Kenya to spend Sh156 billion on physical projects

Roads sector will be the main beneficiary of the Sh156 billion set aside for physical infrastructure development in the next financial year. Photo /WILLIAM OERI

What you need to know:

  • Roads sector to take lions share followed by transport, housing and public works

The government is to pump Sh156 billion into physical infrastructure in the 2010/11 financial year.

This is expected to exert more pressure on taxpayers and local equity market as the budget will be highly domestic dependent.

In essence, this means that the government will spend Sh16 billion more in the next financial year. In the current year, the government capped its spending at Sh140 billion, a large chunk of it consumed by roads projects.

The physical infrastructure consists of roads, public works, transport, energy, local government, Nairobi metropolitan development and housing segments of the economy.

According to Budget Outlook Paper 20010/11 – 2012/13 seen by the Sunday Nation, infrastructure expenditure is equivalent to 23.3 per cent of total budget of which Sh43 billion will be recurrent while Sh113 billion development.

The allocation, according to Treasury is expected to go up to 24.2 per cent (Sh185.4 billion) by 2012/13, reflecting the critical role infrastructure plays towards reducing cost of doing business.

Of this amount, roads will take the lions share at Sh83.5 billion, transport Sh8.6 billion, housing Sh4.2 billion, public works Sh6.6 billion and energy Sh35.5 billion.

Local Government will get Sh15.9 billion and Nairobi metropolitan Sh1.8 billion. Infrastructure is one of the key factors that foreign investments go for in making decisions.

Taking for example energy, a number of manufacturing firms have in the recent past been forced to relocate blaming it on high electricity costs.

Even well-established and hitherto dominant multinational companies in Kenya are suddenly finding themselves sailing in turbulent waters due to high energy costs.

The Kenya Association of Manufacturers says that production costs in Kenya are some of the highest globally with the energy factor alone constituting over 40 per cent of the total manufacturing costs.

While Kenyan firms are paying between Sh10 and Sh15 per kilowatt of electricity, their competitors in China and India pay the equivalent of between Sh2.50 and Sh3.80 for the same unit. Therefore, this makes their products much cheaper.

The country has been relying on the unpredictable hydropower generation and the costly thermal energy but according to a new direction, the Ministry of Energy is moving to invest more in renewable energy sources such as geothermal, wind, coal and solar.

In the country’s long term development blue print, The Kenya Vision 2030, infrastructure has been recognised as an enabler of sustained development particularly for the six areas such as tourism, business process outsourcing, wholesale and retail, manufacturing, financial services and agriculture and livestock identified under the economic pillar.

In the Budget Outlook Paper, Finance minister Uhuru Kenyatta says during the 2010/11 financial period, Treasury anticipates revenues at Sh629.2 billion, about 22.4 per cent of GDP.

Overall funded expenditures are projected at Sh821.5 billion or 29.3 per cent of GDP compared to Sh722.4 billion or 30.3 per cent of GDP provided for in 2009/10 budget.

From the document, Mr Kenyatta says total funded recurrent expenditure in 2010/11 amounts to Sh537.3 billion or 19.2 per cent of GDP, compared with Sh507.1 billion or 19.9 per cent of GDP in 2009/10 Budget.

The overall development expenditure amounts to Sh281.2 billion or 10 per cent of GDP, which is Sh20 billion above the provision in 2009/10 Budget.
Domestic financing will constitute 60 per cent of the overall development budget at Sh164.7 billion.

However, over 20 per cent of this expenditure is already committed in the form of Constituency Development Fund (8 per cent) and Counterpart Funding for donor-funded projects (about 10 per cent).

He says since recovery is still fragile, the government will continue with the economic stimulus programme initiated in the 2009/10 financial year.

The development outlays in the next financial year will, therefore, include Sh22 billion earmarked for the economic stimulus programme and another Sh4 billion toward irrigation agriculture.

A drought expenditure of Sh1 billion and civil contingency fund provision of Sh2 billion has been provided for in the Budget for 2010/11.

The overall budget deficit (including grants) in 2010/11 is projected at Sh153.5 billion (equivalent to 5.5 per cent of GDP), down from Sh168.2 billion (6.6 per cent of GDP) in 2009/10.

Mr Kenyatta says the net external financing amounting to Sh51.6 billion (1.8 per cent of GDP) is expected to cover part of this budget deficit and will be limited to concessional loans only in order to contain debt to a sustainable level.

He says that if global financial conditions improve sufficiently, Kenya will consider issuing an international sovereign bond.

Kenya postponed its Sh38 billion ($500 million) eurobond initially set to be issued in the financial year 2008/9 because of the turmoil that gripped key source markets for capital.

But Treasury officials have said that the bond would be issued as soon as circumstances in the global markets improve substantially.

Already advanced markets have shown signs of having recovered although consumption and production is still weak and there has been talk of a double-dip recession - where an economy seems to recover only to slip back into recession.

The balance of about Sh101.9 billion will be financed through domestic borrowing of about Sh95.3 billion which includes local infrastructure bonds of Sh28.6 billion.

This leaves a financing gap of Sh6.6 billion, which will be filled through improved revenue when the macroeconomic forecast is finalised under the 2010 Budget Strategy Paper.

The 2010/11 Budget framework has not factored in privatisation proceeds from planned sale of government shares in various parastatals as these revenues have proved very unpredictable in the recent past.