regional team. The A1 adviser in this team represents DFID in TMEAs over-arching
Programme Investment Committee (see Management Case) and is responsible for DFID
ARDs overall monitoring of expenditure.
125. In addition DFID Kenyas A1 Senior Private Sector adviser heads a small team
responsible for DFID Kenyas Wealth Creation programmes. The A1 adviser commits about
10% of his time to management of support for REI and TMEA Kenya (and sits on the TMEA
Kenya NOC), with assistance from DFID Kenya programme managers who liaise regularly
on management and monitoring of DFID Kenya related expenditures.
Management Case
A. What are the Management Arrangements for implementing the intervention?

126. Internally, TMEAs Kenya programme will be managed in accordance with TMEAs
constitution. These arrangements will be captured in the contribution agreement under which
DFID finance is channelled. The main points are:
TMEA is a Kenyan incorporated not-for-profit company limited by guarantee with a

formal legal presence in each of the four other EAC partner states;
TMEAs Programme Investment Committee (PIC) is responsible for high-level

supervision of all TMEAs activities. The membership of the PIC consists of
representatives of donor investors (including DFID) together with a number of external
stakeholders, including the Secretary General of the EAC. All programmes are
approved by the PIC, as is the annual budget and business plan. The PIC meets
quarterly;
a Custodian provides TMEAs Board of Directors and in turn oversees all TMEAs
fiduciary operations including financial management, audit, procurement, legal and tax
issues, and human resources. The duties of the Directors are governed by Kenyan law.
All decisions by Directors require a no objection from the PIC. KPMG were appointed
as Custodians in 2009 (initially by DFID) and their contract currently runs until the end
of 2013 when it will be competitively re-tendered;
Oversight Committees operate at national and regional levels to provide advice on

work plans, budgets and programme implementation. These committees also meet
quarterly and are composed of partner implementing institutions, private sector and
civil society representatives, a member of the PIC, and representatives of the investors
providing funding for the programmes covered. The Kenya National Oversight
Committee is chaired by the Permanent Secretary of the Ministry of EAC, and in
addition to the funding partners (DFID and DANIDA) includes representatives from the
Ministry of Trade, the Office of the Prime Minister, the Ministry of Finance, the Kenya
Private Sector Alliance, the Kenya Association of Manufacturers and the Society of
International Development. TMEAs Kenya Country Director acts as the secretariat;
TMEA manages its day to day operations through an organisational structure which
includes both country level and regional operational teams and centralised support for
finance and human resource management, procurement, communications, and
monitoring and evaluation;
the Kenya country programme team consists of 5 staff including the country director. It
draws advice and support from teams implementing regional programmes covering
economic corridors, infrastructure, private sector and civil society, and standards and
non-tariff barriers to trade. The infrastructure team plays a role in supporting the work
of the country team in Mombasa port;
an Memorandum of Understanding with the Government of Kenya provides the

framework for TMEA Kenyas relationship with its implementing partners. Separate
grant agreements (covering finance released to the private sector and civil society) or
Memoranda of Understanding (for support to public sector institutions) set out the
detailed provisions covering the funding of individual interventions;
TMEAs model grant agreement provides for quarterly disbursements subject to

