The truth about the infrastructure bond

• Very few analysts will be persuaded that the funds will end up funding projects in the country

In this scenario investors have little options but to turn to the bond market for cheaper capital. Ironically, however, the government’s bond is in danger of: (a) reducing liquidity in a fragile market; (b) raising the cost of borrowing from the bond market; (c) putting the ability of corporates to access the bond market in the short to medium term at risk.

Hypothetically speaking, if the government bond remains undersubscribed – it will have a severe impact on the chances of corporates raising debt in the near future from the bond market. It will particularly hurt those that have already publicly disclosed their interest in doing so.

While the bond will have an impact on the availability of funds to other borrowers, I fear it will be hurt by the government’s failure to maintain fiscal discipline.

A different and preferable approach is for the government to cut interest rates; provide tax incentives to corporates wanting to access the bond market to spur a sluggish economy – and accelerate its Public-Private Partnership programme to tap into private sector participation.

I have no doubt that there is large ‘social infrastructure spend’ required in Kenya today – one that cannot be private sector financed. Separating out these projects from those that can be procured through a PPP structure, getting a grip on fiscal management and controlling the budget should be a higher priority, given the state of our economy.

Vishal Agarwal heads the Infrastructure Finance business for PricewaterhouseCoopers across sub-Saharan Africa. The views expressed here are his own.