Kenya’s development ambitions under Vision 2030 and the Bottom-Up Economic Transformation Agenda faces a persistent obstacle: the infrastructure financing gap, according to the World Bank estimates, this gap currently stands at more than $1.8 billion. With limited fiscal options and rising debt levels, traditional reliance on public borrowing and foreign loans is becoming less viable. …
Kenya’s development ambitions under Vision 2030 and the Bottom-Up Economic Transformation Agenda faces a persistent obstacle: the infrastructure financing gap, according to the World Bank estimates, this gap currently stands at more than $1.8 billion. With limited fiscal options and rising debt levels, traditional reliance on public borrowing and foreign loans is becoming less viable.
The National Treasury Principal Secretary, Dr. Chris Kiptoo constituted a committee of experts to explore and recommend strategic polices for mobilizing long-term capital from local financial markets to finance the country’s PPP projects. The committee recently released a report outlining an alternative path, one rooted in mobilizing domestic capital markets to fund infrastructure. At the center of this approach is the Public-Private Partnership Implementation Trust Fund (PPP-ITF), a proposed vehicle to pool long-term capital from pension funds, insurers, SACCOs, and Islamic finance institutions, and channel it into de-risked, commercially viable infrastructure projects.
The Current Infrastructure Landscape
Kenya continues to grapple with a persistent annual infrastructure financing deficit driven by growing demands in transport, energy, and water. The government has historically relied on public borrowing and development loans to fund infrastructure. However, this model is becoming untenable. Fiscal constraints are growing, with 68% of government revenue in FY 2023/24 used for debt servicing, significantly reducing development spending. This strain has also led to delayed payments, stalled projects, and investor uncertainty. The result is a sector that urgently needs new financing pathways.
The Infrastructure Funding Gap: A Domestic Opportunity
As of December 2024, Kenya’s pension sector held KES 2.25 trillion in assets—yet less than 1% was allocated to infrastructure. Over 50% of these assets are tied up in government securities and equities, despite infrastructure offering a strong match for long-term investment profiles. These underutilized pools of capital present a clear opportunity to redirect domestic finance toward national development priorities.
The CoE’s Main Proposals in Summary
The PPP-ITF is designed as a blended finance facility that aggregates domestic institutional capital and deploys it into PPPs. The fund would prioritize commercially sound projects such as energy infrastructure and provide a common platform for investors, complete with credit enhancements and escrow-backed payment structures.
In addition to the PPP-ITF, the CoE recommends a broader set of legal and fiscal reforms, including:
• A PPP Financing Act to formalize investor rights and clarify government obligations.
• A Pending Bills Liquidation Trust Fund to secure and settle arrears.
• Regulatory changes to expand pension and insurance allocations to infrastructure.
• Enhanced project approval coordination through a strengthened PPP Authority.
These interventions aim to strengthen investor confidence, streamline risk-sharing arrangements, and mobilize domestic capital for Kenya’s long-term infrastructure development.
Why Infrastructure Is a Sound Investment
Infrastructure projects naturally match the long-term liability profile of pension and insurance funds. They offer stable, inflation-linked cash flows that help hedge against currency depreciation and provide attractive, risk-adjusted returns. Beyond financial returns, infrastructure generates broader economic benefits—stimulating job creation, enhancing logistics, and strengthening trade connectivity. Globally, infrastructure has become a core asset class for institutional investors. Kenya can follow this trend by fostering a predictable, transparent investment environment.
A domestic capital mobilization strategy reduces exchange rate exposure, lowers reliance on external lenders, and keeps investment returns within the local economy. However, the success of the PPP-ITF and the broader strategy will hinge on disciplined execution. Kenya has explored similar models in the past, and while the intent has been clear, execution has at times been constrained by coordination challenges, delayed policy adoption, and cautious investor sentiment.
Rebuilding Trust Through Payment Discipline
Institutional investors are not reluctant to participate in infrastructure, they are cautious, and with reason. Past experiences involving delayed payments, inconsistent disbursements, and a growing stock of pending bills have contributed to a sense of uncertainty in public-private project execution. While the proposed escrow-based and automated payment systems offer a potential solution, these need to be backed by enforceable legal instruments and budget discipline.
For institutional capital to flow into infrastructure at scale, investors must have clarity on payment timelines, confidence in project governance, and assurance that risk is allocated fairly. Establishing this level of trust will be essential to unlocking the capital currently concentrated in conservative instruments like government securities.
From Concept to Capital: Our Recommendations
To move from concept to capital, we propose prioritizing the following :
1. Operationalize the PPP-ITF with strong governance, clear investment criteria, and professional fund management standards.
2. Pass the PPP Financing Act to legally secure investor protection and define the fiscal responsibilities of government entities.
3. Revise pension and insurance investment caps to allow more flexibility for infrastructure exposure while maintaining prudential standards.
4. Institutionalize automated payment mechanisms that guarantee disbursements once contractual milestones are met.
5. Engage institutional investors early, particularly pension trustees and insurance fund managers to align the pipeline of PPP projects with market appetite.
These are foundational actions that will determine whether the PPP-ITF becomes a catalyst for infrastructure delivery.
Conclusion: A Window of Opportunity, If Acted Upon
The CoE report provides a well-considered framework to shift Kenya from external debt dependence to domestic capital mobilization. It recognizes the untapped depth of local financial markets and the need to restore trust in public financial management. Success, however, lies not in policy design but in disciplined implementation. The opportunity is substantial but time-sensitive, contingent on sustained political will, effective institutional coordination, and regulatory clarity. Kenya has the capital. What it needs now is implementing this alternative financing model in a way that inspires confidence, rewards long-term investment, and delivers on infrastructure promises.
InVhestia’s Experience in Infrastructure Advisory
InVhestia is a leading financial advisory firm specializing in infrastructure projects across Kenya and the East African region. We support entrepreneurs and institutions in structuring, financial analysis, and capital raising for infrastructure projects.
Our notable engagements include:
If you’re looking for guidance or support on infrastructure-related matters, we’d be happy to connect. Reach out to us at info@invhestia.com or call us at +254 20 440 0692.