evidenced financial and progress reports. Financial reports must summarise income
and expenditure and explain any variances from the agreed budget. Progress reports
must explain activities and milestones reached and also cover any variations from the
work programme originally agreed. All grant agreements make provision for the
completion of a project completion report.
Management arrangements for Mombasa Port
127. An agreement will be signed with Kenya Ports Authority for work in Mombasa port that
will inter alia capture: detailed programme content; the (joint TMEA/KPA) institutional
arrangements for implementation; TMEAs undertakings on procurement and payments
including the way in which Kenya Ports Authority are involved (for example in agreeing terms
of reference, bid evaluation, and signing off payments); and Kenya Ports Authoritys
undertakings (for example in providing complementary resources, including staff, and in
recognising TMEAs obligations to its other partners in procurement, accounting, and auditing).
128. A joint TMEA-KPA technical committee has already been established which includes
KPA managers, TMEAs Kenya Country Director and staff from TMEAs infrastructure
directorate. KPAs executive committee sits in a separate Steering Committee which TMEA
attend at the level of Chief Executive Officer and Kenya Country Director as observers. As
discussed in the Commercial Case, TMEA manage procurement directly in consultation with
the technical committee.
129. TMEAs newly appointed Ports Manager based in Mombasa is employed full time on
work in the port. He is supported by the Ports Adviser based in Dar es Salaam (50% of his
time), the Infrastructure Director (an estimated 40% of his time going forward) and by the
TMEA Country Director. Additional resources are deployed by TMEAs procurement unit.
130. DFID has proposed, and TMEA has agreed, the establishment of a sub-group of the
National Oversight Committee to allow detailed discussion with partners on progress and
strategic direction, including endorsement of decisions, such as possible changes in priorities,
related to the port. A sub-group of the Tanzania National Oversight Committee has already
been established along these lines for TMEAs interventions in Dar es Salaam port.
131. Regular informal bilateral contacts take place with DFID Kenya staff at various levels.
Among these contacts with TMEA is the participation of TMEA in the newly established (as yet
informal) core donor group on Mombasa, through which discussion of wider reforms and
political economy will also be discussed.
DFIDs management arrangements
132. As discussed in the Financial Case DFIDs own management of its support for the
TMEA Kenya programme will be shared between the small regional team (who have oversight
of DFIDs overall support for TMEA and represent DFID in the Programme Investment
Committee) and DFID Kenyas Wealth Creation team (who liaise with TMEA senior
management on a regular basis, represent DFID in the National Oversight Committee (which
advises on policy on Kenya-specific issues and monitors and scrutinises activity in Kenya) and
have oversight of Kenya support and funding).
133. In addition, given the significance of the project for DFIDs portfolio, the need to manage
UK reputation and wider engagement, and for support to medium-term coalition building for
longer term economic processes at Mombasa, provision has been made for an additional
management resource, in the DFID Kenya Wealth Creation team. A decision on this position
will be taken at a later stage.
B. What are the risks and how these will be managed?
Risk
Probability Impact
Weak
political
and Low
bureaucratic commitment to
regional integration process
and
private
sector
development
High
Mitigating Action
Emphasis on delivery of tangible
benefits for business and
society (e.g. removal of nontariff barriers) demonstrates the
programmes pay-offs.
Programme support to increase
advocacy and research capacity
of Kenyan CSOs and PSOs
strengthens accountability.
TMEA mobilises interests in
other EAC member states to
maintain political pressure for
reform in Kenya.
Weak Kenyan implementation Medium

of
EAC
protocols
and
programmes
High
Programme support to MEAC

increases capacity to implement
and oversee implementation of
EAC commitments.
Programme support to Kenyan
CSOs and PSOs strengthens
accountability
Vested
interest
groups Medium
undermine implementation of
regional integration reforms
and investments especially in
Mombasa port
Medium
TMEA interventions, especially

in Mombasa port, informed by
detailed analysis of drivers of
change and political economy
which is regularly reviewed and
updated
Interventions in Mombasa port
based
on
close
working
relationship with Kenya Ports
Authority and initially target
areas
where
significant
improvements can be secured
without
interests
challenging
vested
Programme support to Kenyan

CSOs and PSOs strengthens
accountability.
TMEA mobilises interests in
other EAC member states to
maintain political pressure on
Kenya.
Regional instability, including Medium

disruption caused by Kenyan
elections in 2013 disrupts
TMEA work programmes.
Medium
Wider DFID conflict prevention

activities reduce risk of regional
conflicts.
DFIDs
election
support programme in Kenya,
alongside assistance from other
development
partners
help
ensure elections are free,
inclusive and largely free of
political violence.
TMEA,
through
close
engagement
with
EAC
Governments, Kenya Ministries,
KPA and civil society and private
sector actors, will lobby to
ensure a smooth transition and
continuing development process
at Mombasa port.
Programme interventions are Low

poorly implemented by TMEA
and implementing partners,
including for example for
reasons
of
lack
of
procurement
capacity
or
procedures
that
delays
implementation.
High
PIC (supported by the Kenya

NOC) effectively fulfills its
responsibility to ensure:
TMEAs track record informs

future ambitions;
business plans realistic and

fully financed;
close monitoring of budgets

and progress against plans
monitoring is focused on
results

Cost delays and overruns Medium
delay the programme or
increase complexity.
Medium
remedial action is instituted

promptly.
DFID ARD and DFID Kenya

teams liaise closely to ensure
that
appropriate
TMEA
resources are allocated to
minimising risk.
C. What conditions apply (for financial aid only)?

