From left: Bungoma Governor Ken Lusaka, Laptrust managing director Hosea Kili and Murang’a Governor Mwangi Wairia during a forum organised by Laptrust to discuss investments and alternative funding at the Safari Park Hotel in Nairobi on September 12, 2013. Photo/Salaton Njau
What you need to know:
Governors want Parliament to pass a new law that will enable them to issue bonds and access pension funds to finance county projects.
The proposal came even as the governors persisted in their quest for a constitutional amendment to fix their share of the national revenue at 40 per cent.
County governments want Parliament to pass a new law that will enable them to issue bonds and access pension funds to finance key projects at the local level.
Such a law would open an additional window for each devolved government to chart own financing path as it deals with unique local needs that cannot be met by transfers from the national government alone, the governors said at a meeting in Nairobi Thursday.
The proposal came even as the governors persisted in their quest for a constitutional amendment to fix their share of the national revenue at 40 per cent instead of the current floor of 15 per cent.
“As heads of devolved governments, our challenges range from the provision of water, energy, roads and street lighting that cannot be met by mere disbursements from the National Treasury,” said Isaac Rutto, the chairman of National Council for Governors.
Mr Rutto spoke at a two-day governors’ forum on investments and alternative funding that opened Thursday.
The Constitution requires the national government to reserve at least 15 per cent of the national revenue for sharing among the 47 counties under a formula that gives Nairobi the lion’s share of the funds.
The law further requires the Treasury to reserve 0.5 per cent of the national revenue (or Sh3.4 billion in this year’s budget) for sharing among the 14 poorest counties for a period of 20 years beginning 2010.
The governors said national institutions handling long-term projects had failed to align their programmes with the counties, leaving them to look for alternative means of financing.
The director-general of Vision 2030 secretariat Mugo Kibati told the governors to align their plans with Kenya’s long-term development goals for easy financing.
“Just like the national flagship projects, every development activity undertaken at county level should be premised on its job generation ability,” said Mr Kibati.
The county governments, Mr Kibati said, were in a better position to acquire land compulsorily for critical public projects as opposed to National Land Commission technocrats who are likely to meet resistance from locals.
The call for additional financing came just days after Members of Parliament amended the Constituency Development Fund Act to regain control of the Sh17 billion that was to be managed by county governments.
The county governments have also lost control of the Sh6 billion Uwezo Fund, which is set for disbursement to the youth through CDF offices.
The counties began to receive part of the Sh210 billion allocated to them in the 2013/4 budget this week even as pressure mounted for a change in law to increase their share to 40 per cent of the national revenue.
On Thursday, the governors said additional financing would enable them to meet some of their most pressing needs such as the provision of basic services to residents and the building of infrastructure to attract investors.
“The assets and infrastructure that we inherited are in different states of functionality, some need just a little money for renovation while others have to be built afresh,” said Nakuru Governor Kinuthia Mbugua.
Top on the list of funds that the governors have their sights on is Laptrust — the pension scheme that holds billions of shillings in trust for local authorities (now county) workers.
Official data shows that the pool of funds in the scheme has grown more than fourfold from Sh5 billion in 2006/7 to Sh21 billion by June 2013, making it a prime candidate for lending to county governments.
“This scheme has a potential to grow rapidly even as it plays an important role in helping the devolved governments to finance key infrastructure such as housing and street lighting,” said Julius Ng’etich, who chairs the Laptrust board.
The retirement benefits regulatory authority’s investment guideline allows pension funds to place up to 30 per cent of their total savings in real estate. The guidelines, however, allow up to 60 per cent of a member’s accumulated pension contributions to be used as collateral for a mortgage.
Laptrust has 24,000 members mainly drawn from the former 175 local authorities. The fund has signed a deal with HF for members to use 60 per cent of their pension benefits as collateral for mortgages.
County governments are hoping to approach capital markets for funds to meet part of the huge financial obligations through issuance of bonds.
“We are generally looking into feasible ways of engaging Capital Markets Authority, local banks and Laptrust to meet our financing shortfall.”
Peter Mwangi, the chief executive of the Nairobi Securities Exchange, said the counties have the opportunity to float infrastructure bonds or Sukuk for those that prefer sharia-compliant financing.
Mr Mwangi said the bourse could also help counties to generate large sums of money using asset-backed securities for assets available in their localities. Instead of piecemeal rollout of infrastructure, Mr Mwangi said the counties could use the NSE to raise huge sum of money for their flagship projects and reserve future revenues and Treasury disbursements for redeeming the said securities.
“Most investors prefer infrastructure bonds for their tax advantage and I see no reason for them not to succeed here because cities such as Johannesburg have used them for 20 years,” said Mr Mwangi.
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