Transcript infrastructureafrica.org

Kenya’s Infrastructure:
A Continental Perspective
February 3rd and 6th, 2009
Vivien Foster & Cecilia Briceño-Garmendia,
World Bank
Methodology and approach
• Methodology
– Data collection by local/international consultants and
Bank staff based on standardized methodology
– Baseline year for data is 2006, does not reflect
subsequent evolution
• Approach
– Focus on benchmarking Kenya’s infrastructure
against African neighbors
– Benchmarking group includes LIC (non-fragile), East
African neighbors, South Africa, and regional outliers
Why infrastructure matters
Infrastructure’s contribution to growth in Kenya
has been less than in other African countries
Changes in growth per capita due to changes in infrastructure
(2001-5 vs. 1991-5)
2.0
1.5
1.0
0.5
G
ui
ne
aBi
ss
au
Et
hi
op
ia
a
en
y
K
So
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A
ia
Ta
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an
da
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n
U
M
au
rit
iu
s
-0.5
fr
ic
a
0.0
Telecom
Electricity
Roads
As a result, Kenya has a lot to gain from
improving its infrastructure
Potential changes in growth per capita from improving infrastructure to
level of African leader (Mauritius)
5
4
3
2
1
Main Telephone Lines
Electricity Generating Capacity
au
rit
iu
s
M
A
So
ut
h
-2
fr
ic
a
a
en
y
K
ia
Ta
nz
an
Et
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op
ia
da
ga
n
U
N
-1
ig
er
0
Length of Road Network
The State of
Kenya’s Infrastructure
Kenya’s transport network
Key findings for the road sector







Trunk network: of adequate length and adequate surface type
Rural network: RAI 30% among best in Africa, although low in
absolute terms
Institutional framework: high quality sector institutions
Fuel levy at 12 US cents, which is close to Kenya’s
maintenance norms; no major collection problems
Good maintenance provision, but huge unfunded rehabilitation
backlog, which absorbs maintenance funding
Relatively low overall roads spending, exacerbated by
exceptionally low capital budget execution ratios and major
implementation time and cost over-runs (26mos)
One-time spending spike would help clear the backlog, it is
currently being implemented
Benchmarking indicates good quality,
density low but adequate for connectivity
Paved road density
Unpaved road density
GIS Rural accessibility
Paved road traffic
Unpaved road traffic
Paved network quality
Unpaved network quality
Perceived transport quality
Unit
LIC
Kenya
MIC
km/1000 km2
of arable land
km/1000 km2
of arable land
% of rural pop within 2
km from all-season road
86.6
152
507.4
504.7
930
1,038.3
21.7
32
59.9
1,049.6
1,108
2,786.0
62.6
38
12.0
80.0
84
79.0
57.6
63
58.3
23.0
37
10.7
Average Annual
Daily Traffic
Average Annual
Daily Traffic
% in good or fair
condition
% in good or fair
condition
% firms identifying as
major business constraint
Source: Preliminary results AICD 2008
Fuel levy well aligned with maintenance needs
and promptly collected
Tanzania
Optimal levy for
maintenance plus
rehabilitation
Kenya
Optimal levy for
maintenance
Ethiopia
Actual fuel levy
Ghana
Niger
Implicit fuel levy
0
5
10
15
20
US cents per liter
25
30
Spending as % of requirements
Adequate provision for maintenance but large
shortfall in allocation to rehabilitation
300%
250%
200%
150%
100%
50%
0%
-50%
Ethiopia
Tanzania
Uganda
-100%
-150%
Maintenance
Rehabilitation
Kenya
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
35
25
20
15
10
5
a
So
ut
h
A
fr
ic
ya
K
en
Ta
nz
an
i
a
nd
a
U
ga
ia
hi
op
Et
aw
i
0
As % GDP
US$ per capita
US$/cap
30
M
al
% of GDP
Road investment average in absolute terms
with room to be increased as share of GDP
Key findings for the air transport sector


One of Africa’s leading players in air transport: key gateway
Air transport services:
 International: Kenya Airways of SSA’s top three carriers and
concentrates a large share in a oligopolistic market, safety rankings
up to international benchmarks
 Domestic: 4th largest domestic passenger traffic in Sub-Saharan
Africa (after South Africa, Nigeria and Mozambique) with a marked
trend toward route consolidation

Airport infrastructure:
 Kenyatta Airport in Nairobi among the three major SSA hubs
 Runway capacity not a limiting factor but major capital investment
needed for taxiways, parking and terminal space

