President William Ruto of Kenya has proposed that Kenya serve as a test case for assessing African risk. He made this proposal at the Africa We Build High-Level Roundtable on regulation, risk, and reward in New York. The event was convened by the Africa Finance Corporation on the margins of the 81st session of the United Nations General Assembly. Ruto stated that Kenya will open its default and recovery data to rating agencies and accept changes to the methodology if the evidence supports them.
Ruto noted that financial rules are steering African pension savings towards government securities rather than infrastructure. He cited Kenyan pension funds, which hold 46% of their $24.7 billion in government securities but only 0.02% in infrastructure debt. The rules allow pension funds to invest up to 10% in infrastructure. Ruto argued that Africa's problem is not the amount of capital available but the set of rules that decide where that capital is allowed to go.
The President returned to an argument he made at the inaugural Africa We Build Summit in Nairobi in April. He emphasized that African countries should use domestic capital to finance their own infrastructure. Ruto used the example of a teacher in Eldoret who has contributed to a pension fund for 20 years to illustrate his point. He noted that the teacher's savings are more likely to sit in a US Treasury bill than in a nearby geothermal plant.
Ruto made four requests to rating agencies, insurers, regulators, and other institutions involved in financing. These requests include pricing African risk against African experience, making insurance on productive assets affordable, ending penalties on long-term assets in prudential and liquidity rules, and building bankable project pipelines. He emphasized that Africa can no longer rely on external financing to meet its infrastructure needs.
The Africa Finance Corporation's President and Chief Executive, Samaila Zubairu, framed the wider problem in similar terms at the Nairobi summit. He said Africa is "not capital-poor; it is capital-trapped." Ruto now wants African risk assessed using evidence from African markets rather than assumptions that he argues can make projects and countries appear more expensive to finance.
Kenya has begun putting some of the proposed financing mechanisms in place. Ruto mentioned the National Infrastructure Fund, signed into law in March, which aims to mobilize up to $40 billion for roads, ports, power, and water without new public debt. In May, Kenya listed its first infrastructure fund on the Nairobi Securities Exchange and raised $23.4 million with United Kingdom support.
The broader goal, Ruto said, is to make it as easy for African institutional investors to finance productive assets as it is to buy government debt. He stated that the day a Kenyan pension trustee can buy a Kenyan power station as easily as she buys a Treasury bill, the argument will be over. Ruto proposed that the roundtable establish a working group based in Nairobi to continue the work and report to the next Africa We Build Summit in 12 months with findings backed by numbers.
Key points
- Kenya offers to open default and recovery data to rating agencies
- African pension savings are steered towards government securities rather than infrastructure
- Ruto wants African risk assessed using evidence from African markets
