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1 Investing in Infrastructure for Development Daniel Ngumy 3 December 2013.

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Presentation on theme: "1 Investing in Infrastructure for Development Daniel Ngumy 3 December 2013."— Presentation transcript:

1 1 Investing in Infrastructure for Development Daniel Ngumy 3 December 2013

2 Infrastructure needs for Kenya (2012 – 2020) SectorExpected Cost (USD bn) Energy19.8 Ports4.8 Roads9.0 Water and sanitation4.6 Railways7.2 Airports0.9 Tourism2.0 ICT7.8 Local Government2.0 Housing2.9 Public Works1.0 Lamu Transport Corridor3.7 Total Financing Requirement65.7 Estimated funding gap (excluding GOK funds available)40.7 *source: National Treasury and Vision 2030 secretariat 2

3 The Importance of Public Private Partnerships “Across the African continent, infrastructure challenges account for an average 2 per cent decline in economic growth per annum. The 48 countries in Sub-Saharan Africa with over 800 million people generate roughly the same power as Spain with only 45 million people.” (African Finance Corporation - Long-term Infrastructure Financing Options for Africa, 2010) Less than half of 1 percent of East Africa’s improved per capita growth performance during the 2000s can be credited to improved structural and stabilization policies (Calderon, 2008) Africa needs an estimated US$93 billion per year to develop its infrastructure, with two-thirds required for new physical infrastructure and the remainder for maintenance and operations (Sanusi, 2012) 3

4 “The size of the gap forces Kenya to be realistic about targets and to be very deliberate about how it spends the relatively limited resources available” (World Bank, 2011) Kenya needs to overcome challenges Large funding gap oAs of 2006, Kenya needed and additional $2.1 billion per year (11% of GDP) to meet the infrastructure funding goal. Heavy long term expenditure horizon oSustained expenditures of approximately $4 billion per year (20% of GDP) required over the next decade. Existing inefficiencies extending targets oIf Kenya did not increase infrastructure spending, it would meet infrastructure targets in 18 years by eliminating existing inefficiencies in infrastructure sectors. As a result…The funding gap can be addressed only by: oRaising additional finance, or alternatively oAdopting lower-cost technologies oLess-ambitious targets for infrastructure development 4

5 5 Examples of PPPs Lamu Port Railway projects

6 6 Examples of PPPs cont’d… Lake Turkana Wind Power Project University housing projects

7 Mindset of the Government “Experience the world over has shown that public private partnerships are more applicable to infrastructure services and facilities than any other sector as this is where inadequate services are more visible.” “Allow me also to restate the role of Public Private Partnerships as a preferred delivery option for key infrastructure services and the commitment of Government of Kenya on Public Private Partnerships.” “The Kenya government is working towards providing this enabling environment by having a strong political will, robust legal and institutional framework as well as strengthening public sector capabilities to effectively handle Public Private Partnership projects successfully.” (Hon. Uhuru Kenyatta – Minister of Finance, 2010) 7

8 Mindset of the Investor “Infrastructure investing has traditionally been seen as a low- return, long-horizon investment best left to the public sector.” “That view is slowly changing. While infrastructure plays may generally be expensive to construct and maintain, the barriers to entry are high — giving first movers the advantage. Infrastructure investments are good counter-cyclical plays: They tend to be immune to most normal business cycles, their correlation with other assets classes is low, revenues are implicitly linked to inflation, and cash-flows tend to be reasonably stable in many types of infrastructure investments.” (Marwan Elaraby, Managing Director, Citadel Capital) 8

9 Why an Investor would need good legal advice Regulatory advice Transaction structuring advice Practical issues such as addressing political risks 9

10 Key legislation that impacts private-public partnerships Privatisation Act, 2005 The Constitution County Governments Act Public Procurement & Disposals Act, 2005 Public Private Partnerships Act, 2013 10 LEGAL FRAMEWORK Government Contracts Act Public Finance Management Act Transition to Devolved Government Act

11 Capital structuring for infrastructure projects Senior DebtMezzanine FinanceEquity Form of CapitalWorking Capital Bridge Finance Medium/Long- term Debt Structured with debt or equity features Ordinary shares or preference shares Typical proportion65% - 80%5% - 10%20% - 35% Capital providersCommercial Banks DFIs Private Capital Mezzanine Funds DFIs Private Capital Capital Markets RankingSeniorSecondThird SecuritySecuredSubordinatedNone TermProject term (8 -12 yrs) FlexibleIndefinite Income StreamCoupon Dividends Equity kickerNoneWarrantsShares 11

12 Addressing risks Political Risk is main investment constraint (Economist Intelligence Unit Report) Typical Political Risks: oWar, insurrection, civil commotion; oExpropriations; oChange in law & taxes; oFailure to issue or renew authorisations; oCurrency inconvertibility; oArbitration award defaults Addressed by: oPolitical Risk Insurance (PRI) instruments issued by Multilateral International Guarantee Agency (MIGA) oDebt and Equity Investments by Development Financial Institutions (DFIs) oCertain Loan Structures used by DFIs oGovernment Guarantees/Support Letters 12


14 14 BOTSWANA BURUNDI ETHIOPIA KENYA MALAWI MAURITIUS MOZAMBIQUE RWANDA SUDAN TANZANIA UGANDA ZAMBIA Legal Notice: these materials are for training purposes only and do not constitute legal or other professional advice. NAIROBI Anjarwalla & Khanna ALN House, Eldama Ravine Gardens, Westlands PO Box 200-00606, Sarit Centre, Nairobi, Kenya Apollo Centre, 2nd Floor, Wing A, Ring Road Parklands, Westlands PO Box 200-00606, Sarit Centre, Nairobi, Kenya T +254 (0) 20 364 0000, + 254 (0) 703 032 000 F +254 (0) 20 364 0201 E MOMBASA Anjarwalla & Khanna S.K.A. House, Dedan Kimathi Avenue PO Box 83156 – 80100, Mombasa, Kenya T +254 41 2225090/6 F +254 41 2224996

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