Kenya’s infrastructure investment ‘in right direction’, but challenges remain says World Bank

According to the Kenya Public Expenditure Review for December 2014 (88-page / 6.41 MB PDF), released on 4 February, spending on infrastructure and devolution of functions from the national government to counties are “key factors contributing to the transformative impact” on the country.

However, the report said despite Kenya’s economic progress, the national ‘Jubilee Alliance’ coalition government needs to choose “whether to spend more or spend smart, particularly on devolution and infrastructure”.

World Bank senior economist for Kenya and lead author of the report Jane Kiringai said: “The pressure on budgets is expected to continue in the medium term as both the national and county governments spend more on these critical areas.”

“Kenya is moving in the right direction in terms of building up its infrastructure to enhance its growth potential,” the report said. “However, the infrastructure investment drive needs to be done in a way that is both efficient and sustainable, and timely action is key. Fiscal pressure could actually be much higher if budget execution levels are higher, both at sub-national levels and in donor-financed projects, and if cut backs in spending on operations and maintenance had not been reduced.”

The report said: “Fiscal pressure is emanating from the build-up of administrative expenses associated with the roll out of devolution, the necessity to enhance security expenditure, the commitment to sustain investments in roads and energy to reduce the infrastructure deficit and reduce the cost of doing business, the funding of new flagship projects in fulfilment of the Jubilee government’s pre-election pledges, and the rising wage bill at both levels of government.”

In their first year of devolution, 2013-2014, county governments’ approved expenditure amounted to 5.4% percent of GDP, the report said. County governments set a target of collecting 1.2% of GDP as “own-source revenue” while receiving around 210 billion Kenyan shillings ($2.3bn) from the national government, “which is equivalent to 4.3% of GDP.

However, the report said county governments were only able to collect 0.5% of GDP as own-source revenue and funds received from national government amounted to just 3.9% of GDP. “Of the total available revenue, counties’ overall expenditure reached 3.4% of GDP, leaving 1% of GDP as surplus.”

The report said: “Counties’ expenditure patterns in this initial year of devolution show that recurrent expenditures exceeds by far the spending on development.... Going forward, it will be important to contain spending on administrative costs, in particular to ensure that parallel costs of devolved functions at national level are being reduced as planned and the counties revenue mobilisation efforts are enhanced.”

Last year, the World Bank announced plans to “target investments” of more than $4bn between 2014 and 2018 to help Kenya “realise its potential to become one of Africa’s enduring economic powers”.

The Kenyan government’s Vision 2030 programme has identified infrastructure as an “enabler of Kenya’s transformation”, such as the completed Thika Superhighway, designed to boost trade in the East African region, and the $325 million greater Nairobi commuter rail project, including laying new track to link Jomo Kenyatta International Airport (JKIA) with the Nairobi central business district.