N/A.
D. How will progress and results be monitored, measured and evaluated?

134. As highlighted in the Financial Case, TMEA sets aside 2% of programme costs to cover
central expenditure on monitoring and evaluation which is managed by TMEAs Knowledge
and Results Director (currently working as part of Corporate Services). This means that in total
TMEAs operational budgets make explicit provision for $7.710 million of monitoring and
evaluation expenditure over the full period 2010-2016. This includes an allocation of $1.007
million from the Kenya programme between 2012 and 2016. These figures do not include the
time and other resources that are committed to monitoring and evaluation activities at a
decentralised level by individual projects and programme managers.
135. The overall framework for monitoring and evaluation is provided by a comprehensive
strategy80 which integrates monitoring and evaluation throughout the programme management
cycle; and in the TMEA logframe, which will be updated (to include establishing a small
number of missing milestones, and reaching consensus on how to capture a poverty focus at
the impact level) and endorsed by all partners within the first quarter after business case
approval. TMEAs approach follows the principles established by the OECD-Development Aid
Committee. The Donor Committee for Enterprise Development Standard for Measuring
Results in Private Sector Development is being applied. Project and programme level
monitoring and evaluation plans are developed using a participatory approach working closely
with implementing partners.
136.
The objectives of TMEAs approach to monitoring, evaluation and learning are to:
make explicit how and why TMEA is doing what it is doing, and how this is expected to
contribute to long-term outcomes;
ensure TMEA has a clear story about what it would like to see change, and how what
TMEA and partners are doing will contribute to these changes;
provide evidence to explain what happened and estimate TMEAs contribution;
use evaluations to help answer questions on whether the desired outcomes were
achieved and what else happened;
monitor the implementation against plans and expenditure against budgets;
analyse what works and provide relevant and timely information to assist decision
makers adjust in response;
undertake analysis (for example on political economy issues) to improve understanding

of how change happens and use analysis to improve implementation.
137. All TMEA projects have a project monitoring plan which reflects a chain of expected
results (as summarised in programme log-frames). Monitoring plans are agreed between the
relevant programme director and the knowledge and results director, and in all cases cover
activities and outputs. In the case of larger projects such as TMEAs planned programme in
Mombasa port or its programme with Kenyas Bureau of Standards, monitoring plans will also
cover expected outcomes. Reporting against these plans is provided quarterly with a system
of traffic lights to assess expenditure against budget, the achievement of outputs and, if
included in the plan, the achievement of outcomes. This reporting is synthesised and
consolidated for TMEA senior management and the PIC. It provides the basis for strategic
decision including adjustments to individual projects and wider programming.
138. A management information system is in the final stages of development into which
reporting will be entered directly, simplifying the task of analysis as well as significantly
increasing its potential scope. The system is expected to be fully operational in time for
reporting in the first quarter of 2013. Senior management review meetings will subsequently
be better able to consider particular issues and themes as well as more general progress. The
information provided to the PIC will similarly be richer.
139.
TMEAs evaluation plan makes provision for:
Thematic and project specific evaluations covering a sample of TMEAs programme.

