Monday, 10 September 2012

Infrastructure: Kenya confounds friend and foe alike

Thika Superhighway at Globe
 Cinema Roundabout Nairobi
A COMBINATION OF clever financial models, a deliberate shift to the East, political resolve, and economic turn -around has boosted the rate of success of infrastructure projects in Kenya. Some projects were initially deemed white elephants and others that sounded like pipe dreams. However, the uptake that has turned them into reality, has confounded friend and foe alike.

Consistent economic growth has contributed to, and driven the growth momentum in the country as growth puts more money in the pockets, creating more tax-payers. This has enabled Kenya to finance 93 per cent of its budget thus improving service delivery especially in the public sector. It has also had investors eyeing east Africa sit up.

The government also mooted infrastructure bonds that were used to borrow long-term from the public to supplement taxes. The money was used to finance Infrastructure development including roads, water, irrigation systems. An estimated Kshs 100billion (US$1.2 billion) have been mobilized in this way. Infrastructure bonds ring fence the funds to specific projects unlike the consolidated account which can be switched elsewhere if need be.  This is because infrastructure has been identified as the greatest handicap to economic progress.

 Lamu Port: the First three berths will be funded by Govt.
As a result of ring fencing, Kenya now has re-build some 8000Km of road which had fallen into neglect. She has also expanded the road network by an extra 6000KM in the last decade or so. Now, Kenya boasts of 14,000Km of bitumen roads and still counting.  Of course, 14,000KM out of 69,000Km of road network is a tiny figure. However, its spread ensures that nearly the entire country is connected by reliable roads.

Aside from roads, air transport also witnessed rapid expansion with expansion of Airports in Kisumu, Isiolo and Nairobi. Nairobi’s Jomo Kenyatta International Airport was expanded to serve 6 million passengers.   

Ol Karia geothermal power Plant
In the energy sector, the country expects to have increased its power generating capacity to 3000MW by 2016. Much of the power will be generated from clean and renewable sources such as geothermal and wind power. In fact Kenya is the leader in Africa in terms of exploiting these two sources of energy. Kenya has the potential to develop 10,000MW of geothermal power and GDC, the state Corporation created to spearhead the development of geothermal power wells plans to have 5,500MW of these operational by 2020.
 In mega projects such as the Lamu-Transport Corridor and Konza Techno city, a combination of all financing models including PPP, public funding and external borrowing will be employed. This combination has increased the probability of success for the projects to viable.All these projects fall under Vision 2030, Kenya’s Long term development blue print, whose goal is to turn the country into an industrialized Middle income country by 2030. Just few years ago, the vision sounded like a dream. It is now beginning to look real.

 In Konza much of the developments will be PPP where private sector investors develop and operate project for a period of time, says 25 years, and the returns to the government.  Given the high rates of return for the projects some are as high as 20 per cent, these projects are popular with investors. For instance an estimated 200 investors are said to be eyeing Konza Techno city even before the first foundation stone has been laid.

Such credible developers as Egypt’s Smart Villages and the Korea Business Centre are eyeing contracts to develop segments of the city.  Already, a Swedish government firm has bagged a contract to develop the science park and market the project among investors

An Artist's Impression of Ndogo Kundu by-pass
On the second transport corridor, Lapsset, the three resort cities and 29 berths at the Lamu port will be developed on a PPP basis.  Although the Kenyan government is expected to invest an estimated six per cent of her GDP on this project, there are signs that this may not come to pass as both China and Japan are eyeing the corridor. Both are flexing their financial muscle in Kenya-a rivalry that can only benefit Kenya.

Already Toyota Tsusho, the investment arm of the Japanese automaker, Toyota Motor Corporation has bid for the construction of the US$3 billion Lamu-Juba Oil pipeline.

A Chinese firm, Anhui Construction Company, has won the contract for  the US$680 million green field terminal at JKIA that will increase capacity to 20 million Passengers by 2015 should be signed by the end of this month.  The green field terminal will also increase aircraft parking bays to 100 from the current 39. The terminal will be developed on a DBOT basis. Another Chinese Construction Company, Shanghai Corporation for Foreign Economic & Technological Cooperation (SFECO) is eyeing construction of roads and other social infrastructure on Konza Techno city.



This aggressive entry into east Africa - particularly Kenya- by China has the Japanese sit up and act. They have already provided Kshs29 billion (US$342 million) for the construction of the Ndogo Kundu by- pass which will ease transport from the Mombasa port on the Northern transport corridor. Ndogo Kundu, just like the Thika Superhighway, has been on the drawing board for decades. Thika highway , funded largely by AfDB and theKenya government will be completed next month.

No comments:

Post a Comment