By Odongo Kodongo*
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.
Why now?
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. That is, public debt grew by over 34% in only three years.
Public debt as a percentage of GDP in 2022 was 67.9%. Thanks to an appreciating local currency, the debt to GDP ratio remained almost unchanged at 67.5% in 2025. For emerging and developing economies, a debt limit of no more than 64% of the country’s production (gross domestic product or GDP) is recommended.
In the financial year 2024/25, 71.2% of all government revenue went towards the servicing of debt. This left very little resources for other government activities including social programmes and capital projects such as infrastructure investments.
Kenya faces a massive infrastructure gap. Estimates show that the country needs to invest over US$12 billion annually in infrastructure 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 new fund is long overdue.
How will the fund work?
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, recruited in accordance with the legislation governing state owned enterprises.
The treasury secretary is expected to formulate the act’s supporting regulations and guidelines. These include the fund’s investment policy, government support mechanisms, and standards and procedures.
However, the fund’s proposed legislation appears to indicate that its major responsibilities will include:
- identifying and setting priorities for public infrastructure investments
- conducting feasibility studies and developing bankable proposals
- identifying an optimal mix of financing options for infrastructure projects
- negotiating and closing financing deals with infrastructure financiers
- overseeing implemented projects to manage risks and minimise time and cost overruns
- audit to ensure past experiences inform project planning.
What are the potential risks and rewards?
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 design as a state owned enterprise creates the expectation that it will have autonomy 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 appoint independent directors is vested in the treasury cabinet secretary. This is a red flag. Given that the same cabinet secretary is a member of that board, independent board members may feel under pressure to agree with their appointing authority, making them effectively nonindependent.
Second, the fund must incentivise superior performance. Part III of the act recognises this need. The treasury cabinet secretary can set the board’s performance targets and evaluate its performance. But the cabinet secretary is a member of the same board and cannot be a fair referee.
Third, the act identifies the fund’s audited financial statements as a basis for performance evaluation. While this conventional approach appears sound, the structure of a more appropriate incentive system should focus on the objectives for which the fund is being set up. That is, performance should be based on:
- the quantity of financial resources mobilised, especially from private sources
- the amount of mobilised resources actually invested in infrastructure projects
- efficiency in the management of projects
- existence of feedback loops at various points between project origination and termination to support monitoring and corrective actions when necessary
- capacity development and skills transfer.
The last point is important, given that human capital constraints have limited the region’s capacity to generate a pipeline of bankable projects, rendering its infrastructure sectors unattractive to private sector capital.
The fourth major weakness is the significance attached to financing derived from the disposal of government assets. Given that these assets are in short supply, monies from such sales must not be regarded as a primary source of financing.
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 encourage private sector participation.
Finally, there is an ominous clause in the act that empowers the treasury secretary to issue government support in the form of letters of credit, guarantees and firm commitments to support projects. Because some of these mechanisms constitute public debt, this clause contradicts another clause that motivates the fund’s establishment on the grounds of “reduction in the reliance on public debt”.
What’s missing from the strategy, what needs fixing?
First, the implementation guidelines to be developed by the cabinet secretary should clearly spell out the fund’s goals. These include:
- specific capital mobilisation targets: what is the volume of financial resources expected to be mobilised?
- infrastructure investment targets: what are the immediate, medium and longer term infrastructure investment goals? These would be consistent with the country’s development plans, which often have specific timelines, such as year 2030.
Second, the underpinning law links performance measurement to the fund’s ability to “make a return commensurate with its level of investment”. This “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).
Third, 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 design of financial instruments.
The increased diversity of financial instruments and larger pool of capital could deepen the country’s capital markets. Thus, the act ought to have included capital markets development as one of the fund’s objectives.
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 source(s) must be anchored in law.
Further, given the highlighted flaws of the cabinet secretary’s dual roles as a member of the board and its oversight agent, the cabinet secretary should be made an ex-officio member by law.
Finally, all proceeds, if any, from the sale of public assets in future should be ring-fenced to the fund. This, too, should be anchored in law.
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* Associate professor, Finance, University of the Witwatersrand
