Leveraging PPPs to address Kenya's infrastructure crisis

Ship-to-shore gantry cranes being offloaded at the Port of Lamu on April 13, 2024. [File, Standard] President William Ruto's infrastructure agenda is a cornerstone of his administration's economic development strategy, aiming to enhance Kenya's infrastructure landscape to promote sustainable growth. The President's ambitious development blueprint is being tested by a growing nation's public debt, the withdrawal of Finance Bill 2024 and the Supreme Court stay on Court of Appeal's decision declaring the Finance Act, 2023 unconstitutional, limiting the government's capacity to fund critical infrastructure projects. Over the past decade, Kenya has funded most of its big infrastructure projects through loans, primarily from external sources like the government of China, International Monetary Fund (IMF) and other development partners leading to an unsustainable debt load. As of June, 2024, Kenya's public debt was estimated at over Sh10.6 trillion, which is approximately 65 per cent of its GDP. Kenya is spending over 60 per cent of its total revenue on debt repayment, leaving little room for financing new infrastructure projects or maintaining existing ones. The country's growing debt burden, coupled with reduced revenue due to global economic pressures, limits the government's ability to continue borrowing at the same rate. Numerous large-scale infrastructure projects in Kenya have been delayed or stalled due to a lack of adequate funding. The Lamu Port-South Sudan-Ethiopia Transport Corridor, one of Kenya's most ambitious projects, has stalled due to funding challenges. Projects like the Turkana Wind Power Project faced delays due to funding issues and challenges in securing transmission infrastructure, leaving the project incomplete for years. Funding shortages have limited the government's ability to build and equip new healthcare facilities. As a result, many Kenyans in rural and underserved urban areas lack access to essential healthcare services. Lack of funds for large infrastructural projects in Kenya is a significant challenge, with far-reaching consequences for economic development, job creation, and social well-being. This has necessitated an urgent need for innovative ways to finance development. In recent years, different regimes have deployed both the engineering, procurement and construction (EPC) and the public-private partnership (PPP) models to fund and implement the country's large-scale projects. For instance, the Standard Gauge Railway was built under an EPC contract and largely financed through Chinese loans, while the Nairobi Expressway offers a glimpse into the potential of the PPP model. Given Kenya's limited fiscal space and the urgent need for infrastructure development, PPPs offer a more sustainable path forward compared to the EPC model. While EPC projects may still have a role to play particularly for smaller, short-term developments where the government seeks direct control, the PPP model provides a more holistic solution for Kenya's infrastructure needs. PPPs offer a structured way for the government to collaborate with the private sector in financing, building, and operating infrastructure projects. Unlike the EPC model, PPPs allow the private sector to assume significant financial, technical, and operational risks while the government focuses on regulatory oversight. This approach reduces the immediate financial burden on the state, as private investors provide the capital needed to get the projects off the ground. By leveraging private sector capital, expertise, and innovation, the government can advance critical projects without exacerbating the debt crisis. Moreover, the risk-sharing and long-term efficiency inherent in PPPs make them particularly well-suited for large-scale projects that require sustained operational excellence. Moreover, PPPs do not just ease fiscal pressure, they also bring in innovation and efficiency. Private companies, driven by the need for profitability and long-term viability, tend to deliver projects on time, within budget, and with higher operational standards. They have a vested interest in ensuring that the infrastructure is maintained and operated efficiently to maximise returns over the project's lifespan. - The writer is a supply chain management expert

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