PPI and Regulation:
 Greenfield project for Kenyatta Airport Cargo terminal (1998)
 Formed but not fully implemented East African Civil Aviation
Authority Enforcement aims at better safety at regional level
Key findings for the maritime transport sector

Mombasa one of the largest ports in Sub-Saharan Africa (both in cargo
and container handling). Natural transshipment port for East Africa

Maritime transport services:
 Recently introduced modern frontline cargo handling improving
performance, yet Mombasa runs under a service port model
ranking among the least advanced reformers in SSA
 PPI experience mixed, with the only cancelled management
contract in this sector (Operation Mombasa container terminal),
but grain terminal concession operating very efficiently
 Mombasa congestion worsened by poor interface transport system
with roads and railways

Maritime infrastructure:
 Mombasa port facing sever capacity constraints (ratio
demand/capacity over 80% for both cargo and container traffic)
consequently role in transshipment is declining
Key findings for the rail sector
 Rail in bad condition, 50% of assets in need
of rehabilitation
 25-year concession recently signed. Plans
for a $206m investment over 5 years
announced for rehabilitation of tracks
 ….
Key findings for water and sanitation sector

Water
 Average levels of access, but worrisome increase in use of
surface water
 In urban areas, utilities capture only 57% of corresponding
revenues, institutional reform agenda recently advanced
 In rural areas, little progress with reform agenda and
discouraging trend in use of surface water