The purpose and scope of these is closely associated with need - for example to
understand why similar projects seem to have quite divergent outcomes or why there
are sharp differences between planned and actual performance;
Impact evaluation to help develop a better understanding of the impact of TMEAs

projects and programmes over the long term (intended, unintended, positive and
negative). TMEAs impact evaluation approach is currently being developed with
support from external consultants. The work programme will include both programmatic
and thematic evaluation;
Value for money evaluation to help TMEA better understand both: the value for money
(economy, efficiency and effectiveness) of its activities, projects and programmes funds;
and how well TMEA and its partners have integrated value for money considerations
into implementation. The approach to value for money evaluation is also currently
being developed with support from external consultants.
140. The detail of the evaluation plan is reviewed annually to ensure it is responsive to
changes in TMEAs portfolio and the issues flagged by programme monitoring. The plan
currently makes no provision for the evaluation of specific Kenyan programmes although
Kenya programmes will be covered by thematic evaluations which are anticipated in areas
such as TMEAs support for: improved standards, the removal of non-tariff barriers, and the
strengthening of national EAC ministries. The plan is expected to be revised to include the
evaluation of the Mombasa port programme (perhaps alongside TMEAs programme in Dar es
Salaam port). All evaluations have an external reference group which includes a donor
representative. This group helps to agree the evaluation questions.
141. Externally TMEAs funding partners take in turn to manage an annual programme
review which is organised centrally in Nairobi to cover TMEAs programme in full (i.e. including
Kenya). In 2011 DFID coordinated this exercise on behalf of other PIC members. Denmark
leads the 2012 review (to be completed in December). DFID Kenya will separately conduct a
review of PRIME, including REI/TMEA, into which evidence from the TMEA review will feed
142.
DFIDs Africa Regional Department in London is considering the case for independent
evaluation of TMEA and its programmes. There may be a case for an independent evaluation
that compares TMEAs achievement toward overall goals and contribution to economic growth
and poverty reduction, with its structure and programmes and other models for supporting
regional integration - and draws lessons. There may also be a case for an independent
assessment of the quality of TMEAs evaluation work.
143. To specifically assess impact on the poor, such as analysing distributional impacts to tell
if benefits realised by firms or in sectors is reaching poor households or small enterprises
where the poor reside/work, DFID Kenyas Wealth Creation team is proposing to establish a
separate research programme to address gaps on all our enabling environment programmes
where envisaged spill over effects need testing. We may undertake this research with our
partners.
144. The exact form this research will take is under discussion, but DFID Kenya will develop
terms of reference for the work within 3-4 months of approval of the REI business case. At the
present moment, we anticipate a research exercise in two phases an initial inception phase
during which the research proposals will be finalised (and an inclusion/poverty impact indicator
for log frames agreed), followed by a multi-year research programme with baseline work likely
to begin in 2013.
145.
It is likely that the research will involve several components, such as:
consider specific aspects of: one or two commodities chains, agribusiness or reform
sectors, including the transport sector, to analyse how prices to consumers change and
employment patterns change as a result of specific outputs being delivered;
potentially look at one or more geographic areas, the livelihoods of poor people, and
how they are impacted by change.
146. In terms of methods it is possible that survey work, qualitative work and economic
modelling will be involved. We will draw on the few existing studies that are available in
approaching study design. We have provisionally allocated funding from the budget of our
investment climate programme. We envisage the results of this work being of interest beyond
DFID Kenya. Findings will be communicated to interested audiences.
Logframe
Quest No. of logframe for this intervention: 3848324
The value of merchandise exports has grown by more than 300% in East Africa since 2002 ( (World Bank,
2012d)
2
Around half the global average on a per capita basis.
Nathan Associates, Inc., 2011
IMF, 2012
Huchet-Bourdon, Lipchitz & Rousson 2009), (World Bank 2012), (Acemoglu, Johnson & Robinson 2000),
(Easterly & Levine 2003), (Rodrik, Subramanian & Trebbi 2004
6
(EAC Secretariat 2012)
(EAC Secretariat 2012)
(SID, 2012)
World Bank (2012) Viewpoint note 331: Encouraging Thriving Markets for Development.
10
Srinivasan & Bhagwati 1999, Frankel & Romer 1999), (Rodriguez & Rodrik 2000)
11
(Dollar & Kraay 2001), (OECD 2009), (ODI 2005)
12
(SID, 2012)
13
For example following the signing of the customs union agreement in 2004, Kenya removed custom taxes on
goods from Uganda and Tanzania in 2005 while at the same time allowing the phased removal of tariffs on
