State to reserve tenders of up to Sh20b for local firms in proposed law

Casual workers offering services at an affordable housing project site in Mukuru, Nairobi. [Denish Ochieng, Standard]

The government could reserve tenders of up to Sh20 billion for local firms in a move likely to see more Kenyan companies bid for mega infrastructure projects and stoke stiff competition with multinational firms.

This is according to the proposed Public Procurement and Asset Disposal (Amendment) Bill, 2022 that seeks to increase the value of local tenders reserved for Kenyan firms by up to forty times.

"The principal object of this Bill is to amend the Public Procurement and Asset Disposal Act, 2015 to enhance the amount for tenders where Kenya citizens are given exclusive preference from the sum of five hundred million shillings to twenty billion shillings," states the memorandum of the Bill proposed by Embakasi Central Member of Parliament Mejjadonk Benjamin Gathiru.

The PPAD Act, 2015 applies exclusive preferences to Kenyan citizens in projects where the funding is 100 per cent from the national or county governments or a Kenyan body, and in tenders that are below Sh500 million.

Firms that manufacture, assemble, mine or grow their goods in Kenya, as well as those with a larger percentage of local shareholding also receive additional preferences on a sliding scale.

If passed, the amendments could enable Kenyan firms to get a sizeable chunk of multi-billion projects proposed under the Kenya Kwanza administration across various sectors in the short to medium term.

In the 2023-24 financial year, for instance, the National Treasury has increased the allocation to the State Department for Infrastructure by six per cent to Sh151 billion, with the government hinting at a heavy reliance on public-private partnerships (PPPs) to raise this funding.

"The PPP Directorate envisages mobilising Sh50 billion within the 2023-24 financial year based on the current projects in the PPP timeline," said National Treasury Cabinet Secretary Njuguna Ngung'u in the Budget Policy Statement released last month.

Some of the projects include construction of several major dams, scaling up of the affordable housing project and construction of major road projects including development of the Mombasa-Nairobi-Malaba corridor.

Lucrative projects

The ICT and health sectors are also set to receive tens of billions of shillings in infrastructure investment in the medium term in line with the government's ambitious agenda in the two sectors.

The amendment could also see a reversal in fortunes for local contractors that have in past years lost lucrative construction projects to foreign firms.

Analysts say single-sourcing giant infrastructure projects such as the Standard Gauge Railway leads to capital flight as contractors import the bulk of raw materials, equipment and personnel with little value accruing to local industries.

However, the government has in the past raised concern that local contractors lack the financial and technical capacity to carry out big infrastructure projects.

For instance, construction work on the Hazina Trade Tower owned by the National Social Security Fund begun in 1997 but stalled several times, in part due to wrangling between local and foreign contractors.

Recently the building opened officially to tenants, five years behind schedule and scaled down to 25 floors from 39 that had earlier been planned.