Sanitation
 Majority of population using traditional latrine and flush toilet
(only urban)
 Discouraging increase in people practicing open defecation
Benchmarking indicate good access to piped
water but high reliance on surface water
Access to piped water
Access to stand posts
Access to wells/boreholes
Access to surface water
Access to septic tanks
Access to improved latrines
Access to traditional latrines
Open defecation
Domestic water consumption
Urban water assets in need of rehabilitation
Revenue collection
Distribution losses
Cost recovery
Total hidden costs as % of revenue
US cents per m3
Residential tariff
Non-residential tariff
Unit
% pop
% pop
% pop
% pop
% pop
% pop
% pop
% pop
liter/capita/day
%
% sales
% production
% total costs
%
Kenya
38.9
45.7
LIC
10.1
16.1
38.3
33.8
5.3
9.3
47.9
37.1
72.4
35.5
96.0
33.0
56.0
130.0
Kenya
17.9
9.4
21.6
46.4
9.0
8.0
64.3
18.3
63.0
42.0
95.0
40.0
58.0
173.9
Scarce water
resources
60.26
120.74
MIC
56.4
20.4
6.3
13.9
44.0
0.9
33.0
15.8
Na
25.0
81.1
6.1
80.6
84.9
Other Developing
Regions
3.0 – 60.0
Source: Preliminary results AICD 2008
% population getting
access every year
Growing reliance on surface water and static
trend in improved sources is worrisome
5%
4%
3%
2%
1%
0%
Water
r
r
s
s
e
e
t
e
t
t
l
s
a
a
o
o
h
w
w
p
e
e
r
d
d
c
e
o
n
a
rf
ll/b
Pip
Sta
u
e
S
W
Kenya
SSA
Hidden costs of water utilities high, due to
distribution losses and under-pricing
Nigeria
Ethiopia
Tanzania
Kenya
Uganda
South Africa
Cape Verde
0%
50%
100% 150% 200% 250% 300% 350%
% of revenues
Unaccounted losses
Collection inefficiencies
Under-pricing
Reliance on surface water increasing in rural areas
and little progress on rural sector reform agenda
Niger
South Africa
Reducing
reliance on
surface
water
Increasing
reliance on
surface
water
Uganda
Tanzania
Ethiopia
Chad
Kenya
Aggressive reformers
scoring over 80% on
Rural Reform Index
Sudan
Rwanda
Moderate reformers
scoring 40-80% on
Rural Reform Index
Ethiopia
Chad
Slow reformers scoring
under 40% on
Rural Reform Index
Tanzania
Uganda
Burkina Faso
0%
20% 40% 60% 80% 100%
Rural Index score
Kenya
Niger
% population getting
access every year
Discouraging trend in open defecation and
relatively slow expansion of traditional latrines
Sanitation
5%
4%
3%
2%
1%
0%
-1%
s
s
s
e
e
on
i
n
n
-2% t ank
t
i
i
a
tr
tr
c
a
a
c
l
l
e
i
l
d
ef
a
pt
e
d
n
e
S
io
t
en
r ov
i
p
p
d
O
Im
Tra
Kenya
SSA
Key findings on the power sector
 Access rates lower than regional averages
 Institutional reform have translated into huge efficiency
gains for power distribution
 Cost-reflective tariffs –high by regional standards
0.2$/kWh— reflect use of costly emergency generation
 LRMC could be significantly lower ($0.08 kwh)
 Poor reliability of service due to generation capacity
constraints and inadequate capacity in the transmission
backbone leads to major costs to the economy.
 Power security likely the largest benefit of trade
Benchmarking indicates poor reliability and
relatively high prices
Installed power generation capacity
Power consumption
Power outages
Firms’ reliance on own generator
Firms’ value lost due to power outages
Access to electricity
Urban access to electricity
Rural access to electricity
Growth access to electricity
Revenue collection
Distribution losses
Cost recovery
Total hidden costs as % of revenue
US cents
Power tariff (residential at 75 kWh)
Power tariff (commercial at 900 kWh)
Power tariff (industrial at 50,000 kWh)
Unit
MW/mil. people
kWH/capita
Day/year
% consumption
% sales
% population
% population
% population
% population/year
LIC
24.4
99.5
40.6
17.7
6.1
15.4
71
12
1.4
Kenya
33
146
53
15
3
18
51
4
1
MIC
796.2
4,473
5.6
0.5
0.8
59.9
83.7
33.4
1.8
% billings
% production
% total cost
88.2
25.7
90.0
98.7
18.1
108.0
99.9
15.7
125.7
%
74.0
15
3.5
Kenya
12.7
21.7
19.0
Predominantly Hydro Other
Generation
Developing
Regions
10.27
5.0 – 10.0
11.73
11.39
Source: Preliminary results AICD 2008
Hidden costs of power utilities low, reflecting
recent major efficiency gains in distribution
DRC Congo
Ethiopia
Tanzania
Uganda
Kenya
South Africa
0%
100% 200% 300% 400% 500% 600%
% of revenues
Unaccounted losses
Collection inefficiencies
Under-pricing
100%
1.8%
90%
1.6%
80%
1.4%
70%
1.2%
60%
1.0%
50%
0.8%
40%
0.6%
30%
0.4%
20%
0.2%
10%
0%
2001
Under-pricing
2002
Under-collection
2003
2004
Distribution losses
0.0%
2006
Total as % GDP
Percentage of GDP
Percentage of revenues
KPLC reforms save 1% of GDP by reducing
under-pricing and collection losses
Constraints in generation capacity lead to unreliable
service and high cost emergency leases
 Power outages are a major issue in Kenya
 Power outages led to welfare losses of 2 percent of GDP
 More than 70% of firms report owning back-up generators
 Immediate response has been leasing of emergency generation
 Lease payment absorbs 1.5 percent of GDP for <10% capacity
 Cost is around US$0.25/kWh relative to LRMC of US$0.08/kWh
 Government working on long term solutions
 Expansion of supply will add more than 300MW
 Diversification by increasing trade and developing geothermal resources
Power outages are a major problem resulting
in very high levels of own generation
Own Generation
Economic Cost
Tanzania
Kenya
Uganda
Kenya
Tanzania
Senegal
Eritrea
Madagascar
Cape Verde
Uganda
Niger
Ethiopia
Benin
South Africa
Cameroon
Burkina Faso
0
20
40
60
% of firms with own generator
80
0
1
2
3
Percentage of GDP
4
5
Key findings on water resources
• Significant hydrological variability, which impacts the country’s
economy (floods & droughts) up to 2% GDP per year.
• Water stressed country with per capita endowment of <650 m3 per
year and storage infrastructure of <124 m3 per capita
• Large untapped hydropower and irrigation potential
• Urgent need to develop additional multi-purpose storage reservoirs
(small, medium, large)
• WRM Authority needs further strengthening to effectively fulfill its
mandate as custodian of the water resource base, and transboundary RBO also need special attention
Key findings on irrigation sector
 Current irrigated area of 103,000 has represents
only 2% of cultivated area
 Simulation suggests could be economically viable
to irrigate a further 370,000 has for a total
investment of US$0.2b and a BCR of 2.2
 About half relates to large-scale irrigation schemes
associated with existing dams
 Other half relates to small-scale irrigation schemes
Simulated location of potential large and
small scale irrigation schemes
Key findings for the ICT sector

Leading African reformer in ICT sector

Market already quite competitive, but could support more competition both
in fixed and mobile segments, as well as in backbone

Very high GSM coverage and tiny market efficiency gap, but prices
relatively high in spite of competition

Prices falling as fourth mobile operator just began operations

Important to define suitable scope for public versus private investment in
backbones

