Citadel moves into East Africa, buys into railway
Published: 31 March, 2010
TRANSPORT
Cairo-based private equity firm Citadel Capital has announced plans to deploy $200-$400m into East Africa as it looks to expand beyond its existing business in North Africa and Sudan. The group has made its first major investment in the region with the purchase of a 49 percent stake in Sheltham Railways Company, the largest single shareholder in Rift Valley Railways.
RVR holds a 25-year concession to operate the Mombasa-Kampala line, a colonial era undertaking once known as the “Lunatic Line” due to the difficulties experienced in its construction. Freight volumes have declined due to a combination of deteriorating infrastructure and damage done during the post-election violence in Kenya in 2008. Rail currently captures less than 10 percent of East Africa’s transport market, according to Citadel.
Karim Sadek, the firm’s managing director, says that Citadel would need to invest between $150m and $200m to get the railway’s capacity up to 5m tonnes per year – equivalent to 1970s levels. Across the continent – with a few exceptions – rail networks have suffered from neglect.
As the Africa Infrastructure Country Diagnostic report on the continent’s infrastructure says, railway concessions, relatively popular since the end of the 1990s, have been largely unsuccessful. “The business cases for these rail investments often appear weak, however, suggesting that the companies that seek these concessions focus on the financial benefits that can be extracted from managing large investment plans (financed for the most part by governments) rather than concentrating on business cash flows,” the report said.
This is a view that Mr Sadek subscribes to. “The main problem [with most of the concessions] is that they have been sub-optimally financed,” he says. Rift Valley Railways’ operators were looking to create value by getting their hands on the concession and running the railway on a few million dollars per year. “In today’s world, in order to create value you have to put money in. I think this is why we bring to the table a different formula,” he says.
