Private Investors to Raise Stake in Financing Kenya’s Infrastructure
WASHINGTON, November 15, 2012: The Government of Kenya is seeking to extend and deepen its partnership with the private sector to raise more private investment and expertise to accelerate infrastructure capital formation.
The new initiative, through the recently approved Public-Private Partnership (PPP) Policy, will increase private participation in Kenya’s infrastructure market across sectors to support national economic growth and employment creation.
“Kenya faces a significant infrastructure financing deficit estimated at US$2.1 billion annually, and this imposes a serious constraint to growth and doing business in Kenya,” says Johannes Zutt, World Bank Country Director for Kenya. “Our analysis shows that Kenya’s per capita growth rate can be increased by three percentage points if infrastructure financing is increased to the average of a middle income country.”
Kenya spends about US$1.6 billion a year on infrastructure but requires a sustained expenditure of US$4 billion a year, or about 20 percent of its Gross Domestic Product (GDP), over the next decade, according to the Africa Infrastructure Country Diagnostic Report 2010 produced by the World Bank in collaboration with the African Development Bank and other development agencies.
The PPP program is being supported by a US$40 million Infrastructure Finance Public-Private Partnership Project, which was approved by the World Bank today.
The project will support Kenya to improve its enabling environment and generate bankable public-private partnership projects in transport, energy and other sectors that are critical to the transformation of the country from low to middle income status. Accelerating infrastructure development supports the government’s Vision 2030 and the Bank’s Country Partnership Strategy for Kenya of enhancing Kenya’s regional competitiveness and creating jobs.
The project will focus on financing the transaction preparation, institutional support and regulatory reforms necessary to develop a bankable project pipeline that the government can take to market for private sector financing.
“Kenya has a large and diversified capital market with promising prospects of becoming a sustainable source of financing for infrastructure project,” says Yira Mascaró, Task Team Leader of the project. “But it requires structural changes and an enabling legislation to develop a long term debt market for financing infrastructure and other PPP projects.”
The challenge is to strengthen government capacity to prepare and procure viable projects, provide the legal, regulatory and fiscal environment that gives private investment the confidence to take longer term debt and equity exposure in infrastructure investment.
The government and the Bank have identified pipeline projects including three that are ready for financing under this structure once a PPP framework is in place. The projects, described as “first-mover” highest priority for IFPPP support, are in transport, energy, technology and trade.
The PPP project is financed by the Bank’s International Development Association (IDA)* under its standard terms, which include a term of 40 years with a grace period of 10 years.
The World Bank’s International Development Association (IDA), established in 1960, helps the world’s poorest countries by providing loans (called “credits”) and grants for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives. IDA is one of the largest sources of assistance for the world’s 81 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change for 2.5 billion people living on less than $2 a day. Since 1960, IDA has supported development work in 108 countries. Annual commitments have increased steadily and averaged about $15 billion over the last three years, with about 50 percent of commitments going to Africa.
Source: The World Bank