Grand projects boon to capital markets

The CMA acting CEO Paul Muthaura at a past function: The capital markets have another chance through the PPP projects for a rebirth. FILE 

By Robert Bunyi

In Summary

• Regulator should work with bankers to channel funds.

The government policy of allocating at least 30 per cent of all public sector contracts to the youth; and the recent publication of 47 infrastructure projects earmarked for construction through public private partnerships are two key interventions that could inject the much needed impetus to growth.

The fact that these policies are designed to be long-term guarantees longevity of their stimulating impact.

The 47 infrastructure projects earmarked for PPP development represents truly gigantic projects with a funding requirement of up to Sh2.6 trillion ($30 billion) over the next 10 years.

We have over the past 20 years expended great effort to deepen capital markets in Kenya, the basic foundation is now in place and it is time to test the engine to determine how effective it is.

Some of the projects earmarked include dams, irrigation, power generation, ports, marinas, structured parking facilities, hostels and hotels.

The opportunities offered are easy to miss due to their sheer scale and complexity. However, local legal, accounting, tax, investment banking advisory companies will be well placed to guide the willing entrepreneur in putting together acceptable PPP structures to execute these projects.

This is where the local capital markets will simply have to take a giant leap. Honest, the diversity of investment options is particularly poor in Kenya given the relatively small size of our equity market, a moribund corporate bond market and a non-existent secondary market for commercial real estate.

This is despite the ever increasing flow of funds into formal pooled collective investment vehicles leading to a peculiar situation of available funds unable to reach potential investment opportunities.

These PPP projects now offer an avenue through which the local capital market can enjoy a rebirth of sorts. To achieve this, the Capital Markets Authority probably has to take a proactive role in urging investment banks to put on their thinking caps to come up with vehicles that will see the required funds flow to the 47 projects.

More importantly, a few set of savvy entrepreneurial types will have to take on the reins and lead various consortia in bidding for the opportunities. Progress on this front could radically transform project funding in Kenya.

The directive that at least 30 per cent of all public sector contracts should be awarded to youth, disabled and women groups is clear in providing a specific list of procurement items that are reserved for these groups and another list of items that are accorded preferential procurement awards to these groups.

The government has provided for a specific requirement that all public entities should go further to support these groups to secure financing from private lenders.

One would expect that this will also require that the groups formally organise themselves as registered corporate entities and to operate a business. This corporate formation process and the deepening of a corporate culture is a huge step in advancing commercial knowhow.

Two things that would advance this process immensely would be the adoption of public procurement procedures among the private sector for a single procurement custom in Kenya.

The efficiency benefits would be immense. The second improvement would be formally training these nascent, and even long-established entities to gain basic commercial principles.