Why more investors should target Kenya’s water and sanitation sector

By Evans Ongwae

More investors should consider investing in Kenya’s Water and Sanitation Sector to bridge the Ksh652 billion financing gap between now and 2030. The Sector requires Ksh1 trillion to achieve universal access by 2030, and only Ksh529 billion is available for the period. Water Sector Trust Fund (WaterFund) Chief Executive Officer, Mr Willis Ombai, says so, and asserts that this is a win-win situation for investors and the sector.

Investors, including commercial banks, will reap from their investments while helping the country to accelerate access to water and sanitation services, especially in the underserved parts, says Mr Ombai.

The Ministry of Water, Sanitation and Irrigation, in collaboration with WaterFund, will host an Investors Conference on March 6-8, 2024 in Nairobi to showcase the massive investment opportunities in the sector – and how investors can tap them. The overall conference theme is: ‘Accelerating Investments for Sustainable Access to Water and Sanitation for All.’

By enhancing resource mobilisation, this event supports the Government’s drive to achieve universal access to safe and affordable water supply, and dignified sanitation for all Kenyans by 2030.

Some Water Services Providers (WSPs) have limited capacity to extend coverage to all rural areas, informal urban settlements, and other marginalised parts such as the Arid and Semi-Arid Lands (ASALs).

Mr Ombai says a robust private-public partnership permits diverse partners to finance activities in the water and sanitation value chain, right from the catchment and all the way to the top.

He adds that as WaterFund seeks to close the financing gap in the sector, it pays close attention to various policies and pieces of legislation. These include the Water Master Plan 2030, the National Water and Sanitation Investment Plan (NAWASIP), Vision 2030 (especially the Fourth Medium-Term Plan), and the Bottom-Up Economic Transformation Agenda (BETA) being implemented by the Government.

The WaterFund CEO says increased financing will see the country push the 62 percent national water coverage to a higher percentage by 2030. “I urge investors to register for the conference en masse and participate in the opportunities available in the water and sanitation sector through PPPs,” Mr Ombai says, adding that every year, the Fund runs a Ksh5-billion portfolio.

WaterFund’s General Manager for Fund Development, Ms Ruth Nganga, says developing and nurturing more partnerships will boost sustainability in the Sector as donor funding is dwindling.

She says the Fund has to mobilise additional resources from diverse sources instead of relying on the traditional model of financing water and sanitation services.

Typically, the Government provides 20 to 30 percent of the funds to WaterFund through National Assembly appropriation, with development partners contributing 70 to 80 percent to finance water programmes and projects across the country.

Ms Nganga says the Fund is implementing a blended financing model. “For example, a water company can approach a commercial bank with a viable proposal. The WaterFund will then subsidise the advanced loan up to a certain percentage on attainment of agreed milestones,” she explains.

She says this offers several advantages. One, it draws private finance into the sector. Two, the Fund’s involvement and contribution de-risks private finance. Three, this enables the WSPs to access higher finance limits as opposed to relying purely on WaterFund grant financing of urban projects, currently capped at Ksh20 million. On this, Ms Nganga gives the example of Embu County, which received Ksh450 million commercial loan, with the Fund contributing 60 percent of this amount as subsidy.

She adds that the Fund has introduced a new financial model. Its contribution to WSPs is a concessional loan at low interest rates, which they have to repay. It is not a grant. The repaid amount becomes a revolving facility that the same entities and others can borrow from.

Ms Nganga says WaterFund and other sector players are focusing on making WSPs more bankable so that they draw additional financing from the private sector.

WaterFund’s Manager for Commercial Financing, Eng Thomas Nyangau, asserts that boosting the technical capacity of WSPs to handle commercial finance, and their governance practices, is critical. On this, 23 WSPs have been selected under WaterFund programmes to receive technical support for two years, to improve their operational efficiency and boost their ability to attract commercial financing. Additional WSPs are receiving similar support through other institutions in the sector. Currently, around 16 WSPs may be able to access commercial financing through blending and under the right de-risking measures.

To attain financial sustainability, WaterFund is also considering capital market financing, carbon financing, and endowments, among other sources of funds, adds Ms Nganga.

As it executes its mandate, WaterFund has registered many milestones.

In 2019, the Fund received the United Nations Public Service Award for the success of its Up-scaling Basic Sanitation for the Urban Poor project that was funded by the Gates Foundation and the German Development Bank (KfW).

Then two years later, its World Bank-supported Output-Based Aid project that increased access to water and sanitation to low-income communities, won the same UN award in 2021.

Mr Ombai says more funding for the water and sanitation sector through public-private partnerships (PPPs) and blended financing could be a game-changer for the country. It will lead to increased access to water and sanitation services, thereby improving the quality of life of many more Kenyans.

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