Internet: relatively high usage but costly
 prices should fall with three new submarine cables (Seacom, TEAMS
and EASSy) competing to be first to start services
 but critical to ensure competition between landing stations
Benchmarking indicates high GSM coverage
but relatively high ICT prices overall
GSM coverage
International bandwidth
Internet
Landline
Mobile phone
Unit
LIC
Kenya
MIC
% population
Mbps/capita
subscribers/100 people
subscribers/100 people
subscribers/100 people
48.2
5.8
0.1
0.8
15.1
86.2
6.3
0.3
0.9
30.2
97.2
30.2
2.0
9.4
86.7
Kenya
Price of monthly mobile basket
15.9
Without Submarine
Cable
11.12
Other Developing
Regions
9.9
Price of monthly fixed line basket
21.0
13.58
nav
Price of 20-hour Internet package
Price of a 3-min call to US
Price of inter-Africa tel. calls, mean
81.5
0.62
1.04
67.95
2.59
0.72
11.0
2.0
nap
Source: Preliminary results AICD 2008
Tremendous progress in expanding GSM
coverage with market efficiency gap of only 5%
Coverage Gap
100%
90%
Percent of Population
80%
70%
60%
50%
40%
30%
20%
10%
0%
Efficient Market Gap
Existing Coverage
Financing Kenya’s
Infrastructure
Key findings on infrastructure finance
 Moderate spending needs of US$2.1b for infrastructure, almost balanced
between investment and maintenance
 Burden of spending needs is manageable given Kenya’s economy
 Existing infrastructure spending of US$1.9b mainly on ICT and power
 Effort on infrastructure spending relatively high
 Particularly strong at leveraging PPI for ICT finance
 Public investment in transport looks relatively low
 Infrastructure financing gap of US$0.9b or 5% of GDP, mainly in power
investment and water maintenance
Possible infrastructure targets
over next ten years
ICT
Power
Transport
Economic target
Social target
Fiber optic links to neighboring
capitals and submarine cable
Universal access to GSM signal and
public broadband facilities
990 MW new generation,
270 MW inter-connectors
Electricity coverage of 50%
(100% urban and 32% rural)
Regional connectivity by good
quality 2 lane paved road
National connectivity by good
quality 1 lane paved road
Rural Accessibility Index 75%,
Urban popn within 500m paved road
Na.
Achievement of MDG for
water and sanitation
WSS
To meet these targets, Kenya would need to
spend US$2.1b per year for next decade
$ bn/ year Capital
O&M
Total
ICT
0.03
0.03
0.06
Power
0.75
0.27
1.02
Transport
0.27
0.29
0.56
WSS
0.13
0.36
0.49
Total
1.17
0.96
2.13
Burden of financing needs is relatively
manageable for Kenya
SSA
SSA
LIC-Fragile
LIC-No-Fragile
LIC-No-Fragile
MIC
Oil-Exporting
Oil-Exporting
MIC
LIC-Fragile
DRC
South Africa
Ethiopia
Ethiopia
Tanzania
Sudan
Uganda
Tanzania
Sudan
Kenya
Kenya
Uganda
Cape Verde
Cape Verde
0
10
20
30
40
50
% GDP
Capex
60
70
0
10
20
30
40
50
60
US$ bln per year
O&M
Capex
O&M
70
80
Kenya already spends US$1.9b on
infrastructure with significant leveraging of PPI
Existing financing flows to Kenya, US$ billion per year
O&M
Investment
Total
Public
Public
ODA
Non-OECD
PPI
Total
Investment
ICT
0.28
0.05
0.00
0.00
0.32
0.36
0.64
Power
0.41
0.15
0.06
0.00
0.01
0.22
0.63
Transport
0.28
0.08
0.09
0.02
0.02
0.20
0.49
WSS
0.01
0.03
0.05
0.00
0.00
0.09
0.10
Total
0.98
0.31
0.20
0.02
0.35
0.87
1.85
Existing effort on infrastructure spending is
already quite substantial
SSA
SSA
LIC-No-Fragile
MIC
MIC
LIC-No-Fragile
Oil-Exporting
LIC-Fragile
LIC-Fragile
Oil-Exporting
South Africa
Cape Verde
Kenya
Ethiopia
Ethiopia
Kenya
Tanzania
Tanzania
Uganda
Uganda
Sudan
Sudan
Lesotho
0
5
10
15
% GDP
Capex
20
0
10
20
30
US$ bln per year
O&M
Capex
O&M
40
50
Overall financing gap of only US$0.9b or 5% of GDP,
mainly in power investment and water O&M
10%
6%
4%
2%
ICT
Power
Transport
Kenya: Financing Gap
WSS
O&M
Capi
tal
O&M
Capi
tal
O&M
Capi
tal
O&M
Capi
tal
O&M
0%
Capi
tal
% GDP
8%
Total
Key findings on potential efficiency gains
 Financing gap of US$0.9b pa could be reduced by efficiency gains
 Evidence of historic under-spending on maintenance that is
inflating current investment requirements
