MAXIMIZING FINANCE FOR DEVELOPMENT STORIES KENYA Enabling Private-Sector Participation in Infrastructure and Social Services Kenya is developing programs to foster private sector participation in infrastructure investments to help address the funding gap in the Highlights of World sector. The World Bank Group has provided $90 million to kick-start Bank Group Support Kenya’s public-private partnership (PPP) programs. This has resulted IDA provided a $40 million loan in in a new PPP law, stronger government capacity to manage PPPs, and 2012 to establish a PPP law and insti- a solid pipeline of projects in roads, health, and water and sanitation tutional framework, followed by an that will advance Kenya’s social and economic goals. additional $50 million in 2017 to sup- port local PPPs. An IDA guarantee is in Development Challenge preparation for the first road sector PPP. Kenya faces a significant infrastructure financing deficit estimated at $2.1 billion annually, which constrains growth and development. Sustained ex- The World Bank is providing techni- penditures of almost $4 billion per year will be required to meet the country’s cal assistance to develop capital market infrastructure needs. With public debt standing at 57 percent of GDP, this vehicles and build the capacity of local deficit cannot be met by public resources. The country needs to mobilize the institutional investors to invest in infra- private sector and local currency to finance infrastructure needs. The World structure. Bank Group estimates that increasing infrastructure financing could improve Kenya’s per capita growth rate by three percentage points. IFC and MIGA have engaged in discus- sions with prequalified bidders to sup- The MFD Approach port the 175 kilometers Nairobi-Naku- ru-Mau Summit Highway PPP. 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 in- frastructure through capital market vehicles. Additional measures, such as risk guarantees, will also be supported to encourage investor participation. Photo © Ninara/Flickr (CC-by-2.0) Setting up the regulatory and institutional For this transaction, the World Bank is preparing an IDA framework guarantee to backstop certain government payment ob- ligations and protect commercial lenders. The guarantee An IDA loan of $40 million in 2012 helped establish a aims to enhance funding prospects, including crowding PPP law and build government capacity to manage PPPs. in local institutional investors to provide long-term, local Kenya now has a PPP unit and committee that manages currency financing—which reduces the risk inherent to projects in line with regulations and assesses their fiscal short-term local currency or long-term foreign exchange risks and contingent liabilities. They set up local PPP and provides a new investment for domestic savers. practices at the county level, and an associated capaci- ty-building program has trained more than 200 people. The World Bank is also providing a technical assistance The loan also helped create a robust multisector pipeline program on infrastructure finance that will enable Kenya of PPPs that could be financed by the private sector and to use local currency financing from institutional inves- enable economic growth and employment creation. A tors through the capital markets and, in turn, create a second loan of $50 million in 2017 is supporting the fiscally sustainable way to finance PPPs. IFC may provide development of local PPPs and a project facilitation fund seed capital to establish such capital market instruments, to finance viability gaps. This will make projects more building on a similar experience in Colombia. The infra- attractive to private investors and act as a liquidity reserve structure finance program builds the capacity of financial for contingent liabilities. regulators, pension funds, and insurance companies to invest in PPPs using long-term debt instruments since the The PPP program long-term liabilities of institutional investors match the life span of such projects. The Kenyan government identified projects suitable for a user-payer approach where revenues can be used to ser- Making a difference vice the debt raised by the private sector to undertake the project. The World Bank Group is helping to bring the Kenya’s ongoing commitment to improve private par- first highway PPP to the market and mobilizing domestic ticipation in infrastructure financing has improved the institutional investors. This transaction provides a focus regulatory climate and generated a pipeline of 69 PPPs. for investors and allows the development of standards so Of these, 11 are in the procurement stage with signed that others can follow. IFC and MIGA are in discussion contracts. Feasibility studies and transactional advisory with prequalified bidders to support the Nairobi-Naku- support are underway, including for the Nairobi-Naku- ru-Mau Summit Highway project, which aims to widen ru-Mau Summit Highway and other high-impact projects an existing 175-kilometer stretch of road from one to in student housing, health, water, and sanitation. An two lanes each way. This road is critical for the Kenyan estimated $10.4 billion in private investments is expected economy as a vital trade corridor in East and Central to be mobilized for some of these early projects. Efforts to Africa, and the main gateway to the coast for Kenya’s attract financing from local pension funds and insurance landlocked neighbors. Once completed, the highway is companies are underway, and include potential part- expected to not only reduce current travel time from Nai- nerships with international investors. The program has robi to Mau Summit by about half, but also significantly opened opportunities to develop Kenya’s capital markets improve safety and mobility for the six million people and local currency financing for infrastructure assets. directly served (and 19 million indirectly) by this stretch of road—currently one of the world’s most dangerous in terms of fatalities. 03/2018 WHAT IS MFD? 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. www.ifc.org www.worldbank.org www.miga.org