The Nairobi County government is considering floating a green bond to help finance the estimated Sh150 billion cost of modernising the city’s infrastructure.
Newly elected Nairobi governor Johnson Sakaja said a bond is the best bet to finance the costly projects which include water and sewerage.
“The water and sewerage alone need over Sh20 billion to replace old pipes, install pipes in areas previously unserved and to develop new water sources,” he said on Thursday when he received a delegation from Nairobi Securities Exchange (NSE).
NSE chairman Kiprono Kittony said the bourse is ready to guide the county government to develop the bond, which would look to tap into the growing green finance segment that has already seen student housing developer Acorn Holdings raise more than Sh6 billion through a green bond.
Green bonds are specifically earmarked to raise money for climate and environmental projects, and are typically asset-linked and backed by the issuing entity’s balance sheet.
Infrastructure developments, while being major drivers of the economy through job creation, investments, promoting accessibility and boosting trade, are expensive to set up and have a long pay back period, making them the preserve of governments rather than profit-seeking private sector players.
There has therefore been limited private sector involvement in public infrastructure projects, bar the nascent Public Private Partnership (PPP) model that has so far yielded the Nairobi Expressway and the Kajiado–Isinya road.
“Please feel free to use the market as a source of capital. A low-hanging fruit for example is Nairobi Water Company, and we don’t need to raise foreign capital when we can get money from local investors,” Mr Kittony said.
NSE chief executive Geoffrey Odundo pointed out that the exchange can generate enough demand for a bond issued by the county.
“Nairobi is the second most attractive capital market after Johannesburg because of various incentives like the absence of capital gains tax, no currency controls, you can own 100 percent of a company and political stability,” he said
The Constitution allows a county government to borrow funds only if the national government guarantees the loan and with the approval of the county government’s assembly.
If it goes through, this will make Nairobi the second county after Laikipia since the advent of devolution to float a bond.
The Laikipia government has lined up about 16 projects for financing with the Sh1.16 billion for which it has received approval from Parliament to borrow.
The proceeds from the seven-year bond will be invested in water and sewerage, paving roads, walkways and cyclist paths as well as enhancing street lighting and enforced building zones.