Kenya is laying the ground for an infrastructure fund which will raise money for new projects – such as roads, energy and ports – through public-private partnerships, privatisation proceeds, and institutional capital. We asked Odongo Kodongo, a project finance expert, to unpack the potential risks and rewards of this strategy – and where it falls short.
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Odongo Kodongo, University of the Witwatersrand
Kenya is laying the ground for an infrastructure fund which will raise money for new projects – such as roads, energy and ports – through public-private partnerships, privatisation proceeds, and institutional capital. We asked Odongo Kodongo, a project finance expert, to unpack the potential risks and rewards of this strategy – and where it falls short.
Kenya is weighed down by public debt that has built up rapidly over the last few years. The country’s public debt stood at about 12.30 trillion Kenya shillings (US$94.6 billion) as of December 2025, having risen from about 9.15 trillion shillings (US$70.3 billion) in December 2022. This is a change of over 34% within three years.
In the financial year 2024/25, 71.2% of all government revenue went towards servicing of debt. This left very little resources for other government activities including infrastructure investments.
Estimates show that the country needs over US$12 billion annually in infrastructure investments until 2040 to meet its development goals. It doesn’t have this, resulting in an infrastructure financing gap of roughly US$2.1 billion annually.
However, due to the country’s excessive public debt, Kenyans must consider avenues other than tax revenues and public debt to pay for infrastructure. In this regard, the national infrastructure fund is long overdue.
The National Infrastructure Fund Act establishes the fund as a corporate entity run by a board of directors. The board includes state officers and independent directors appointed by a Governing Council. The council is, in turn, appointed by the President.
The council’s roles include guiding the board, approving the board’s periodic reports and risk management framework, and overseeing the development of the fund’s investment policy.
Among others, the fund’s investment policy must specify priority infrastructure sectors, exposure limits for assets and sectors, and the required rates of return on qualifying projects.
The treasury cabinet secretary is expected to formulate the Act’s supporting regulations and guidelines. These include government support mechanisms, and standards and procedures.
However, the Act appears to indicate that the fund’s major responsibilities will include:
The potential benefits of an infrastructure fund include greater infrastructure endowment, its potential cascading effects on development, and reduced reliance on the public purse.
But the success of such a fund hinges on many things. First, the fund’s status as a distinct corporate entity creates the expectation that it will have space to make its decisions without political interference and executive meddling. However, some provisions of the Act cast doubt that this will be possible. For example, the power to determine the remuneration of Council members is vested in the treasury cabinet secretary. But the cabinet secretary is a member of that same Council. This may therefore inadvertently create a legally sanctioned conflict of interest.
Second, the clause on conflicts of interest does not define “material interest” to ease of its interpretation. For example, a small proportion of ownership of a company (for example, 1%) amounts to a material interest if that company is bidding for a tender on an project worth billions of shillings.
Third, there are some role ambiguities. For example, one clause gives the council an oversight mandate in preparing the fund’s investment policy while another gives it the role of preparing it.
Fourth, a lot of significance is attached to financing derived from the disposal of public assets. Given that these assets are in short supply, monies from such sales must be regarded not as a primary source of finance but as supplemental.
Indeed, while the motivation for setting up the fund is to diversify funding sources and increase fiscal headroom, the Act does not say much about private sector involvement.
In contrast, a similar fund created in South Africa in 2020 is specifically mandated to employ blended finance instruments. This involves using concessional finance (such as borrowing from development banks) to make an investment less risky to attract private sector capital.
Finally, an ominous clause in the Act empowers the treasury cabinet secretary to issue government letters of credit, guarantees and firm commitments to support projects. Some of these mechanisms constitute public debt. Therefore, this clause contradicts another clause that motivates the fund’s establishment on the grounds of “reduction in the reliance on public debt”.
First, the implementation guidelines to be developed by the cabinet secretary should clearly spell out the fund’s goals. These include:
Relatedly, the Act fails to make provisions for the fund’s performance evaluation. Thus, the anticipated guidelines should design an incentive system that focuses on the fund’s objectives. In this regard, performance should be based on:
The last point is important, given that human capital constraints have limited Africa’s, and Kenya’s, capacity to generate a pipeline of bankable projects. This has often rendered infrastructure assets unattractive to private sector capital.
Third, the Act links performance measurement to the fund’s ability to “make a return commensurate with its level of investment”. This narrow “economic/financial” view of performance ignores the social return potential of infrastructure investments.
For example, investing in hospitals and schools creates a healthier and higher quality manpower with greater longevity (social returns) and receptiveness to new knowledge. This increases labour productivity (economic returns).
Fourth, one of the more important beneficial spillovers of the fund’s operations is likely to be the development of the country’s capital markets. The fund could access capital from financial institutions such as pension and wealth funds, and diaspora resources, through innovative designs of financial instruments.
The increased diversity of financial instruments and larger pool of capital could deepen the country’s capital markets. Clearly, the Act ought to have linked the development of capital markets to the fund’s goals.
At the operational level, several things need fixing. For example, the government must provide “seed” capital to support the fund’s initial activities. The amount of the seed capital, the justification for it, and its sources must be anchored in law.
Further, all proceeds, if any, from future sales of public assets should be ring-fenced to the fund. This, too, should be anchored in law.
Changes were made to this article to reflect adjustments to the National Infrastructure Fund Act.
Odongo Kodongo, Associate professor, Finance, University of the Witwatersrand
This article is republished from The Conversation under a Creative Commons license. Read the original article.
