Kenya is setting up a sovereign wealth fund that will be barred from investing in local bonds and stocks as it seeks a buffer against economic shocks and fluctuations in resource earnings.
A sovereign wealth fund is a State-owned investment kitty that is centered on managing a country’s surplus reserves to generate economic benefits for its citizens.
The Kenya Sovereign Wealth Fund will have three components — a stabilisation unit, an infrastructure investment arm, and a segment focused on savings, according to draft legislation.
It will get funds from the minerals and petroleum sector and invest the billions of shillings into foreign currency-denominated instruments, including investment-grade bonds, securities backed by multilaterals such as the World Bank and the International Monetary Fund (IMF) and deposits in offshore banks.
The draft Kenya Sovereign Wealth fund Bill, 2025 has also banned investments in speculative derivatives, unlisted real estate, private equity, arts, and commodities.
Proceeds from the investments will be used to invest in key sectors without repeating a debt binge that has strained public finances in recent years.
So far, it will have nearly Sh200 billion that Kenya earned from the mineral sector in the form of royalties, prospecting licences and acreage leases.
The offshore bias in investment is expected to serve as a natural hedge to returns generated from the fund, which are purposed to provide the national government with a buffer from fluctuations in resource revenues, finance strategic infrastructure projects and build savings for the future.
“The fund shall not be invested in speculative derivatives, unlisted real estate, private equity, art and commodities,” reads the bill.
“The assets of the stabilisation component shall not be invested in securities listed at the Nairobi Securities Exchange.”
The sovereign wealth fund will be invested primarily in financial instruments denominated in internationally convertible currency, including deposits held at other Central Banks or the Bank for International Settlements.
Foreign securities shall be required to have an investment grade rating from an internationally recognised rating agency or have the backing of the IMF, the World Bank or any other sovereign State besides Kenya, with the guarantor also expected to have an investment grade rating.
This also rules out investments in Kenyan Eurobonds because they have been issued by the government and lack a high rating from the global agencies
The first part of the fund or a stabilisation unit shall be used to provide the national government with a buffer from fluctuations in resource revenues and manage extraordinary shocks that may affect macro-economic stability.
A second part of the fund, known as the Strategic Infrastructure Investment Component, shall finance infrastructure priorities in sectors including agriculture, transport, housing, energy, water, education and health while backing public-private partnership (PPP) projects.
The last part of the fund dubbed Urithi shall build a savings pool for the future.
“The object and purpose of the Future Generation (Urithi) Component is to build a savings base for future generations by providing an endowment to support strategic infrastructure for future generations when the revenues from minerals and petroleum are depleted,” the draft bill adds.
Norway’s Government Pension Fund Global, with over $1.7 trillion in assets, is the world’s largest sovereign wealth fund at present.
“The component shall also distribute wealth across generations.”
The fund shall be primarily financed by resource revenues, including the government’s share of profit derived from upstream petroleum operations, petroleum and mining royalties and proceeds from divestment of petroleum and mining interests held by the government.
The fund or funds can take the form of stabilization, savings, public benefit, strategic development or serve as a foreign currency reserve.
Norway’s Government Pension Fund Global, with over $1.7 trillion in assets, is the world’s largest sovereign wealth fund at present.
Other top sovereign wealth funds are in China, the United Arab Emirates (UAE), Kuwait, Saudi Arabia, Qatar and Hong Kong. Kenya’s Sovereign Wealth Fund will be vested in the National Treasury in trust for the citizens of Kenya.
The country has previously marred the creation of a sovereign wealth fund, especially after the 2012 discovery of multi-billion oil deposits in Turkana.
The Central Bank of Kenya (CBK) shall hold a bank account for the fund known as the holding account, which shall be used for receiving, holding and disbursing all the proceeds of the fund.
The Stabilisation component of the fund shall be financed using transfers from the holding account and fifty percent of self-generated income.
The other half of the generated income from the component shall prop the funding base for the future generation component, with the Urithi kitty also receiving half of the proceeds from interest generated from the strategic infrastructure component.
The strategic infrastructure component which shall also be funded in part by transfers from the holding account, shall also keep 50 percent of its interest income.
