Kenya National Assembly: NIF Investment Policy Sets 7 Percent Minimum Equity Return

• The proposed Investment Policy for the NIF sets a minimum expected equity return of 7 percent.
• Exposure to individual sectors and projects is capped at 40 percent and 20 percent of the Fund's assets, respectively.
• Infrastructure projects financed through the Fund must have a minimum debt capacity of 60 percent through non-recourse project debt.
• The policy requires independent technical and financial assessments of investments and includes a political independence clause.

By setting a minimum expected equity return of 7 percent, the NIF is sending a signal that it expects its investments to generate substantial revenue.

The proposed Investment Policy for the National Infrastructure Fund (NIF) has significant implications for Kenya's infrastructure development. The policy aims to strike a balance between financial returns and risk management, which is crucial for large-scale infrastructure projects. By setting a minimum expected equity return of 7 percent, the NIF is sending a signal that it expects its investments to generate substantial revenue. At the same time, the policy's limits on exposure to individual sectors and projects are designed to mitigate financial risks. This approach could have far-reaching consequences for public-private partnerships in Kenya, as it sets new guidelines for financial risk management and investment returns. Lawyers should pay close attention to the potential impact of this policy on infrastructure projects, particularly those involving public-private partnerships.

The NIF was established in March as a government investment vehicle to finance large-scale infrastructure by pooling public and private capital. The Fund's primary objective is to reduce reliance on external borrowing and taxpayer funding, which can be costly and unpredictable. To achieve this goal, the NIF will invest in a range of infrastructure projects, including national highways, railway networks, airports, seaports, and electricity generation, transmission, and distribution infrastructure. Additionally, the Fund will finance ICT infrastructure, water reservoirs, irrigation, and agribusiness infrastructure. The policy's focus on commercial viability as the main investment test means that projects must demonstrate sufficient demand before receiving funding.

The proposed Investment Policy for the NIF includes several key provisions aimed at managing financial risks. For instance, the Fund will not undertake balance-sheet borrowing, and exposure to individual sectors and projects is capped at 40 percent and 20 percent of the Fund's assets, respectively. Furthermore, infrastructure projects financed through the Fund must have a minimum debt capacity of 60 percent through non-recourse project debt. The policy also requires independent technical and financial assessments of investments, as well as a political independence clause aimed at protecting investment decisions from political interference.

Lawyers should watch for the proposed NIF investment policy's potential impact on infrastructure projects in Kenya, particularly those involving public-private partnerships, as it sets new guidelines for financial risk management and investment returns.

Source: Original reporting via Capital FM