Kenyan goods by those countries over a 5 year period.
14
Kenyas GDP is $32 million (World Bank, 2012d)
15
OECD, 2010
16
World Bank, 2012b
17
World Bank 2012b
18
CPCS 2010
19
CPCS 2010
20
21
22
TMEA, 2012c
23
World Bank, 2010
24
The marginalisation grievance has historical roots and has recently taken a secessionist form in the name of
the Mombasa Republican Council (MRC) which claims to be agitating (peacefully so far) for an independent
nation.
25
Minister of Transport and his Permanent Secretary, Chief Executive Officers of Kenya Ports Authority, Kenya
Manufacturers Association and Kenya Airports Authority, Minister of Finance and his Permanent Secretary.
26
(Ocean Shipping Consultants Ltd 2010)
27
World Bank, 2012b, TMEA, 2012, EAC Secretariat, 2011
28
EAC Secretariat, 2011, CPCS, 2011, Nathan Associates, Inc., 2011
29
TMEA 2012c
30
UK Department for Business Innovation and Skills, 2011
31
Saana Consulting 2012
32
Saana Consulting, 2012
33
Saana Consulting 2012
34
http://www.kenyashippers.org/e-portal.html
35
Ibid.
36
This is the increase estimated to be attributable to TMEA over the period 2010-2016. Total exports are
estimated to grow by approximately $3500 million over this period.
37
This is the time saving estimated to be directly attributable to TMEA. TMEA estimate that in total a saving of up
to 5 days in the time taken to clear imported goods from Mombasa port is achievable when TMEA interventions
are complemented by planned additional interventions at the port funded by other development partners and the
Government of Kenya.
38
Review of the Impact of Trade Facilitation Instruments, Version 1-3 (draft) August 2012, IDS/Crown Agents for
TMEA; and Trade Integration in the East African Community, (draft) August 2012, Gonzalez and Cirera, for
TMEA
39
Eastern Africa: A Study of Regional Maize Market and Marketing Costs, World Bank 2009.
40
IBRD 2009 AICD Working Paper 14 Transport Prices and Costs in Africa: A Review of the Main International
Corridors
41
TMEA 2012 Kenya Country Strategy, Mombasa Port Annex
42
(Robinson & Thierfelder 1999)
43
(Srinivasan & Bhagwati 1999), (Sachs & Warner 1995), (Frankel & Romer 1999)
44
(Huchet-Bourdon, Lipchitz & Rousson 2009)
45
(Harrison 1996), (Rodriguez & Rodrik 2000), (Srinivasan & Bhagwati 1999)
46
(Turner, Nguyen & Bird 2008)
47
(OECD 2009)
48
(Gourdon, Maystre & de Melo 2008)
49
(Dollar & Kraay 2001)
50
SSATP 2011
51
(European Commission 2008)
52
IBM comprises the streamlining of parallel processes and technologies enabling different government
agencies to effectively work together on border issues. By implementing IBM strategies at both the domestic and
international levels, countries can reduce internal costs and inefficiencies, improve security, and increase their
ability to facilitate trade and generate revenue at the border (IDB 2010).
53
TMSA, 2011
54
TMSA, 2011
55
IDB 2010
56
IDB 2010
57
WTO 2011
58
World Bank 2012a
59
Aldaz-Carroll 2006
60
(GoU June 2010-July 2011) (GoU 2011/12)
61
DFID 2010
62
BAF 2010, DFID 2011
63
Raballand, et al. 2012
64
Eddington 2006
65
World Bank, 2010
66
WTO 2011
67
Costs are based on spending from 2010-2016.
68
Full time saving related to the construction of a OSBP at Taveta. It is not possible to attribute only to IBM
69
East Africa Good Agricultural Practice standards
70
This figure includes a small amount of expenditure to support public private partnerships in infrastructure
investment outside the port (see Financial Case)
71
Figures under this output include expenditure of $700,000 to support public-private partnerships in wider
infrastructure investment. TMEAs programme budget for Mombasa port is $37.301m.
72
TMEA is concerned that in practice some of the staff costs that it currently allocates to programme
management should be allocated to programme implementation since they reflect expenditure on essential
technical expertise that would otherwise need to be procured through consultancy contracts. An exercise is
currently underway to re-allocate some programme managements costs in this context.
73
Review of the Impact of Trade Facilitation Instruments, IDS, Crown Agents for TMEA, 2012
74
Guide to Cost Benefit Analysis of Investment Projects: Section 3.1.3 Ports, airports and intermodal facilities
p.85
75
On the cost-benefit analysis of port projects Maritime Policy & Management: The flagship journal of
international shipping and port research, S. R. C. Wanhill 1978
76
10% is used across Kenya programmes and is used for TMEAs regional CBA. In Kenya, 10% lies in the
midrange of discount rates used by other institutions (KIPPRA: 6-8%; WB, AfDB: 10-12%)
77
KIPPRA and ODI (2007) Trade Policy-Making Process in Kenya: The Institutional Arrangements and
Interaction of Actors
78
Figures under this output include expenditure of $700,000 to support public-private partnerships in wider
infrastructure investment. TMEAs programme budget for Mombasa port is $37.301m.
79
TMEA is concerned that in practice some of the staff costs that it currently allocates to programme
management should be allocated to programme implementation since they reflect expenditure on essential
technical expertise that would otherwise need to be procured through consultancy contracts. An exercise is
currently underway to re-allocate some programme managements costs in this context.
80
TMEA (2011)

