Infrastructure for Economic Growth and Shared Prosperity in Kenya: Addressing Infrastructure Constraints, Promoting Economic Growth, and Reducing Inequality

Challenge

Kenya has performed well in the past decade in terms economic growth, mainly driven by the services sector, both traditional and modern. Expansion in services such as financial intermediation and mobile communications has stimulated demand for other services such as trade. Maximizing the potential of services can continue to spur economic growth, especially given that most formal, high quality jobs are in this sector. 

Agriculture, which still contributes to more than quarter of the economy (and employs most of the rural poor) and manufacturing have stagnated. Due to the stagnation, agriculture and manufacturing have not been able to create enough jobs for Kenya’s growing working population. Most of the jobs are created by the informal economy and are concentrated in the low productivity segments of hospitality, trade, etc. Improving the ease of doing business is one way toward job creation and higher productivity in the manufacturing sector. There is still a need for creating job opportunities for the rural poor for poverty reduction and achieving shared prosperity. Reviving agriculture remains the pathway for poverty reduction.

Other development challenges include maintaining macroeconomic stability to boost savings and investments; continuing to build Kenya’s energy and transport infrastructure to ease costs of doing business and improvement competitiveness; ensuring efficiency in public investment management process and better execution; tackling the issue of perceived petty and grand corruption; and addressing security challenges posed by the terrorist group Al Shabaab.  

Approach

The World Bank Group’s (WBG) program of support for the medium term, FY2014 to FY2018, addresses Kenya’s development challenges through three areas of engagement:  competitiveness and sustainability, protecting the vulnerable and helping them develop their potential, and (iii) building consistency and equity. Connecting the three areas is a platform of garnering good governance. A selective test was used to determine the three domains, the sectors within each domain, and to make trade-offs between particular operations and Advisory Services and Analytics (ASA). Support is provided through a portfolio of projects and knowledge products, leveraging comparative advantages of each of the three institutions – International Development Association (IDA)/International Finance Corporation (IFC)/Multilateral Investment Guarantee Agency (MIGA) and other development partners. Working as one WBG has helped to attract financing in the energy sector, while partnerships/trust funds with other donors have funded interventions in health, education, social protection, and access to clean water, sanitation services and electricity (more than 150,000 households in informal settlements connected to electricity).

Results

Through International Development Association (IDA) support:

• 280MW new geothermal capacity has been commissioned, almost doubling Kenya’s developed geothermal capacity to 579MW from 241MW in 2013
• 2,146,701 new customers had been connected to electricity supply by June 2015 compared to a target of 285,000Since commissioning, the two plants have generated 2,316 GWh displacing units that would have been generated from thermal plants. This has led to significant savings in fuel costs, and consequent reduction in electricity price paid by consumers.
• Work on the drainage in Mombasa has protected 200,000 residents from periodic flooding and an estimated 900,000 urban residents (50% women)  currently benefiting from improved infrastructure (29.6km of drainage completed, 16.9km of roads rehabilitated, 105.8km of foot and cycle paths built and 544 street and high mast security lights installed and operating)
• Supported transformation of the roads subsector in Kenya through implementation major institutional and policy reforms – roads policy, established size of road network and its reclassification, etc.)
• Construction of new terminal (Terminal 1-A) at Jomo Kenyatta International Airport with capacity of 2.5 million passengers annually doubled the capacity for existing facilities.
• Kisumu airport was expanded into an international airport – extended the runway by 300m and construction of new terminal building with annual design capacity to handle 500,000 passengers. The airport is currently handling 450,000 passengers and plans are underway for further expansion.
• 150,532 additional households have been enrolled in the National Safety Net Program since July 2013 under the expansion plan agreed by the Government of Kenya.

