Local capital markets key to project financing

NEMA Deputy director in-charge of Planning and Research Dr. Charles Lange talks with a woman found in possession of plastic bags in Kikima market on Friday when they conducted crackdown in the market in Mbooni, Makueni County. [Stephen Nzioka/Standard]

The local capital markets could play a critical role in bridging infrastructure financing gaps.

Kenya has an estimated Sh400 billion financing gap annually that is needed to put up various infrastructure projects and with budgetary allocations unable to meet this need, many of them have to wait in line until such a time when funds are available.

Credit rating agency Moody’s said that in addition to Public-Private Partnerships model of financing, the country’s capital markets could be tapped to fund the projects.

“Kenya has reasonably well-developed pensions and insurance industries, with assets of around $10 billion (Sh1 trillion) and $6 billion (Sh600 billion), respectively,” said the rating agency in a new report.

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“An increased allocation to infrastructure - away from dominant cash and government securities - will support the sector’s local currency financing needs.”

Moody’s said the recently launched framework to guide the issuance of green bonds will come in handy, particularly in financing energy projects.

“Efforts to develop green bonds in the country will also be supportive of private financing of infrastructure. In February, the Capital Markets Authority launched the legal framework for green bond issuance and we expect infrastructure projects and companies will be a source of future issuance,” said the agency.

Kenya is yet to report significant success in Public-Private Partnership initiative, with all the projects identified for development under the framework still at initial stages. Among the challenges include procurement delays and failure by Government to get buy-in from Kenyans, especially when it comes to setting up road tolls.

“Challenges for the sector include delays in procurement and specification of the PPP arrangements, and the ability and willingness of users to pay the tolls,” said Moody’s.

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KenyaPublic-Private PartnershipsProject financing