How a Sovereign Wealth Fund can help Kenya

There is trouble in #Kenya! In recent weeks there have been protests against President Ruto's Tax Bill which has now been withdrawn and his leadership and handling of the economy severely challenged. In a televised interview President Ruto explained the logic behind the Tax Bill and how he desired to use the revenues to pay down debt and increase public expenditure. Kenya has $80 billion of debt of which $35 billion is owed to foreign lenders including #IMF, #WorldBank and #China (VOX, 2024). Servicing these debts has meant that the government is not able to allocate adequate capital to invest in infrastructure, healthcare and manufacturing. Unemployment, high inflation, mismanagement and corruption have angered Kenyans of which 16% of the population live below the international poverty line.

President Ruto has promised to open a dialogue with the people and has asked for time to come up with a new strategy. At this crucial conjecture what Kenya needs is a new and novel approach to avoid further debt, increase its revenues and accelerate its domestic development. One solution is the creation of a new #SovereignWealthFund for Kenya.

There are currently 18 Sovereign Wealth Funds (SWFs) in #Africa (IFSWF, 2024) of which 66% have a mandate to develop their domestic economies. These include the following:

1. Fundo Soberano de Angola (Assets Under Management: $2.17 billion)
2. Pula Fund ( $4.89 billion)
3. Cape Verde Sovereign Wealth Fund ($122.8 million)
4. Fonds Souverain de Djibouti ( $120 million)
5. The Sovereign Fund of Egypt ( $12 billion)
6. Ethiopian Investment Holdings ($138.4 billion)
7. Fonds Gabonais d’Investissements Stratégiques ($500 million)
8. Ghana Petroleum Funds ( $540 million)
9. Ghana Infrastructure Investment Fund ($330 million)
10. Libyan Investment Authority ($68.4 billion)
11. Fonds National des Revenus des Hydrocarbures ($159 million)
12. Mauritius Investment Corporation ( $1.85 billion)
13. Ithmar Capital ($2.3 billion)
14. Welwitschia Fund ($20 million)
15. Nigeria Sovereign Investment Authority ($2.42 billion)
16. Agaciro Development Fund ($257.2 million)
17. Fonds Souverain d’Investissements Stratégiques ($846 million)
18. Petroleum Investment Fund ($120.6 million)

Traditionally SWFs have been used to act as a savings mechanism using surplus natural resource revenues such as oil and gas. However in the post-pandemic era SWFs have evolved and become far more sophisticated investment vehicles and are being used to attract Foreign Direct Investment for large bankable projects. This is an important development considering the Asymmetries that exists for investors and their perceived risks, hence SWFs can be used to de-risk projects. 50% of the African SWFs are being used to attract FDI and co-invest via Public-Private Partnerships. The Africa Sovereign Investment Forum is bringing together African SWFs to address current challenges across the continent and encourages engagement and collaboration amongst its members.

Kenya has abundant natural resources much of which remains untapped these include mining and quarrying, forestry and logging, fishing, agriculture, gold, coal, gemstones, and titanium. Kenya has petroleum resources and has four exploration basins; it is estimated that Kenya has around 3.5 to 4 billion barrels of oil within its Turkana oil fields with 585 to 750 million barrels of proven extractable oil. Oil revenues could be used initially to fund a Kenyan SWF. In 2023 Kenya made its first shipment of 200,000 barrels of oil to the international market and it is estimated that full production will begin by Tullow Oil in 2026.

While it will take time to build up a SWF, a Kenyan fund could use its initial funding to invest in climate smart infrastructure and renewable sources of energy. Therefore a Kenyan fund should be mandated primarily to develop the domestic economy including its agriculture and manufacturing capacity. Kenya is a democracy with a highly developed economy, according to a recent report it is one of the top 4 destinations for start-ups and innovative companies across Africa (Disrupt Africa, 2023). As well as a growing entrepreneurial sector, there are ample large bankable projects which require hundreds of millions of dollars and a Kenyan fund could be established to attract suitable investors. In view of current political climate I would recommend that President Ruto now revisits the 2014 bill (which has been gathering dust) or reconsiders a new bill to establish Kenyan SWF.

Given the current political climate I would recommend that the Kenyan government approach large SWFs with substantial capital such #Public Investment Fund (PIF) of #SaudiArabia, #QIA of Qatar or #Mubadala of Abu Dhabi and engage in a Sovereign Investment Partnership (SIP). They provide the capital and the Kenyan government provides the opportunity. A win-win situation.

I believe that Kenya is a land of opportunity for investors and with the right policies and strategy it can break away from the chains of debt and despair. In the words of a great guru:

" Those who say it cannot be done, should get out of the way of those who are doing it".