Kenya mulls joining China-led lender

National Treasury CS Henry Rotich in Mombasa on Friday. The government will use bonds to bridge the infrastructure development deficit in the country. Photo Andrew Kasuku
National Treasury CS Henry Rotich in Mombasa on Friday. The government will use bonds to bridge the infrastructure development deficit in the country. Photo Andrew Kasuku

KENYA is studying rules and conditions for joining China-led Asian Infrastructure Investment Bank as she looks to widen infrastructure financing space in a bid to narrow the yawning gap.

Enrolling into the Asia-focused AIIB is however not an immediate plan, Treasury CS Henry Rotich said, citing other options including African Development Bank-led Africa50 Infrastructure Fund.

“We are reviewing our access options by studying the articles of association and benefits,” Rotich said last Thursday. “Obviously there are benefits of joining and we will consider at what stage to join.”

Africa's second largest economy South Africa and third largest Egypt are the only African members out of 57 founding countries of the AIIB.

The development lender, officially launched on January 16 by Chinese President Xi Jinping, is set to start operation in the second quarter of the year.

It has an immediate investment portfolio of $50 billion (Sh5.12 trillion) and a share capital of $100 billion (Sh10.21 trillion) as it seeks to play in the space previously dominated by the the World Bank Group, which has more than double that financial muscle of the former.

Rotich said the government remains open to various options in closing its infrastructure funding gap, conservatively estimated at Sh180 billion annually, largely targeted at transport, energy and agriculture sectors. Specific short- to long-term projects are concentrated in roads, railways, airports, seaports, electricity lines and pipeline.

“There is need to expand our funding and all these options are welcome to Kenya,” the CS said. “But perhaps the starting point should be African Development Bank which has Africa50 Fund.”

The AfDB's Fund gained traction in July last year after raising an initial $830 million (Sh84.77 billion) in share capital from 20 founding member states, mainly from West Africa.

Kenya is hunting for cheaper loan options after it ceased to enjoy concessional terms under the International Development Association – World Bank's lending arm for low-income countries – and the African Development Bank.

That was after it graduated to a lower middle-income economy following rebasing of her economy in September 2014.

Rotich said on January 25 the country was also keen on joining Organisation of Islamic Co-operation to access soft loans from the Islamic Development Bank.

“Once we join, we can access highly concessional financing just like we do with the World Bank," he said.

In the next financial year from July, the Treasury has proposed to cut budget for the infrastructure, energy and ICT sector by Sh30.70 billion to Sh373.97 billion from Sh404.67 in the estimates for the present year.

China remains Kenya's largest bilateral lender with a portfolio of $2.5 billion last October, according to the latest data from the Treasury, with Japan coming a distant second with $750 million.

With the strengthening of the dollar, there have been suggestions that Kenya should consider borrowing in yuan, which was on November 30 admitted into global basket of benchmark currency by the IMF comprised of the dollar, sterling pound, euro and yen.

“It will be entirely plausible for Kenya and China to want to work together in this way but I think anything will start from a low base,” PineBridge East Africa chief executive Jonathan Stichbury said on January 19.