THE UNITED REPUBLIC OF TANZANIA

Economic Significance of Port DevelopmentBy: D.B. Mukasa, SUMATRA

iPAD EAST AFRICA11TH – 13TH AUGUST 2009

DAR ES SALAAM, TANZANIA

PAPER OUTLINE

1. Introduction2. Objectives of the Paper3. An Overview of Economic Role of

Ports3.1. Economic Penalties of Poor Port System3.2. Policy and Regulatory Aspects in encouraging development of ports and maritime transport sub-sector

4. CONCLUSION

1. INTRODUCTION

• Production in a modern economy are propelled by transport sector

• Transport sector considered as blood veins of production processes:– Ports and maritime is an integral part.– Rail, Road, pipeline

… Introduction …

• Ports and maritime particularly important in international trade:– Ports and maritime in Africa is responsible for

90% intern. trade by volume of cargo

– key link of international trade in inspiring economic development of the economy

2. OBJECTIVES OF THE PAPER

• The main objective of the paper is to unveil the significance of port and maritime transport to the economy of the nation.

• Uses Dar Port empirical facts– Economic Penalties for not developing ports to

requisite levels

• Justifies efforts to develop Ports & Maritime

3. AN OVERVIEW OF ECONOMIC ROLE OF PORTS

• International Trade grows at double the rate of growth of production (UNCTAD)

3.9%8.5%2006

2%4.4%2000 - 2005

Growth -Production

Growth-International Trade

Year

… Overview of Economic Role of Ports …

• Producers are motivated by the extent of the market

• Transportation extends markets beyond vicinities.

• Successful economies emphasize on development of transport

3.1. Economic Penalties of Inefficient Port System

1. General economic penalties:a) Difficulty to reach potential markets –

discourage productionb) Spoilage of goods due to late arrival to

markets

c) Inflated prices of imports:• higher transport charges,• logistical inefficiencies,• high price of risks.

… Economic Penalties of Inefficient Port System …

2. Empirical economic penalties due to inefficient port system

• Using data and information at the Port of Dar es salaam

• Table 1: the list of penalties

Table 1: Economic Penalties to Nations using an Inef ficient Port - Empirical facts at theport of Dar Es Salaam

N/ATanzania & Transit SMEsSuffocation of SMEs11

N/ATanzania economyAdministration of disputes due to delays, damages and other losses

10

Insurers Tanzania economyHigher insurance premium9

N/ATanzania importersDamages/Loss due to multiple handling

8

N/ATanzania importersDeterioration of quality of produces7

N/ATanzania industries Disruption of Industrial Production6

Kenya & other Economies

Tanzania EconomyCargo diversion to Mombasa & other ports

5

Port and ICDsTanzania &Transit importers

Storage Charges4

S/Lines (Foreign)

Tanzania & Transit importers

Demurrage Charges3

S/Lines (Foreign)

Tanzania & Transit importers

Vessel Delay Surcharges (VDS)2

N/ATanzania & Transit Countries’ industries

Retardation of Industrial Production and trade of the nation

1

Gaining PartyLosing PartyDescription of the Factor of Economic PenaltyS/n

… Economic Penalties of Inefficient Port System …

• Impacts of penalties:– Negative Balance of Payment A/C, e.g. VDS

and Demurrage Charges,– Inflation;

– Economic shrinkage.

Table 2: Quantified Penalties Due to Inefficiency of a Port System – Empirical facts at the Port of Dar Es Salaam for 2007 and 2008

297,306,113165,127,553132,178,560Total Costs to Consignees due to Port

inefficiency

7,851,8407,211,440640,400Haulage Expense for External space

8,131,1734,673,0133,458,160Removal Charges - Port Operators

115,731,24061,297,24054,434,000Storage charges - Port Operators &

ICDs (USD)

71,481,06037,860,06033,621,000Demurrage Charges - S/Lines (USD)

32,235,74016,225,74016,010,000VDS: Charge Transit Economies

61,875,06037,860,06024,015,000VDS: Charge Tanzanian Economy

--54,085,80040,025,000VDS to S/Lines (USD)

--300250Average VDS rate (USD)

--180,286160,100TEUs imported[1]

Total20082007Description of Factor

[1] 40% of imported TEUs in 2007 were for transit while in 2008 transit TEUs accounted for 30%

… Economic Penalties of Inefficient Port System …

• In 2007 & 2008, Tanzania economy paid out USD 108,549,702– Container demurrage and

– VDS to foreign shipping lines

• Negatively affecting the B/P Account• Note the financial figures impacting on

inflationary pressure:– Storage, removal, haulage charges, etc.

… Economic Penalties of Inefficient Port System …

• Take economic penalties vide B/P Account alone: USD108m/=

• USD 300m/= deployed to construct a new container terminal in Mombasa:– envisaged annual throughput capacity of 1.2m

TEUs– 4.8 times the capacity of Dar Container

terminal

• Penalty suffered vide port inefficiency-enormous.

… Economic Penalties of Inefficient Port System …

• Port efficiency linked to:– quality of hinterland transport– smooth documentation process, (TRA,TISCAN, C&F,

etc)– skills/professionalism by clearing and forwarding

practitioners and others,– efficient shipping agents, on the other side

• All these require due attention

• Inefficiency factors can find explanations from “Capacity-Demand Mismatch”

3.2. Policy and Regulatory Aspects in encouraging

development of ports and maritime transport

• Due to the significance of ports and maritime– Governments must seriously and carefully be

engaged in port development – Government policies are among vital enabling

factors for promotion of investments in port projects

… port policies and regulation …

• Ports and maritime transport Policies:– Sufficient autonomy to TPA to invest in port projects:

• Capacity-Demand ratio • Concessioning to ensure competition• Decisions to ensure economy

– TPA should be encouraged to adopt PPP: • Invite private capital in ports & maritime transport• Capture modern management skills & systems• Avoid adhoc advices as those occasionally given by SUMATRA

– Dry-dock project– Berth construction

• Adhoc operatinalization of ICDs

… port policies and regulation …

– Separate Port Ownership from port operations• Government through TPA as land lord only• Private sector to operate under competition

– Performance standards of ports– Performance standards of related maritime

service:• to clean-up inefficient sections in the system

– C&F– Shipping Agency

… port policies and regulation …

• Issues of common interest for ports and maritime performance:– Training, professional and skills development

must be pursued– Private sector may not be interested– non-profit oriented party should take

charge/lead– Issues of safety and security

• Private sector may not undertake• Policies to ensure sustainability• money burner yet inevitable

4. CONCLUSION

• Port and maritime transport stand to raise efficiency level of other sectors

• Imminent to have an integrated plan– To reckon with ports & maritime role for best

performance of other sectors– Government & agencies develop supportive

port policies: vital means of economic success