SGR Project Gains New Lease of Life as Uganda Signs Ksh104 Billion Financing Deal

Introduction

Uganda has just reignited the stalled ambitions of East Africa’s flagship rail initiative. On May 22, 2025, the landlocked country secured an $800 million (Ksh104 billion) financing agreement with the Islamic Development Bank (IsDB) to fund multiple infrastructure projects, chief among them the long-delayed Standard Gauge Railway (SGR) link from Malaba (on the Kenya border) to Kampala, its capital (Reuters, People Daily). This landmark deal, signed during the IsDB’s annual meeting in Algiers by Uganda’s senior finance technocrat Ramathan Ggoobi and the bank’s Vice President Rami Ahmed, promises to finally connect Uganda to Kenya’s SGR network—and onward to the Indian Ocean port of Mombasa—unlocking new trade corridors and breathing fresh life into one of the region’s most strategic infrastructure dreams (Reuters).

Kenya’s SGR: From Domestic Line to Regional Artery

Kenya inaugurated its domestic SGR in 2017 at a reported cost of Sh327 billion (approximately US $3 billion), stretching — in its first phase — from Mombasa to Nairobi, and later extended to Naivasha in the Rift Valley. The railway was designed as a catalyst for economic transformation, slashing freight transit times from 18 hours by road to just 4 hours by rail, and reducing logistics costs for exporters and importers alike. Yet without a cross-border extension, cargo volumes have fallen short of projections, leaving Kenya to grapple with debt-servicing burdens and underutilized capacity.

For Uganda, which contributes only 15 percent of its trade volume via rail compared to 85 percent by road, the Malaba–Kampala SGR line represents the missing link to competitively priced, high-capacity rail transport. By tying Kampala directly into the regional SGR network, Uganda aims to cut transit times to Mombasa to under 12 hours and reduce freight rates by up to 30 percent, spurring growth in exports of coffee, tea, fish, and manufactured goods (AGBI).

The Islamic Development Bank Deal: Scope and Signatories

The $800 million, three-year financing package with IsDB encompasses not only the SGR but also health, transport, and energy projects across Uganda. The railway component is earmarked for the 273 km Eastern Line (Malaba–Kampala), budgeted at US $2.3 billion in earlier government estimates, with the IsDB funds covering roughly 35 percent of that segment’s cost. Beyond the finance ministry’s Ramathan Ggoobi, IsDB’s Vice President Rami Ahmed underscored the bank’s commitment to “inclusivity and cross-border integration through resilient infrastructure,” framing the deal as a blueprint for regional cooperation (Reuters).

Historical Stops and Starts: The Long Journey to Malaba

Uganda’s SGR saga stretches back to the 2018 East African Railway Master Plan, which envisioned a 1,724 km network unlocking connections to Rwanda, the Democratic Republic of the Congo, and South Sudan (Wikipedia). Initial funding negotiations with China’s Exim Bank faltered over Kenya’s unresolved Naivasha–Kisumu–Malaba section, prompting Kampala in January 2023 to cancel its contract with China Harbour Engineering Company (CHEC) for “failure to execute” and pivot to Turkey’s Yapı Merkezi Construction Group for the Malaba–Kampala segment at €2.7 billion. With work slated to last 48 months from EPC signing in October 2024, Uganda had anticipated private and multilateral funding to fill the gap—but delays in finalizing those finances left construction yet to begin.

Technical Blueprint: Malaba–Kampala Section

The Malaba–Kampala SGR will traverse border towns such as Tororo and Jinja before terminating in the Ugandan capital. Built to 1,435 mm standard gauge, the line is designed for 120 km/h passenger and 80 km/h freight services. It includes six stations, two major marshaling yards, and ancillary road and utilities upgrades. The alignment cuts across diverse terrain (riverine plains to undulating hills), requiring 12 major bridges and 200 smaller structures. Rail experts project that, once operational, the line could carry 3 million tonnes of freight and 2 million passengers annually, yielding a benefit–cost ratio of 1.4:1 over 30 years—well above threshold levels for economically viable rail investments in emerging markets (Constructionreview).

Regional Economic Impact: Trade, Logistics, and Beyond

Unlocking Mombasa as Uganda’s default port portends widespread economic ripple effects. According to the East African Community Secretariat, Uganda’s annual containerized export volumes via Mombasa have climbed to 450,000 TEUs, with potential growth to 700,000 TEUs by 2030 if rail connectivity improves. This surge would drive demand for inland container depots in Naivasha and Nairobi, where industries such as warehousing, cold-chain logistics, and value-added processing stand to flourish. Kenyan logistics firms anticipate 20 percent revenue growth and 15 percent new job creation in trucking and customs clearing services alone if the SGR link is completed.

Cross-border integration also bolsters intra-East African trade. A 2024 International Monetary Fund (IMF) study estimates that full SGR connectivity could lift Uganda’s real GDP by 1.5 percent annually through reduced transport costs and enhanced market access—translating to US $400 million in incremental GDP gains per year. Moreover, the rail corridor can expedite emergency relief to landlocked neighbors during crises, strengthen tourism circuits linking Nairobi, Kampala, and Kigali, and support mineral export pipelines from the DRC’s eastern provinces.

