Is diaspora bond a silver bullet to modernise JKIA?

International departures terminal at the Jomo Kenyatta International Airport, Nairobi, on December 5, 2024. [Wilberforce Okwiri, Standard] 

The government has long recognised the need to modernise Jomo Kenyatta International Airport (JKIA), Kenya’s primary gateway, which is crucial for its tourism, trade, and aviation sectors. However, past efforts to attract investment have been marred by controversy.

The deal with the Adani Group, which would have seen the Indian conglomerate take over the management of JKIA, was cancelled following public outcry, political opposition, and legal challenges, amid concerns of corruption. The controversial deal also led to a strike among airport workers in September, with many fearing potential job losses.

In his state-of-the-nation address in November, President William Ruto cancelled two major agreements involving Indian billionaire Gautam Adani, after the tycoon was indicted for fraud by US prosecutors.

The Adani Group was set to invest Sh230 billion in JKIA in exchange for a 30-year lease to manage the airport, alongside a Sh96.7 billion deal with the Ministry of Energy to construct power lines for the Kenya Electricity Transmission Company (Ketraco).

Under the airport proposal, upgrades would include a new runway and an improved passenger terminal at JKIA. Following the cancellation, Ruto stated that the government would seek alternative partners for both the airport and energy projects.

One innovative approach the government is considering raising funds is tapping into the financial resources of the Kenyan diaspora.

“If we package an infrastructure diaspora bond properly, well backed, the bond can raise not only the Sh300 billion required; initial figures show that if we do it well, we can raise more than Sh500 billion. That means the diaspora can build that new airport,” Prime Cabinet Secretary Musalia Mudavadi said, marking Diaspora Day.

However, the Kenya Kwanza administration faces significant challenges, including misinformation, political distrust, and transparency concerns, which could lead to resistance from both domestic and diaspora investors.

During Ruto’s recent courtesy call to retired President Uhuru Kenyatta at his home in Gatundu, Kiambu County, on December 9, 2024, Uhuru emphasised on specific areas that he felt were crucial in stabilising the country.

“Top among these issues are transparency and accountability,” Uhuru said in a statement released after the meeting.

For the diaspora bond to succeed, the government must rebuild trust through transparent governance, demonstrate its commitment to long-term projects, and offer attractive, secure investment terms. 

Kenya’s Vision 2030, launched by President Mwai Kibaki on June 10, 2008, aimed to position the country as Africa’s aviation hub, with significant investments in the construction and modernisation of aviation facilities. The vision targeted 45 million passengers to pass through Kenya’s airports annually by 2030 — almost five years away.

According to the 2024 Economic Survey, the number of passengers passing through Kenyan airports increased from 10.2 million in 2022 to 12.2 million in 2023, a 19.2 per cent increase.

International passengers rose from 4.9 million in 2022 to 6.6 million in 2023, a surge attributed to heightened demand for air travel, especially due to major events like the Africa Climate Summit in September 2023.

Remittances from Kenyans abroad remain a crucial source of foreign exchange, totalling more than $4 billion annually. A well-structured bond could appeal to this group, enabling them to contribute directly to the country’s infrastructure development.

Issuing a diaspora bond could help the government reduce its reliance on foreign loans and mitigate the risks associated with increasing national debt. It could also offer a more direct route to the capital needed for modernisation.

Moreover, targeting the diaspora with a dedicated bond could strengthen the connection between Kenyans abroad and their home country. This would foster broader civic engagement and potentially lead to greater participation in national development beyond remittances, including involvement in governance and policy discussions.

Despite the potential appeal of the diaspora bond, issues of trust and credibility remain significant hurdles.

Many Kenyans view the government’s promises of transparency and fair dealings with skepticism, making it difficult for both the domestic population and diaspora investors to fully trust the execution of such a bond. 

David Monda, a professor of Political Science at the City University of New York’s Guttman Community College, observes: “No matter how well-structured the programme is, the trust deficit among the diaspora will likely lead to poor subscription rates. If the government decides to entice investors with high interest rates, it risks undermining Mudavadi’s pitch to engage the diaspora.”

Prof Monda further explains that offering high interest rates could exacerbate inflationary pressures, increase Kenya’s budget deficit, and potentially create tensions with international financial institutions.

One Kenyan living in Germany remarked: “The diaspora bond is a great idea. But who can trust the Kenya Kwanza government with money? The idea is good, but not with the Kenya Kwanza government.” 

Past scandals and mismanagement of public funds have undermined successive government’s credibility and made potential investors wary of trusting their money to such projects.

Inflation and currency depreciation also pose significant risks that could deter diaspora investment. With Kenya’s credit rating and investment climate in flux, potential investors may find safer or more lucrative opportunities abroad.

The Kenyan shilling has faced significant depreciation against major currencies in recent years, and any further depreciation could impact bond returns, making it less attractive.

However, it is worth noting that the shilling has remained stable since the beginning of 2024, bolstered by strong dollar inflows from tea exports and remittances.

For the diaspora bond to succeed, the government must demonstrate a clear commitment to transparency, governance, and accountability. This would require strong safeguards, such as independent oversight, detailed reporting mechanisms, and clear legal frameworks to reassure investors that their contributions will be managed transparently, effectively, and responsibly.

Additionally, the government must provide a stable policy environment to minimise concerns about potential shifts in priorities or misuse of funds.

While the diaspora bond could be a viable short- to medium-term solution, it requires careful structuring to make it attractive.