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Kenyan urban areas to net Sh15.4 trillion clean investments

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Summary

  • Over the years, Kenya has seen an increase in rural to urban migration as more people move to towns in search of job opportunities.
  • While population has been growing tremendously, this has not been incommensurate with the country’s limited resources.
  • Kenya’s temperature has been rising over the years amid burning of fossil fuels.

Over the years, Kenya has seen an increase in rural to urban migration as more people move to towns in search of job opportunities.

As of 2020, for example, roughly 15 million people lived in urban settings such as Nairobi, Mombasa, Kisumu and Nakuru, according to the Kenya National Bureau of Statistics, representing 27.8 percent of the country's total population.

While population has been growing tremendously, this has not been incommensurate with the country’s limited resources such as housing, roads, among others.

The unprecedented scale of urban growth, according to the Coalition for Urban Transitions’ Financing Africa’s Urban Opportunity report, Kenya, has made efficient and inclusive urban planning extremely difficult.

Poorly planned cities are characterised by unmanaged sprawl, increased distance between residents and work opportunities and rapid growth of informal settlements on the edge of cities, it says.

Other effects are increased cost of service delivery, severe congestion, local air pollution, inefficient energy use, high greenhouse gas emissions and other negative spillovers.

“This has led to a lack of socially inclusive, compact cities serviced by public transport, potable water and clean energy, largely due to the relative low-income levels on which urbanisation is taking place and the resulting low level of resources that can potentially be mobilised for urban investments.

“Power centralisation, inefficient taxation and the absence or low quality of land cadastre are other factors that have made sprawl the default urban form,” the Coalition for Urban Transitions’ adds in the report.

The above challenges, however, offer the country an opportunity for increased investment in compact, connected, clean and resilient (3CR) transportation, housing, among other sectors.

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The Financing Africa’s Urban Opportunity Kenya survey indicates that the country is set to access Sh15.498 trillion in 3CR investments by 2050, an equivalent of 150 percent of annual gross domestic product in 2020.

“By 2050, investment in urban climate interventions in major cities in Ethiopia, Kenya and South Africa could deliver Sh26.568 trillion, Sh15.498 trillion and Sh77.49 trillion in benefits, respectively —equivalent to 250 percent of annual GDP (2020) in Ethiopia, 150 percent in Kenya and 200 percent in South Africa.”

To achieve this, nonetheless, new investment in urban climate interventions is also expected to generate significant wider economic benefits, including additional employment compared to traditional fossil fuel energy consumption, resulting in an average of 210,000 net new jobs in Ethiopia, 98,000 in Kenya and 120,000 in South Africa by 2050.

“A large share of the jobs created will be supported by investment from now until 2030, which would support 98,000 net jobs in Ethiopia, 47,000 in Kenya and 82,000 in South Africa. However, job creation is not necessarily tied to the modelled deployment timeline and could be brought forward if investment is mobilised at pace.”

This comes at a time when the country is already feeling the pinch of global warming due to rising sea levels, droughts, erratic weather patterns, among others.

Kenya’s temperature has been rising over the years amid burning of fossil fuels. From 1960, this has risen by 1.0 Celsius (C).

In Nairobi, for instance, average temperatures rose from 18.8° C in the 1950s to 19.5°C in the 2000s.

As the tempretures rise, an estimated 17 percent of the area in Mombasa, amounting to 4,600 hectares, could be submerged by a sea-level rise of 0.3 metres, with a larger area rendered uninhabitable or unusable for agriculture because of waterlogging and salt stress.

The report states that 3CR will play a crucial part for low-carbon, climate-resilient urban development: compact urban growth, connected infrastructure and clean technologies.

“They can drive cost and resource efficiencies while creating jobs through the benefits of economies of scale and agglomeration and foster resilience and productivity.”

Scaling up interventions to include smaller cities with populations of at least 50,000 would generate a total of 1,400,000 net jobs and Sh3.21 billion in net Gross Value Added (GVA) in Ethiopia, 67,000 jobs and Sh1.33 billion in net GVA in Kenya and 170,000 net jobs and Sh11.1 billion in net GVA in South Africa to 2050.

The report notes that expected investment return in impact, clean and connected cities will generate the country $52 billion. South Africa will lead with the return $190 billion followed by Ethiopia $90 billion.

However, realising these investments is a difficult task for cities and local authorities on the continent, the vast majority of which face budgetary constraints, high debt levels and poor creditworthiness.

In Kenya, roughly half of climate finance from public sources is directed through subnational climate funds—the County Climate Change Funds (CCCFs)— which provide counties with grants for climate mitigation and resilience projects.

To date, CCCF-funded projects have been concentrated in the water and agriculture sectors. Together with other public climate-related finance, average public expenditure on climate change amounts to Sh82.99 billion per year.

However, this accounts for only 35 percent of the scale of spending required for existing NDC commitments, meaning that significant additional finance will be required.

“The complex, diverse and unevenly developed landscape in which sub-Saharan cities operate makes for a challenging environment to attract and deploy urban investment,

“The majority of cities in Sub-Saharan Africa (SSA) remain deficient in creditworthiness, capacity, accountability, organisational structure and governance.”

The report notes that unless these barriers are addressed, finance is unlikely to flow at the necessary scale without sound financial management, subnational governments will continue to lack the ability to generate meaningful own-source revenues or to attain the required creditworthiness or market access to attract financing from capital markets.

“Addressing these barriers is not something that subnational governments can manage alone. This will require significant leadership from and collaboration with national governments.,

“National governments play a strong enabling role in setting market conditions that draw in private sector capital for sustainable infrastructure programmes through a mix of non-financial actions such as enacting supportive policies, standards and regulations, as well as providing pricing signals and improving information flows.”

While national governments must establish and execute comprehensive, actionable development strategies to enhance investment flows for sustainable urban infrastructure, it notes that cities can deploy a wide variety of financial instruments to implement the range of 3CR interventions.

“Of course, the exact instruments that cities consider will continue to be determined by their fiscal, financial and administrative capacities as well as their legal authority.”

The report proposes six demonstrable financing instruments to sustainable urban development such as insurance pools to provide infrastructure repairs following extreme weather events; pay-as-you-use subscriptions for cooling and other energy efficiency services across domestic and public buildings.

Others include leasing agreements between city authorities and utility providers to leverage financial and technical capabilities for high upfront cost green infrastructure projects and public-private partnerships to outsource improvements and management of key infrastructure to the private sector.

“Green bonds issued to raise finance for climate-friendly projects; and community-driven climate funds which enable local involvement prioritising which adaptation and resilience projects to fund from the dedicated climate budget.”

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