Infrastructure development bonds for financing industrialisation

What you need to know:

In this piece, I cover the Infrastructure Development Bonds. Larger part of this article is dedicated into emphasizing the relevance of infrastructure development to a society. In the later part of the article, I will explain the concept of infrastructure development bonds.

Traditional tools of financing infrastructure i.e. international development financial institutions, development aid, fiscal mechanisms, and domestic capital markets (via issuance of general purpose bonds) needs a re-thinking and re-strategizing because the current level of infrastructure investment is far too low, for them only, and as a result too many worthwhile infrastructure projects go unfunded. However, the government’s initiatives and activities (such as those depicted in the FYDP-II) might help interested parties to build more of infrastructure projects by bringing together the public and private sector to identify challenges and explore creative financing strategies–in water, transportation, energy, communication, etc. Proposals in this (and others) echo into a growing push to make infrastructure financing more accessible to a wider range of institutions and individuals, provide more flexibility for the government, and offer more opportunities for the private sector to take an active role in financing, designing, building, maintaining, and operating public infrastructure assets. As a country, we should be poised to take significant steps in mobilizing new sources of funding to finance our infrastructure development. There is thus an urgent need in developing a financing strategy for infrastructure that aims to increase the resources available for investment such large and complex projects which requires us to mobilise different sources of capital through a variety of financial instruments, vehicles and markets. As is, our financial sector development has been hampered by the lack of liquid, longer-term, domestic investment instruments. This has made it difficult to address the vast and growing infrastructure needs. However, the current declining access to external funding highlights the urgent need for the government to mobilize resources from domestic capital markets to meet our development needs. This is where ideas such as infrastructure development bonds gains their traction.

In addition to funding, new structures are required to channel resources for our development. Given the nature of physical infrastructure projects that normally require large-scale and long-term financing in a mix of local and foreign currencies, attention has recently been paid to “infrastructure development bonds”. We do not have to invest the wheel, we can draw useful lessons from emerging countries in terms of infrastructure development. Countries, like Malaysia, Korea, Hong Kong, Chile, Brazil, even Kenya have already begun to do this (Kenya’s infrastructure bonds market is currently worth about Ksh155 billion, equivalent Tsh2.6 trillion). These countries have positioned their own private sector to play a role in infrastructure projects, and also to engage in strategic partnerships with foreign companies.

Infrastructure development bonds for financing industrialisation

What you need to know:

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