Financing Landscape: From Exim Bank to IsDB and Beyond

Prior to the IsDB deal, Uganda had pursued a patchwork funding strategy:

• Exim Bank of China: Initially earmarked to underwrite the Malaba–Kampala EPC contract, but its loan approval stalled over Kenya’s incomplete Naivasha–Kisumu–Malaba section.
  
• Standard Chartered Plc: Identified in 2024 as a lead arranger for European-sourced funds covering US $2 billion of Uganda’s total $12.8 billion SGR bill, though final terms remained pending as of Q1 2025.
  
• Islamic Development Bank: Now underwriting $800 million across rail, health, and energy, marking the first multilateral backing for the Uganda SGR since the CHEC contract cancellation.
  

Despite this progress, experts caution that closing the full funding gap will require innovative financing—potentially involving public–private partnerships, railroad securitization, and green bonds tied to rail electrification and carbon-reduction benchmarks.

Political Dynamics and Cross-Border Cooperation

East African Community (EAC) heads of state reaffirmed the importance of the SGR in January 2025, issuing a communique urging “expedited conclusion” of the Kenya and Uganda segments under a joint funding framework, while engaging European and Middle Eastern financiers for the remaining $6 billion needed to link Naivasha–Kisumu–Malaba and Toro­­­ro–Gulu lines. Regional transport ministers have proposed harmonized customs and rail regulations, streamlined border clearances (targeting 30 minutes per train), and shared rolling-stock leases to ensure interoperability—all prerequisites for the line to function as a seamless transnational artery.

Challenges Ahead: Execution Risks and Debt Sustainability

Despite the fanfare, significant hurdles remain. Uganda’s public debt climbed to 45 percent of GDP in FY 2024, pushing the government to prioritize concessional loans over commercial borrowings to maintain debt-service ratios below 10 percent of revenue. The Malaba–Kampala SGR, at €2.7 billion, represents over 15 percent of Uganda’s current external debt, raising concerns among fiscal watchdogs about crowding out socio­-economic spending unless debt is extended and concessional. Additionally, land-acquisition disputes in Tororo and Jinja districts have delayed preparatory works, while local civil-society groups demand robust environmental and social safeguards given the corridor’s proximity to protected wetlands and fertile agricultural land.

Operationally, coordinating timelines with Kenya’s Naivasha–Kisumu–Malaba section—still unfunded—poses a classic “chicken-and-egg” conundrum: Uganda needs Kenya’s line to secure final bank tranches, but Kenya is waiting for Uganda’s commitment to unlock its own extensions. Overcoming this impasse will require high-level diplomacy, potentially facilitated by the African Union’s African Continental Free Trade Area (AfCFTA) Secretariat and the EAC Secretariat in Arusha.

Wider Infrastructure Context: Beyond Rail

The IsDB package also channels funds into health (regional cancer centers, general hospital upgrades) and energy (mini-hydro and solar microgrids), creating synergies with the SGR: improved healthcare logistics via rail transport of medical supplies, and electrified rail services powered by renewables—an approach aligned with Uganda’s Vision 2040 and its National Electrification Strategy (Constructionreview). This multi-sectoral financing model illustrates a shift toward “bundled” infrastructure investments that maximize socio-economic returns while enhancing debt sustainability.

Local Economic Opportunities: Jobs, Skills, and SMEs

With the IsDB financing secured, preparation works can ramp up swiftly. Yapı Merkezi and its subcontractors are poised to recruit 5,000 local workers for civil works, track laying, and station construction—an estimated 30 percent increase over earlier projections. Uganda’s Ministry of Works and Transport is negotiating with the Uganda Railways Corporation and technical universities to institute apprenticeship and certification programs, ensuring skills transfer and long-term maintenance capacity. Small and medium-sized enterprises (SMEs) in steel fabrication, logistics, and catering stand to benefit from contracts worth US $150 million over four years, stimulating regional industrial clusters in Tororo, Jinja, and Kampala.

Environmental and Social Safeguards

Given the corridor’s passage through ecologically sensitive areas — notably the Mabira Forest reserve and wetlands near Jinja — the government has committed to full compliance with IsDB’s social and environmental impact assessment (SEIA) standards. Plans include wildlife crossings, community resettlement with compensation, and reforestation of 500 hectares to offset construction footprint. These measures aim to balance economic growth with biodiversity conservation, enhancing the project’s eligibility for green financing instruments down the line.

Outlook: From Promise to Reality

With the Ksh104 billion infusion from the Islamic Development Bank, Uganda’s SGR extension from Malaba to Kampala has finally cleared its key funding hurdle, setting the stage for groundbreaking in H2 2025. However, the project’s success hinges on synchronized progress with Kenya’s Naivasha–Kisumu–Malaba line—and on rigorous execution of environmental, social, and fiscal safeguards.

If all goes to plan, the completed SGR corridor will not only catalyze trade and industrialization across East Africa but also serve as a template for pan-African rail integration under the African Union’s PIDA (Programme for Infrastructure Development in Africa). By transforming Mombasa into the logistics hub for the Great Lakes region, the project could reconfigure economic geographies, enhance regional value chains, and accelerate the continent’s march toward the African Continental Free Trade Area’s vision of a $3 trillion single market.

As Uganda and its partners move from signings in Algiers to steel in the ground, stakeholders from policymakers to local entrepreneurs will be watching closely. The SGR’s new lease of life offers hope that, at last, East Africa’s rail renaissance is on track.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

26th May, 2025