IDA Box on results

• Energy
  • With WBG support, there is now 400 MW of geothermal energy production on stream in Olkaria, and new power is already reaching millions of homes and the price of electricity has fallen by 30% over the past year. Beside, Kenya leads the way in having more than half of all its energy from climate-friendly sources.
  • More than 150,000 households in the informal settlements were connected to legal power in just one year (2015) up from 5,000 households in 2014.
• Urban Sector
  • More than 200,000 Kenyans got access to paved roads, drainage systems, high mast flood lights, and improved water and sanitation services
  • 1.3 million People have been provided with access to improved water sources - including 100,000 in informal settlements, and over 212,000 people connected to the sewage network. 62,650 women have access to improved water sources in areas supported by Bank operations
• Social Protection
  • Cash transfer support programs provide regular, predictable cash transfers to over three million poor and vulnerable households. More than 2.6 million individuals are benefiting from cash transfer support through the National Safety Net Program, up from 1.7 million in 2013.
• Transport
  • Rehabilitation of 400 km of road under the Northern Corridor Transport Improvement Project reduced transit time from Mombasa to Nairobi by 30%.
  • Independent roads entities have been created while aviation sub-sector institutions now have financial autonomy and strengthened oversight aviation security and safety.
  • These efforts have helped ease cost of doing business, improved business climate, and strengthened regional integration in East Africa Community.
• Health
  • After reconfiguration, the Kenya Medical Supplies Authority (KEMSA) has a self-sustaining model to respond to the needs of 47 counties in the devolved health system.
• Agriculture
  • A World Bank Group project has financed nearly 500 projects in Western Kenyan communities, increasing the income of more than two million Kenyans by 28% since 2007.

Bank Group Contribution

As of April 11, 2016, the International Development Association (IDA) portfolio consists of 33 projects with net commitment of approximately $5.5 billion. The biggest investments are in infrastructure sectors mainly transport, energy, water and urban development, followed by social sectors – health and social protection. International Finance Corporation (IFC) current investment portfolio is $948.4 million in 18 operations, while its pipeline is $117 million in six operations. Key sectors are finance and insurance, infrastructure, oil and gas, electricity, and manufacturing. The Multilateral Investment Guarantee Agency’s (MIGA) exposure in Kenya is $271 million. Trust funds contribute a significant part of our portfolio, mainly Advisory Services and Analytics, with approximately $108 million in active trust funds. The WBG is playing a lead role in supporting capacity building for Kenya’s devolution through a $200 million Program for Results and a $22 million multi-donor trust fund.

Partners

The WBG has maintained close partnerships with other donors, such as the African Development Bank, European Union, United Kingdom’s Department for International Development (DfID), etc. For five years, until December 2014, the WBG was the co-Chair (together with other bilaterals) of the Development Partners Group (DPG). The DPG is active and meets on monthly basis to share concerns and also make joint decisions on issues of external financing, in support of Kenya’s development aspirations.

The WBG also collaborates with the IMF on macroeconomics, and is fostering specific partnerships with UN Agencies. The World Bank Group is working with United Nations International Children's Emergency Fund (UNICEF) on result-based financing for health and on the health sector services fund, working with UNFPA in preventing maternal health and improving access to contraception services. The United Nations Population Fund (UNFPA) was the procurement agency for condoms under the World Bank’s funded project – Total War Against HIV/AIDS (TOWA).

The WBG is working with the World Health Organization (WHO) to develop a broader health financing strategy, health system strengthening, disease surveillance (including containment of Ebola), and harmonization of pharmaceutical regulations. The DfID is contributing $56 million to the Social Protection Program with cash transfers to orphans and vulnerable communities (OVC). A $22 million Multi Donor Trust Fund (MDTF) (with contributing partners Sweden, Finland, United States, DfID, Danish International Development Agency (DANIDA) and European Union supports Kenya’s Devolved system of government.

Moving Forward

The WBG will continue to broaden its support to Kenya to effectively address the pressing challenges of sustainable development with focus on improving the business environment to attract private investment;  investment in infrastructure (transport, energy and urban development);  improving the delivery of public services (especially for the poor);  addressing the needs in lagging counties, and  helping to create decent job opportunities, particularly for the youth.

Voices of the beneficiaries

“In 2008, I was getting only four liters of milk a day. Today, I get an average of seventeen liters of milk and this has helped educate my children,” Geoffrey Kokonya, a member of the Nambale Farmers Dairy Cooperative Society which has been supported by the Western Kenya CDD project

“With the support from the World Bank, my center has trained health workers to ensure that the 150 disabled children living with HIV/AIDS have access to nutrition, medicine, and home care”. says Grace Seneiya, founder of the Samburu Handicapped Education and Rehabilitation Program (SHERP)

“Five years ago, there was no business in Mlolongo and I was jobless. I now have a job and I can feed my family. With the highway, there many customers travelling, eating, lodging, I feel very safe. I am happy because my family is stable, I even brought my children from the village to stay with me. I am able to pay school fees for them and also pay house rent,” Christine, a Housekeeper at Sweet Dreams Guest House at Mlolongo, a town along the Northern Corridor.”