Business Case and Summary 203357

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Business Case and Intervention Summary

Why is UK support required?

What are the expected results?

A reduction of up to 1.5 days to clear imported goods through Mombasa Port.

A reduction of up to 4 days in the time it takes to move a container into/out of Kenya.

Doing Business 2012 report

Ease of Doing Business Rank

Trading Across Borders Rank

Documents to export (number)

Time to export (days)

Cost to export (US$ per container)

Documents to import (number)

Time to import (days)

Cost to import (US$ per container)

Kenya Revenue Authority and its management of the administrative procedures

Plans to improve efficiency, including through privatisation and the mechanism of a

well as corruption) have a vested interest in blocking change.

an improved governance environment partly a consequence of the new constitution;

increased competition from neighbouring ports;

lobbying by the business community on the impact of inefficiency on growth, incomes

pressure from global terminal operators; and

Weaknesses and delays in customs and clearance processes

promote regional interventions to replace separate inefficient national systems (for

Already in its Kenya country programme TMEA has:

developed new information systems that allows customs clearance documentation to

strengthened implementation of EAC regional integration policies through support to

started to support PSOs in advocating for policy change including an advocacy

Regional infrastructure (including border posts)

Other core regional funding

Regional infrastructure (including the border post focused

Other core regional funding

The current approach at a regional, national and local level includes:

maintaining relationships with politicians, officials and Ministers in Kenya (especially in

regular dialogue in Mombasa by TMEA senior management, particularly as the new

collaborate with the other members of the Kenya international community on a

B. Impact and Outcome that we expect to achieve

Up to 4 day reduction in the time it takes to move a container into/out of Kenya

70% of Kenyas EAC common market commitments implemented.

On a proposal to support border crossings, TMEA is already working on the strategic

The option of providing support for regional integration through implementation

This option will concentrate funding on interventions that will:

improve processes for managing border traffic to complement regional investment in

ensure Kenyan policy on standards is consistent with regional agreements, and

improve the governments trade policy capacity to implement EAC commitments,

increase capacity of private sector organisations to help members manage trade

improving yard facilities, including by investment in equipment and making berth

port-wide productivity improvement (through assessment of actions to address

building institutional capacity of port authorities including specific TA and coordination

initiating full technical assistance work on improved customs systems in advance of

procurement and installation of new customs IT systems compatible with international

Under option 2, and 3, TMEA is committed to:

work on closer engagement with the broad stakeholder community in Mombasa to

TMEA is committed to supporting development of a coalition of interest to lever longer

Table 4: Quality of Evidence

Trade and growth

However systematic analysis of the relationship between trade

experienced a sustained reduction in poverty

The Society of International Development (SID) (2010) has

TMEA plans to establish One Stop Border Posts (OSBP)