Constraints Affecting Access to Private Financing for Water Infrastructure in Kenya

Abstract

The purpose of this study was to assess the constraints affecting access to private financing for water infrastructure in Kenya. The study was guided by the following objectives: to establish the effect of fiscal policy constraints on access to private financing for water infrastructure; to examine the effect of financial sustainability constraints in water projects on access to private financing for water infrastructure and; to determine the effect of long-term debt financing constraints on access to private financing for water infrastructure in Kenya. The research used an explanatory research design. The study population constituted of 37 Water Infrastructure Finance professionals drawn from WSTF, KIFFWA, WASREB, The World Bank, AFD, IFC, BFA, AfDB and KfW in Nairobi. The sampling technique used in the study was non-probability sampling using purposive judgmental sampling. Structured open and closed ended questionnaire was used. The data was analysed in SPSS using descriptive statistical techniques and inferential statistics. The results of descriptive statistics indicated that majority of respondents were of the neutral view that various aspects of fiscal policy constraints affected access to private financing for water infrastructures as shown by an aggregate mean of 3.37. The findings of the study further revealed that majority of respondents agreed on financial sustainability constraints in water project as shown by an aggregate mean of 3.87. Additionally, majority of respondents strongly agreed on various elements of long-term debt financing constraints as shown by aggregate mean of 4.53. The findings of correlation between each of the individual variables and access to private financing revealed a positive and not significant correlation for fiscal policy constraints. A negative and not significant correlation was found on financial sustainability constraints in water projects. The results revealed a strong negative and significant relationship between long-term debt financing constraints and access to private financing for water infrastructure. The results of regression analysis established that the adjusted R2 was 0.017 for fiscal policy constraints, an indication that it affected 1.7% of the access to private financing for water infrastructure. For financial sustainability constraints in water project the adjusted R2 was 0.070 and indication that it affected 7.0% of the access to private financing for water infrastructure. The adjusted R2 was 0.449 for long-term debt financing constraints, an indication that it affected 44.9% of the access to private financing for water infrastructure.For composite regression model, adjusted R2 was 0.479 which means that included explanatory variables explained only 47.9% of the variations in access to private financing for water infrastructure. The other explanatory variations not in the model explain the remaining 52.1% variations. The results of ANOVA test revealed that linear regression model was of significantly of good fit. The regression also established a positive for fiscal policy and a negative for financial sustainability constraints in water projects which were both found not statistically significant at a significant level of 0.05. However, long-term debt financing constraints had a strong negative which was statistically significant at a significant level of 0.05. The results of Beta coefficient correspond those of Pearson Correlation. In the light of aforementioned, the study recommends introduction of government fiscal policies on tax exemption in water projects financed through private capital to attract more private investment in water sector. The water utilities and government agencies should work towards enhancing sustainability in water projects through investment in technologies that reduce non-revenue water (NRW), detection of nonpayment of water bills and illegal connections in water projects. This will improve the cost recovery in water projects and boost investor confidence. The financial institutions (The World Bank, IFC, AfDB, KfW, commercial banks etc.) should develop innovative long-term debt financial products that match large capital requirements with long payback periods involved in water infrastructures.