 Enormous scope for reallocation of public funds from ICT to other
infrastructure sectors if private finance could be captured
 Significant scope for raising capital budget execution rates,
particularly in rodas
 Scope for improving distribution losses in power sector
 Significant scope for improving cost recovery in the water sector
 Capturing all possible efficiency gains would virtually close financing
gap; many of these actions have already been undertaken by govt
% of infrastructure assets in need of
rehabilitation
About 25% of infrastructure assets require
rehabilitation, indicating inadequate maintenance
60%
50%
40%
30%
20%
10%
0%
South
Africa
Tanzania Ethiopia
Kenya
Sudan
Uganda
DRC
Poor execution ratios and high overruns in road sector call
for better planning, project selection and management
Roads Development Budget: Execution Ratio
Source of funding
2001/2 2002/3 2003/04 2004/5 2005/6
GoK (exchequer)
68
51
44
47
61
Appropriation in Aid
26
44
45
57
57
Total
42
46
45
55
58
Based on a sample review of the roads portfolio in 2007:
 Cost overruns: 90% of roads development portfolio reached
more than 80 percent of the original contract sum
 Time overruns: Actual time for completion more than two
times that at the tender stage
Relatively efficient utilities, although distribution
losses nonetheless absorb 0.4% GDP
Water
1.0%
1.0%
0.8%
0.8%
% of GDP
% of GDP
Power
0.6%
0.4%
0.2%
0.6%
0.4%
0.2%
0.0%
Kenya
LIC
Collection inefficiencies as % of GDP
Unaccounted Losses as % of GDP
0.0%
Kenya
LIC
Collection inefficiencies as % of GDP
Unaccounted Losses as % of GDP
Under-pricing is relatively small,
but nonetheless amounts to 0.4% GDP
Underpricing
1.0%
% GDP
0.8%
0.6%
0.4%
0.2%
0.0%
Power
Water
Kenya
LIC
Access to power and water very inequitable
making existing subsidies highly regressive
Electricity
100%
80%
60%
40%
20%
0%
% population
% population
Water supply
Q1
Q2
Piped water
Wells/boreholes
Q3
Q4
Stand posts
Surface water
Q5
100%
80%
60%
40%
20%
0%
Q1
Q2
Q3
Kenya
Q4
Q5
% of households spending more than 5%
of their monthly budget
Those with access (and many of those without
access) do not face major affordability problems
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2
3.4
4.0
4
6
8
10
12
USD/month
Cost of minimum household consumption of water
Cost of minimum household consumption of electricity
Kenya
LIC
Cost of minimum
household consumption
of electricity
Cost of minimum
household consumption
of water
14
16
Overall funding gap of US$0.9b can be
substantially reduced by reallocating spending
US$ billion
ICT
Power
Transport
WSS
Total
Financing gap
0.00
0.39
0.07
0.40
0.86
Reallocate spending across categories
0.27
0.00
0.00
0.00
0.27
Raise capital budget execution
0.00
0.04
0.01
0.02
0.07
Reduce operating inefficiencies
0.00
0.05
0.00
0.02
0.08
Improve cost recovery
0.00
0.04
0.01
0.03
0.08
Remaining gap
0.00
0.27
0.05
0.32
0.36
Most of these measures have already been taken since 2006
Main findings
• Kenya compares very favorably with LIC benchmark, but remains
some distance from MIC benchmark
• Port logistics and electricity costs are the biggest brakes on trade
and productivity
• ICT reforms have brought major benefits in terms of universalizing
GSM coverage
• Sound framework for maintenance of road network, but rehabilitation
remains an issue
• MDGs seem to be receding with more people using surface water
and practicing open defecation
• Government has taken many important efficiency measures to
reduce infrastructure funding gap
Emerging policy messages
• Prioritize improvements to Mombasa port, moving towards landlord
model and greater PSP
• Prioritize investments in expanding generation capacity and
strengthening transmission links
• Ensure competitive access to submarine landing stations to ensure
full economic benefits
• Consider one time investment effort to clear rehabilitation backlog of
the roads sector
• Improve public investment framework: planning, project screening,
procurement, budget execution and project implementation