Ideas & Debate
Navigating challenges hampering big projectsTuesday March 22 2022
Off the back of the Covid 19 pandemic and increased demands on the ever-limited public purse, Kenya like many other African countries, will be keen to scale up much-needed foreign direct investment to boost its economic recovery.
As many an investor has cited obstacles to investment, it is an opportune time for us as a nation to look at the systemic problems that sometimes make entry into the Kenyan market challenging.
Moreso in the case of capital-intensive infrastructure such as hospitals, housing, roads and power, that we so badly need to enable us meet our developmental objectives. It is said that money follows opportunity, but at the same time, opportunity waits for no man.
We must be cognisant that opportunities abound in other countries as well and we are effectively in competition for every investment dollar. If we do not address the ease of doing business in our country, investors will find many other suitors for their capital.
It is therefore worth looking at some of the systemic issues that have been blamed for stifling investment. First is the regulatory environment. Investors love certainty and this is a critical ingredient to attracting investor funds.
They must be confident that when they put in their hard-earned cash into Kenyan projects, the existing legal, policy and regulatory framework will hold steady for the investment period.
We have performed well as a country on this front although recent events in the power sector where a taskforce was appointed to review power purchase agreements between KPLC and independent power producers and a steering committee was subsequently appointed to guide on implementation of the taskforce recommendations, have caused some anxiety in investor circles.
That said, this still presents an excellent opportunity for the steering committee to reinforce investor confidence in the country’s legal framework, by the way in which it goes about implementing the report of the taskforce. Closely related is the issue of approvals and authorisations.
In certain sectors such as the power sector, a developer has to obtain more than 50 authorisations to get a project off the ground. To compound the situation, a good number of these authorisations come from different regulators. The question is whether due consideration has been given to the necessity of all these approvals. Can some of these be merged?
The model of a one-stop-shop such as that for special economic zones is an attractive one, as it provides one point for the processing of the myriad permits. Can we adopt this model for infrastructure projects as well?
Land remains a thorny issue when it comes to project development. The ongoing reforms at the land registries have taken a considerable amount of time and have been cause for many delayed transactions.
Separately, the magnitude of infrastructure projects is such that a good chunk of land required for their development, will have to be agricultural land situated in the less populous areas.
Therein lies the challenge as there are many restrictions around foreigners (or companies having foreign shareholders) acquiring agricultural land. At the same time, the level of investment required for such projects often calls for the deep pockets of foreign investors.
This has led to creative land structures aimed at circumventing this challenge, sometimes with dire consequences.
Who can forget the recent court decision where the courts ordered the developer of one of the largest power projects in the country to redo aspects of its land acquisition? We dare say that it is time land acquisition for large infrastructure projects was simplified, the first step being exemption from the legal provision constraining land ownership by foreigners.
This exemption has successfully been granted to some of the telecommunication companies and Ketraco, and could be extended to all other large infrastructure projects as well. Another issue worth thinking about is adoption of a holistic approach towards infrastructure development.
Under this approach, government would need to invest in planning and zoning areas for development at the outset.
In the case of road development for example, the government would also acquire the land needed for trunk infrastructure and other amenities such as hospitals, schools and parks at the same time (through a land banking model), even if these are to be developed at a later date.
What this does is to avoid government having to acquire land for supporting infrastructure at a much higher cost later on, due to the inevitable spike in land prices following initial development. It also leads to better-planned cities by avoiding haphazard developments around large infrastructure and is a cleaner approach to land acquisition as it is carried out once rather than on a per-project basis.
Fifth is the issue of capacity building. The public sector is tasked with delivering some of the most novel, complex and high value transactions that one will ever come across. It does so through ministries, state corporations, even counties.
As a developing country, many of these transactions are novel in our context. We should therefore prioritise capacity building for our public sector colleagues who are expected to structure, implement, operate and monitor the projects if we are to achieve the objectives of those projects and avoid some of the painful lessons that have been learned in other jurisdictions.
One need look no further than the famous Queen Mamohato Memorial Hospital PPP project in Lesotho in which it is argued that the Government of Lesotho lacked the technical capacity to negotiate the contract, and ended up agreeing to disadvantageous terms.
This has led to that single project gobbling up between 30 per cent and 50 per cent of the country’s annual healthcare budget at the expense of other healthcare facilities in the country.
Lessons — good and bad — should always be taken and what this example demonstrates is that very deliberate efforts are required to ensure that the public sector is equipped at all levels, to deal with the challenges that come with significant infrastructure projects.
Finally, as we head into the political season, issues around political risk become more pronounced. At the national level, investors are keen to know whether there will be peaceful elections and transfer of power and whether an incoming regime will continue to honour contractual obligations entered into by the predecessor government.
Some of these assurances are best given by looking at the country’s track record. Happily, we score highly in this respect. With a new PPP Act 2021, which is conducive to county PPPs, the same issues will be of concern to investors if county PPPs are to take shape.
There have been cases of incoming county chiefs disowning projects initiated by their predecessors and this will need to be checked if counties are to win investor confidence. Counties will also need to develop a good track record on matters of payment and adopt more of a corporate image where county affairs are institutionalized instead of sometimes being seen as the preserve of certain individuals.
Award-winning rapper, Eminem, challenges us as follows in one of his songs: “Look, if you had one shot or one opportunity to seize everything you ever wanted in one moment, would you capture it or let it slip?” We must not let this opportunity slip.
Let us work on streamlining and simplifying some of these processes to make Kenya a more attractive destination for infrastructural investment.
Beatrice Nyabira is a Partner and Head of the Projects, Energy & Restructuring Practice at DLA Piper Africa, Kenya (IKM Advocates)