The expressway we do not need; at least not now

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The development of big and successful economies has always been connected to infrastructural expansion. It is widely acknowledged that Kenya needs substantial investments in its infrastructure sector to achieve growth that is not only robust, but also inclusive and impactful to the community.

Developing world-class infrastructure will add to Kenya’s existing strengths in having a young labour force, robust institutions and dynamic entrepreneurs. Building new airports, roads, power

plants, ports and other infrastructures is key to spurring economic activity and unlocking opportunities in urban and rural regions across the country and the East African community at large.

The Kenya government’s focus on infrastructure-led growth is therefore encouraging. Traditionally, the government-funded infrastructure through annual budgetary allocations derived from tax and duty collections, supplemented by project-specific donor support. This was not enough to meet the funding requirements.

The government took upon itself the primary role of identifying alternative funding mechanisms used in the developed and other developing countries. One of the funding models was the private-public partnership (PPP). Under this, the annuity model has been adjudged to be most suitable for roads.

The Annuity Financing Model, a PPP approach, ensures a fast-tracked pace in road infrastructure development, tying into the National Government’s Vision 2030 development strategy that has identified road infrastructure as one of the key enablers. The other funding model is the financing through debt (internal or external). This model has been used to finance mega projects.

Standard gauge railway

For example, the standard gauge railway, built at a cost of $3.6 billion, was financed through external debt. Its construction was necessary and overdue. Kenya needed to spur economic growth by facilitating efficient movement of people and cargo between Mombasa and inland, including the neighbouring countries. Indeed, the SGR has enhanced Kenya’s position as the major gateway to the East African Community.

Tanzania and Kenya compete to serve the transit trade of the landlocked Uganda, Rwanda, Burundi and others in the wider Eastern Africa. These countries consider the cost, safety and convenience of trading through Dar es Salaam or Mombasa.

About 80 percent of Uganda’s imports and exports pass through Mombasa, while Rwanda and Burundi depend on both Dar and Mombasa. Services have improved at Mombasa and Dar ports in recent years, but Dar has a long way to go to reach international standards. With the launch of the SGR in May 2017, Mombasa is on the fast-track to achieve international standards of trade.

According to the World Bank, inefficiency in managing Dar port and the Central Railway are estimated to cost EAC countries $2.6 billion a year. This gives Mombasa an edge in fulfilling transit trade in the region.

Mombasa-Nairobi Expressway

The Mombasa-Nairobi Expressway is another mega project aimed at easing the movement of people and goods between Mombasa and Nairobi. It is estimated the project will cost $3.8 billion. The initial discussions were based on financing through external debt. Kenya’s ability to sustain the debt and exchange rate risks are a cause for concern to the economy.

Although the EAC desperately needs more and better infrastructure, is the Nairobi-Mombasa Expressway economically viable? Is it a priority infrastructure? Given the enormous costs involved and the mode of financing, it only points to overburdening Kenyans with more debt.

As per end of 2019 figures, every Kenyan owes about $1,300 to debtors. Given the ballooning public debt, it would make economic sense for the government to adopt the less costly alternatives of rehabilitating and upgrading existing facilities.

Information from The National Treasury and Planning shows that Kenya’s public debt stock as at June 2020 was Ksh6.7 trillion, equivalent to 65.7 percent of GDP. In June 2010, the public debt stock was Ksh1,229.4 billion, equivalent to 39 percent of GDP then.

Government Debt to GDP in Kenya is expected to reach 64 percent by the end of 2020, according to global analysts, Trading Economics. With the project cost of Ksh380 billion, the Mombasa-Nairobi expressway will push Kenya’s public debt to new heights.

We recently spent $3.2 billion for the standard gauge railway projects and we are yet to recoup the investment or become stable enough to run operations. Yet here we are running to our new babe!

The decision to start discussions or even consider external debt to finance the Nairobi-Mombasa Expressway clearly seems far-fetched. Moreover, the selection of the contractor was not competitive. This could have denied the country cheaper options of undertaking the same quality of work. While selective appointment of contractors may be legal, for public projects, the process requires high levels of transparency and integrity, which are missing on this.

Infrastructural development is key to growth, but we cannot afford to choke on it. For now, the government should stay focused on running the country with sound economy. The key objectives should shift towards keeping a balance on public debt, embarking on affordable and complimenting developments and/or rehabilitation and improvement of the infrastructure we already have.

The writer is an independent business and development analyst.