Bond-Issue to boost Finance for Infrastructure

Kenya hopes to raise close to US$ 1.5bn in an ambitious international bond issue aimed at revamping the crumbling colonial-era infrastructure and to accelerate East Africa’s largest economy. The hunt for liquidity from the global capital markets is central to government efforts to close an unhappy chapter marked by political instability, drought and the fall-out from the international financial crisis that conspired to push economic growth down to 1.5%. Kenya’s economy has since recovered from the 2007-2008 election-related violence, and is protected to expand 5.6 percent in 2013. The government has now set its sights on double-digit growth within five years and middle-income status by 2030. “We are optimistic the issuance will be overly subscribed,” Haron Sirima, deputy governor of Kenya’s Central Bank said last week on the sidelines of a International Monetary Fund conference on Kenya’s economic prospects. The bond issue, planned for late November 2013, would be the largest debut by a sub-Saharan African nation, and follows successful moves by Ghana, Rwanda and Zambia.

h3. Investor Interests

“African countries are taking advantage of these historically low rates,” said Kitili Mbathi, managing director for CfC Stanbic Holdings. Carmen Altenkirch, an analyst for Fitch Ratings, said African nations also wanted to tap into renewed investor interest in Africa. What started out as interest in natural resources “…over the past five years, this had muted also into Africa’s financial assets,” she said. Antoinette Monsio Sayeh, Africa director at the International Monetary Fund, said she understood that the cash raised would go to paying off more expensive debt and “addressing infrastructure challenges”. Kenya’s main port of Mombasa, congested roads and century-old railway link — which dates back to a time when Nairobi was little more than a railway depot — are all major bottlenecks to trade. “We think Kenya is in a very good place,” Sayeh told reporters, describing investors as “very gung-ho on Kenya these days”. She praised Kenya’s “sound monetary and fiscal policies” including steps to bring inflation down from 14% in 2011 to around 5% this year.

In a keynote speech, Kenyan President Uhuru Kenyatta admitted that a timid reduction in poverty rates, from 52% in 1997 to 46% in 2006, was “neither satisfactory nor compatible with our stated aim to become a middle-income country by 2030.” He also said he wanted to see Kenya undergo an “industrial revolution to power our ambition of becoming a middle income country by 2030” — a formidable challenge for a mostly agrarian economy with a burgeoning youth population.

h3. Increased Scrutiny

At the Nairobi conference, which carried the optimistic title ‘Ready for Take Off’, there was nevertheless some cautious sentiment. The meeting coincided with the second week of the trial of Kenya’s Vice President William Ruto, who is accused of masterminding some of the 2007-2008 ethnic unrest that left at least 1 100 dead and more than 600 000 homeless. President Kenyatta is also facing charges of stoking the violence, and his own trial begins at the Hague-based International Criminal Court on November 12. He also denies the accusations. The IMF’s Sayeh asserted that both politicians were cooperating with the ICC and that investors did not appear to have been put off. However, a Western source said the ICC trials added “a degree of political instability” to Kenya’s outlook — especially if either takes the course of non-cooperation and arrest warrants are issued. Sayeh said Kenya’s fiscal conduct “will be more closely scrutinised”, noting that the conditions of its other fresh debt — $5bn of infrastructure deals with China signed last month — would also have to be examined. “It will be very important to continue the efforts on the fiscal side that are underway to have a medium-term fiscal policy that is seen to be well crafted,” she said. “Kenya will have to continue to be prudent over what it borrows and what it borrows for.”

Charles Robertson, global chief economist at Renaissance Capital and an emerging markets specialist, warned that banks, which get paid to organise bond placements, encourage Kenya to borrow too much. “The risk is that they borrow too much, that the budget deficit, the current account deficit get too large and that the economy overheats.”

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