Promote private sector funding for infrastructure

This vision needs to be realised in a sustainable way. PHOTO | FOTOSEARCH   

By EDWARD MUNGAI

More by this Author

Summary

• This vision needs to be realised in a sustainable way such that it is inclusive and factors in all the three pillars— economic, social and political.
• More benefits will accrue from the improvement and expansion of the road network, more power generation plants with focus on green energy sources, building of transmissions lines and dams among others. 
• The government must set guidelines on how the quality of service delivery on infrastructure by the private sector will be measured.

Kenya’s vision is to become a newly industrialising, middle-income country providing a high quality life to all its citizens by the year 2030.

This vision needs to be realised in a sustainable way such that it is inclusive and factors in all the three pillars— economic, social and political.

The economic pillar requires enablers like infrastructure investments. These include water, energy, transport, rail roads, housing, airports, and ports.

For Kenya to achieve the targeted growth of 10 per cent Gross Domestic Product on an annual basis, infrastructure development needs to be in place.

Such infrastructure should not diminish the social, economic and environmental benefits but maintain or improve human equity, diversity and the functionality of natural systems.
The annual infrastructure requirement for Kenya for both new infrastructure and maintenance is approximated at $30 billion per year compared to Kenya’s annual budget of $26 billion.

This means that if the entire country budget were to be allocated to investments in infrastructure, the country will have a deficit of approximately $4 billion.

The recurrent budget for Kenya is approximately 68 per cent of the $26 billion budget and the amount allocated for infrastructure development in 2017/2018 is much lower than that required, thereby calling for innovative financing.

To gain the economic benefits of the infrastructure investment, the government must come up with means and ways of raising the funds required for investment.

There is no doubt that the benefits of investment in infrastructure will make Kenya and its citizens much better.

The mandate of the Kenya Government is to provide better livelihoods for its citizens and delivery of the infrastructure services will help in the achievement of this goal.

The standard gauge railway project promised to reduce the cost of doing business as well as travel time and costs for passengers to and from the coastal city of Mombasa.

More benefits will accrue from the improvement and expansion of the road network, more power generation plants with focus on green energy sources, building of transmissions lines and dams among others. 

Most of the financing for infrastructure projects in Kenya has primarily been achieved though debt financing. This has resulted in doubling of Kenya’s total public debt in the last five years.

The country’s debt currently stands at around $ 40 billion which is over 50 per cent of the country’s gross domestic product (GDP).

Clearly, debt financing for infrastructure by government is no longer an option and hence the need for an out-of-the-box financing mechanism. One obvious option is private sector investment in infrastructure projects.

Private sector will need to build and operate the infrastructure and probably transfer the same to the government after an agreed time period.

The projects must present an opportunity for the private sector in the form of return on investment. 

A couple of things however need to be in place before private sector can consider infrastructure investment; the Government of Kenya must move away from being the monopoly in  infrastructure projects.

It should be government policy that private sector takes first priority in financing infrastructure.

Currently, the Government has the monopoly and therefore the role of the private sector is minimal and secondary.

The Government must put in place regulations and policies that will enable the transition to private sector owned infrastructure. 

It will also need to protect private capital that is put in infrastructure. By protecting the investment, the investors will have confidence and the assurance that nothing will go wrong on their investment and hence the risk profile of the financing will be lower, translating to lower cost of money with a direct benefit to “Wanjiku “  as the cost of putting up the infrastructure becomes cheaper.

Finally, the government must set guidelines on how the quality of service delivery on infrastructure by the private sector will be measured.

This will ensure high standard of infrastructure service delivery in the country.