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World Bank extends Sh3.4b to strengthen PPPs

By - John Oyuke | November 17th 2012

By John Oyuke

The World Bank has approved a Sh3.4 billion ($40m) credit line to support the country’s promising public-private partnership projects.

The new Infrastructure Finance Public-Private Partnership Project will increase private participation in infrastructure market across sectors to support national economic growth and employment creation.

Johannes Zutt, the bank’s Country Director for Kenya said Kenya faces a significant infrastructure financing deficit, estimated at US$2.1 billion annually and required a well-developed PPP to bridge the financing gap.

The finance deficit, he said, imposes a serious constraint to growth and doing business in the country.

 “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,” said Zutt in a statement.

PPP refers to arrangements between the public and private sectors whereby part of the services or works that fall under the responsibilities of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure  or  services.

According to the Africa Infrastructure Country Diagnostic Report 2010, Kenya spends about $1.6 billion (Sh136 billion) a year on infrastructure, but requires a sustained expenditure of $4 billion (Sh340 billion) a year. This translates to about 20 per cent of its Gross Domestic Product (GDP), over the next decade, says the report jointly published by the World Bank and the African Development Bank in partnership with other development agencies.

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According to the international lender, the public-Private-Partnership project will support Kenya to improve its enabling environment and generate bankable projects in transport, energy and other sectors that are critical to transforming the country from low to middle income status. “Accelerating infrastructure development supports the Government’s Vision 2030 and the Bank’s Country Partnership Strategy, besides enhancing Kenya’s regional competitiveness and creating jobs,” read in part the bank’s statement. 

The new funding 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.

Task Team Leader of the project, Yira Mascaró, noted that Kenya has a large and diversified capital market, with promising prospects of becoming a sustainable source of financing for infrastructure project.

 “But it requires structural changes and an enabling legislation to develop a long-term debt market for financing infrastructure and other PPP projects,” she said.

According to Mascaró, the challenge is to strengthen government capacity to prepare and procure viable projects.

She further observed that there is need for provision of the legal, regulatory and fiscal environment that gives private investment the required confidence to take longer-term debt and equity exposure in infrastructure investment.

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