AfDB boss on why lender is pumping billions into Kenya economy

The cash-strapped government is set to receive a huge financial boost from the African Development Bank (AfDB) in a loan deal that will cushion the battered economy against external shocks.

The Abidjan-based bank has also lined up multi-billion-shilling investments in the energy, water, and transport sectors.

Financial Standard spoke to AfDB Director-General for East Africa Nnenna Lily Nwabufo on why the bank is keen to support Kenya. Here are excerpts from the interview.

AfDB is part of financial institutions that plan to fund the construction of the Sh180 billion upgrade of the Nairobi-Nakuru highway. What is the status of the project?

Yes, we plan to fund it with other financiers...This was a project we had approved under the previous government. Normally the nature of private sector projects is that you approve the projects in principle. The actual negotiation starts after the project is approved.

The new government has come, and they need time to understand the project. And it is normal for a new government that was not part of the planning to have questions, to ask the financiers, to ask the project sponsors.

That engagement is going on, and we continue to engage with the government on that. Definitely, for a country like Kenya where the fiscal space may be constrained, Public-Private Partnerships (PPPs) should be the way to go, so we don't envisage any pushback.

But even if there is pushback, it is our role to explain to the government as we understand and of course, there are concessions to be discussed and agreed upon and finalised. We are at that level of engagement and consultation.

So you are still keen on funding the project?

The project has been approved. If we were not keen on funding it, we would not have started at all. So the question about being keen has been superseded by events. This is a project that attracted so many investors into the project, so you can see it was not just the bank that thought that this project was important. Other key financiers think it's a very important project, so we are very much keen.

You have in recent years stepped up scrutiny into the projects you fund and even debarred several companies. So far what is the impact of that, and how many companies have you debarred in Kenya?

I don't think it's a question of us stepping up scrutiny of the projects we fund in Kenya. We scrutinise every project we fund because the last thing we want is publicity about any fraudulent practices in our projects. We have a responsibility.

The bank set up an investigation department, and its role is to investigate whether real, imagined or perceived as long as there has been a report. The idea is that we want to make sure that every funding we give to the government is used transparently.

There are no fraudulent practices whether by contractors who declare what they don't have as what they have or even collusion whether it's by government staff or even our own staff. We just want to make sure that the government gets value for money and that the bid is competitive. You don't want someone to win because they cheated. And it will continue.

What sort of budgetary support can the Kenya government expect from you this year?

We are looking at budgetary support of between $90 million (Sh12.4 billion) and $100 million (Sh13.8 billion) for the government this year. We are working on it, and we hope that it will be approved. The last one we gave to the government was in the last budget, which is expiring on June 30. We are looking at the budget that starts from July 1, and the team is currently looking at it.

Please provide a brief update on the projects you are funding and those that you intend to fund in Kenya this year.

We have existing projects. We have the Thwake water dam project, though most of the dam is almost done. Now we are having a conversation with the government on how just building the dam is not enough.

We have to do the irrigation part, there is an energy part, and there is a water part to supply people are the area. So we are engaging with the government, but what we have done so far is to prepare the studies that are required to implement the other phases so we are looking forward to engaging the government to see if maybe next year we go back to the board to be able to fund the real phase, which is where the water gets utilised.

We are also funding the Kenol-Sagana Road. Last year, we also got approval for the project to construct the road that leads to the South Sudan side. We've been involved a lot in last-mile connectivity.

We are also looking at opportunities for another phase of the last-mile connectivity to help the government scale up whatever is left in energy. Agriculture as well is an area that we are keen to support not just Kenya but other governments in Africa. We are also involved in a project at the Kenyatta National Hospital project kidney centre.

When do you expect Kenya to draw down the recently announced EUR63 million (Sh9.3 billion) emergency food production facility and can you offer additional insights into how the facility will work?

Very soon. We've been able to sign the agreements. The government has met the key conditions precedent to donors. We expect that the disbursement is going to come next week.

Does AfDB provide funding to bolster falling foreign exchange reserves, and would you expect Kenya to get such in the near term?

We sometimes work with governments on some financial instruments that they can use to access funding to support their borrowing exposures from the capital markets.

Do you consider sovereign debt default a possibility for Kenya, and what remedies do you propose to tackle debt distress at a time revenue collection targets are being missed amid looming huge debt obligations, and what is the outlook of the AfDB on Kenya's maturing debt obligations including the June 2024 Eurobond? Also, what role is the AfDB willing to play to help Kenya manage the liability at a time global capital markets have dried up?

In today's world, it's not just Kenya, but in the developed world there is also a lot of talk about debt distress. The risk is there for any country. What governments need to do is to have prudent management. I don't think President William Ruto and his team would want anything like a default. It would be very catastrophic both financially and politically, and I know they are doing all that is within their power to circumvent that. Of course, in recent times there was an issue in the local market, which was slightly oversubscribed, so it still shows while the international market of investors may think that Kenya is risky, there is still an appetite for government bonds in the local market.

There was the news of Kenya bond pricing dropping in some cases by as much as 5.5 per cent, so there is something positive underlying. Of course, they've just had very successful IMF (International Monetary Fund) programmes.

The IMF is coming in this year, the World Bank is coming in, and we are throwing in our own estimated between $90 and $100 million. This also gives the market a boost and confidence. We do not expect that the government will default. We are also having some kind of conversation and providing them with options that they could explore with the support of the AfDB to make sure that they can raise the famous $2 billion (Sh276 billion) that everyone is talking about.

I also know the government is not sleeping. I know they are meeting with various international banks to look at other options. I believe that there are so many financial institutions talking to them and willing to work with them. I am very confident there is not going to be a default in Kenya.