This archive report was first published on 12 December 2019.
Kenya's Infrastructure Spending Burden ¶
Thursday, December 12, 2019
Kenya's infrastructure spending has become a pressing concern, with huge expenditure outlays associated with capital-intensive projects. World Bank Vice-President for Infrastructure Makhtar Diop visited Kenya at the end of November to assess the progress made in executing projects funded by the bank.
During his visit, Mr Diop held meetings with Cabinet Secretaries James Macharia (Transport), Ukur Yattani (Treasury), and Joseph Mucheru (ICT) as well as the African Union High Representative for Infrastructure, Raila Odinga.
Mr Diop emphasized the need for a delicate balance between productive investment and debt management. He noted that a country's long-term growth is linked to its level of infrastructural development, and Africa faces a huge investment gap.
One solution to ease the burden of infrastructure spending is to bring in private capital through public-private partnerships. However, there is a pervasive concern among institutional investors that there are no sufficient well-structured products to allow private capital to be deployed in infrastructure projects.
Mr Diop suggested that the World Bank is engaging in partial risk guarantee as well as other guarantees made available through the Multilateral Investment Guarantee Agency. The International Finance Corporation is also working on developing vehicles to allow co-financing with institutional investors.
Kenya is well-positioned to attract long-term investment, according to Mr Diop. The country enjoys a strong private sector, a vibrant and diverse economy, openness to the global economy, and strong human capital.
However, there are still countries that have a lot to do in placing themselves on the risk profile map. Mr Diop suggested that securing sovereign credit ratings and having a clear legal framework are critical for attracting long-term investment.
Regions such as East Africa should consider harmonization of public-private partnership legal frameworks to facilitate investment.
Mr Diop also emphasized the importance of data and digital infrastructure. He noted that the digital economy in Africa is vibrant and demands much less physical investment to scale.
However, he cautioned that taxation of the digital economy needs to be approached with care. Already, there is a challenge where home-grown data-driven start-ups reach the $1 million financing need and get stuck, leading to the sale of their product and loss of intellectual property.
