Kenya: Enabling Private-Sector Participation in Infrastructure and Social Services

Achieving the Sustainable Development Goals to end extreme poverty by 2030 will require about $4.5 trillion annually, far more than multilateral development banks or donors can provide by themselves. To face this challenge, the World Bank Group adopted the MFD approach, which entails working with governments to crowd in the private sector while optimizing the use of scarce public resources. This approach is guided by the Hamburg Principles adopted by the G20 in 2017 and builds on the substantial experience across the institution.

Kenya is developing programs to foster private sector participation in infrastructure investments to help address the funding gap in the sector. The World Bank Group has provided $90 million to kick-start Kenya’s public-private partnership (PPP) programs. This has resulted in a new PPP law, stronger government capacity to manage PPPs, and a solid pipeline of projects in roads, health, and water and sanitation that will advance Kenya’s social and economic goals.

Photo: Ninara/Flickr (CC-by-2.0)

Development Challenge
Kenya faces a significant infrastructure financing deficit estimated at $2.1 billion annually, which constrains growth and development. Sustained expenditures of almost $4 billion per year will be required to meet the country’s infrastructure needs. With public debt standing at 57 percent of GDP, this deficit cannot be met by public resources. The country needs to mobilize the private sector and local currency to finance infrastructure needs. The World Bank Group estimates that increasing infrastructure financing could improve Kenya’s per capita growth rate by three percentage points.

The MFD Approach
Building on successful experiences in its energy sector, the government is committed to mobilizing private investment in infrastructure with PPPs representing one avenue for doing so. The World Bank Group is providing a comprehensive approach that will lead to a pipeline of bankable projects that do not overtly add to fiscal commitments and contingent liabilities. The support also builds the capacity of local institutional investors to invest in infrastructure through capital market vehicles. Additional measures, such as risk guarantees, will also be supported to encourage investor participation.

Setting Up the Regulatory and Institutional Framework
A World Bank $40 million IDA loan in 2012 helped establish a PPP law and build government capacity to manage PPPs. Kenya now has a PPP unit and committee that manages projects in line with regulations and assesses their fiscal risks and contingent liabilities. They set up local PPP practices at the county level, and an associated capacity-building program has trained more than 200 people. The loan also helped create a robust multi-sector pipeline of PPPs that could be financed by the private sector and enable economic growth and employment creation. A second loan of $50 million in 2017 is supporting the development of local PPPs and a project facilitation fund to finance viability gaps. This will make projects more attractive to private investors and act as a liquidity reserve for contingent liabilities.

Culled from www.worldbank.org