The Standard Gauge Railway (SGR), Kenya’s flagship rail infrastructure project, has reported a significant decline in passenger numbers and revenue according to the latest report by the Kenya National Bureau of Statistics (KNBS). The Leading Economic Indicators report, released on November 15, 2024, highlighted that passenger volumes on the SGR fell by 105,782 in September, with revenue dipping by Sh. 144 million compared to the previous month.

Passenger Trends

In August, the SGR serviced 281,683 passengers, but by September, the figure had dropped sharply to 175,901 passengers. This decline directly impacted revenue, which fell from Sh. 440.6 million in August to Sh. 296.4 million in September, marking one of the most significant monthly revenue reductions this year.

Cumulatively, the total passenger numbers between January and September 2024 decreased by 171,803 compared to the same period in 2023, underlining a trend of reduced usage. This drop comes despite the SGR being celebrated as a faster and more reliable alternative to the Meter Gauge Railway (MGR), particularly for long-distance travel between Mombasa and Nairobi.

Monthly Performance Highlights

July 2024 emerged as the best-performing month for the SGR, driven by increased demand during the holiday season and travel for various national events. January also saw a strong performance, largely due to back-to-work and back-to-school travel, when many commuters favored the SGR for its reliability, convenience, and affordability.

On the other hand, February, April, May, and September recorded the lowest passenger volumes, a performance that has had a cascading effect on the railway’s financials. In 2024, April, July, and August were notable months for revenue, generating Sh. 385.3 million, Sh. 319.1 million, and Sh. 440.6 million, respectively.

Cargo Transport Performance

The SGR’s cargo transport operations have also faced mixed results. The volume of cargo transported dropped from 582,000 metric tons in August to 512,500 metric tons in September. Despite the reduced cargo volume, revenue from this segment recorded a slight increase to Sh. 1.2 billion, demonstrating the sustained importance of freight transport as a key revenue driver for the railway service.

Cargo remains the backbone of SGR’s operations, and industry experts have often emphasized its role in subsidizing passenger services. Freight clients, including importers and exporters using the port of Mombasa, have continued to rely on the SGR for its efficiency and reduced transit times, despite increasing competition from road transport.

Revenue Growth Despite Challenges

Interestingly, the SGR’s overall revenue increased by Sh. 770 million in the January-September period of 2024 compared to the same period in 2023, despite the drop in passenger numbers. This growth is attributed to a ticket price hike implemented earlier in the year, which partially offset the revenue losses stemming from reduced passenger volumes.

The government raised ticket prices to address rising operational costs, a decision that faced significant public backlash at the time. However, this move has proven instrumental in ensuring revenue growth amidst declining ridership.

Contributing Factors to Decline

A variety of factors have contributed to the decline in passenger numbers:

1. Economic Constraints: Kenya’s economic situation in 2024 has been characterized by high inflation and a rising cost of living, making SGR travel less accessible to low-income households.
2. Increased Competition: Road transport operators, particularly buses and matatus, have intensified their competition by offering lower fares and more flexible schedules.
3. Service Interruptions: Occasional delays and service disruptions on the SGR have caused dissatisfaction among passengers, leading some to explore alternative modes of transport.
4. Seasonal Fluctuations: Certain months, such as February and May, traditionally experience lower demand due to fewer public holidays and events.

Strategic Adjustments and Future Outlook

To address the challenges, the Kenya Railways Corporation has announced plans to revamp its services by:

• Enhancing Schedules: Increasing the frequency of train services during peak travel seasons to accommodate higher demand.
• Promoting Tourism: Collaborating with the Kenya Tourism Board to market the SGR as an integral part of Kenya’s travel experience, particularly for domestic and international tourists visiting Mombasa and other coastal destinations.
• Cargo Operations Expansion: Introducing additional freight routes and enhancing partnerships with businesses to maximize cargo revenue.

Broader Economic Implications

The SGR’s performance serves as a bellwether for Kenya’s broader economic health. Its success is closely tied to the activities at the port of Mombasa, a critical economic hub for the country. A slowdown in cargo volumes could signal challenges in international trade, while declining passenger numbers may reflect reduced consumer spending power.

Moreover, the government’s heavy investment in the SGR, funded largely by loans from China, places significant pressure on the railway to generate sufficient revenue to cover its operating costs and debt obligations. The recent trends in passenger and cargo performance underscore the need for sustainable strategies to optimize the railway’s operations.

Public Sentiment and Long-Term Viability

Public sentiment about the SGR remains divided. While many commuters appreciate the railway’s safety and speed, others have criticized the ticket price hikes and occasional inefficiencies. There have also been calls for the government to expand the SGR network, particularly to regions like Kisumu and Malaba, to boost its utility and reach.

In the long term, the SGR’s viability will depend on its ability to balance operational costs with revenue generation, while addressing public concerns. As the railway grapples with fluctuating passenger numbers and evolving economic dynamics, its strategic adjustments will play a pivotal role in shaping its future trajectory.

Conclusion

The SGR’s revenue drop of Sh. 144 million in September highlights the challenges facing one of Kenya’s most ambitious infrastructure projects. With an eye on sustainability and growth, the Kenya Railways Corporation must navigate the complex interplay of economic, operational, and consumer factors to ensure the railway remains a cornerstone of Kenya’s transport system.

Related Developments

Kenya Airways CEO Allan Kilavuka was recently appointed as the new chairperson of the Africa Airlines Association (AFRAA), a move expected to bolster Kenya’s position as a regional transport hub. Meanwhile, NCBA continues to report robust growth in the financial sector, reflecting broader economic trends.

As Kenya’s transport and logistics sector evolves, the SGR will remain a key player, adapting to the demands of a dynamic economy while striving to meet the expectations of its diverse stakeholders.

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Phooto source: Google

By: Montel Kamau

Serrari Financial Analyst

20th November, 2024