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Infrastructure Development

Are the Expected Economic Gains being Realized?

The Government of Kenya has heralded infrastructure development as one of the keys to unlocking Kenya’s economic potential

The Lamu Community Platform is pushing for at least 25 per cent of revenue generated directly and indirectly from LAPSSET to be channelled to the county and community once it starts operations.
Lamu Community Platform pushes for LAPSSET revenue to be channelled to county The Lamu Community Platform is pushing for at least 25 per cent of revenue generated directly and indirectly from LAPSSET to be channelled to the county and community once it starts operations.
Image: Praxides Cheti

As discussed on this column, and on other fora of public discourse, the Government of Kenya (GoK) has heralded infrastructure development as one of the keys to unlocking Kenya’s economic potential. Particularly, the current administration has advanced ambitions infrastructure projects since its coming into power, which have all been touted as having the potential to catapult Kenya’s economy forward. This is premised on the notion that an efficient infrastructure network will result in economic gains due efficient transportation of goods and people which reduces the costs of production and transportation of goods and services, by increasing the productivity of input factors and by creating indirect positive externalities.

True to speak, over the past seven years, major projects have been commenced by GoK, most prominent of them being the Standard Gauge Railway (SGR) and LAPSSET. The SGR, for instance, for which Phase 2 is now complete and both cargo and passenger trains plying the Mombasa to Naivasha route, has been acclaimed as Kenya’s most ambitious infrastructure project since independence. The SGR, which drastically cuts travel times for goods and people between Nairobi and Mombasa, and now Naivasha, is expected to bring efficiency in the transportation of goods and provision of services, which will ultimately have a positive impact on the ease of doing business in Kenya, and further expand business opportunities.

Similarly, the LAPSSET project, which is currently underway, is purposed at creating a transportation and logistics corridor that will leverage Kenya’s coastal region as the main corridor for entry of goods into East and Central Africa. This is likely to increase the attraction of Kenya as a business hub in East and Central Africa – thereby playing a catalytic role in Kenya’s economic growth journey.

However, the above considered, Kenya’s infrastructure projects are not without criticisms. Specifically, critics caution that the mega infrastructure projects currently being conducted do not amount to an equitable distribution of resources, noting the high capital outlay required to complete the same. For instance, critics highlight that the cost of Phase 1 and 2 of the SGR, which stands at approximately $5 billion is exorbitant and does not bring value for money. This has resulted in high cargo prices for the transportation of goods through the SGR, with transporters opting to utilize traditional road transportation methods due to the high costs associated with the SGR.

Similarly, due to the high investment costs required to fund Kenya’s infrastructure projects, GoK has been forced to borrow large sums in order to meet its infrastructure development targets and commitments. This has had the adverse impact of crowding out Kenyan business from accessing credit from local financial institutions and ultimately straining Kenya’s economy due to increasing debt commitments.

Criticisms aside, it is important to note that infrastructure projects are long term in nature with the full economic impact of the same being realized though the life of the infrastructure asset in question.

Karen Kandie – MD IDB Capital