Risk Factors and Water Sanitation Infrastructure Investments in Kenya

Abstract

The purpose of this study was to establish influence of risk factors on water-sanitation infrastructure investment in Kenya. There is need to bridge gaps related to investments. In order to realize this purpose six research objectives guided the study. These include establishing influence of operational risks on water-sanitation infrastructure investments in Kenya; establishing influence of credit risks on water-sanitation infrastructure investments in Kenya; establishing influence of liquidity risks on water-sanitation infrastructure investments in Kenya. Other objectives include establishing influence of environmental risks on water-sanitation infrastructure investments in Kenya; establishing combined influence of operational, credit, liquidity and environmental risks on water-sanitation infrastructure investments in Kenya; establishing moderating influence of firm Size on the relationship between risk factors and water-sanitation infrastructure investments in Kenya. The study adopts Positivism whereby deductive research design explained causal relationships between concepts and variables. Qualitative and quantitative research approaches tested the research hypotheses. From a target population of one hundred and twenty-seven Total Population Sampling (TPS) was adopted whereby the whole population was representing investors, lenders, guarantors, licensors, regulators and financial managers was studied. Structured questionnaires tools enhance data collection prior to which data reliability indices suggested acceptable levels of internal consistency. Both descriptive and inferential analysis methods employed in the analysis to investigate the relationship among variables, measure the strength and direction of relationships between constructs. Standard deviation results range falls within the bracket of <1.25, which is acceptable. From our 5 point Likert scale the mean of variable data set ranges between acceptable levels. At [t1.96 the overall t value for the independent values indicates a strong impact of the predicting quality of the coefficient. The overall p-value at less than 0.05 (typically S 0.05) is statistically significant. For the Adjusted R square findings showed operational, Credit, Liquidity and environmental risks explain the variations in infrastructure investments while the difference explained in other factors not in the model. The value of r varies around 0.3 to 0.5 signifying Moderate/medium and strong/large correlation respectively. Generally operational, Credit, Liquidity and environmental risks makes a strong unique contribution explaining infrastructure investments. Risks combined influence significantly and positively on infrastructure investments in Water and Sanitation. In terms of the moderating influence of firm, the study shows that firm size has a significant moderating influence on the relationship between risk factors and infrastructure investments in water and sanitation. Based on the findings articulated the research infers that water service providers are hobbling with weak incentives for better performance, aging infrastructure, ineffective operations and maintenance, weak institutional capacity and little accountability to consumers. Lack of access to funding infrastructure investments has seen poor cost recovery-, weak governance and institutional frameworks adversely affect economic opportunities that would result from access. Cash flow gaps have stalled past and ongoing infrastructure investments in the water and Sanitation sector in Kenya. Climate change, effluent discharge, catchment degradation and sediment discharge have resulted to lack of water and sanitation thus frustrating investments in water and sanitation infrastructure. From the empirical evidence and conclusion, going forward operational risks would be managed through Government enhanced role in absorbing risks aimed at a subsidy plan for investors in Water-Sanitation Infrastructure and strategic pricing through payment for environmental services meant to sustain projects. An advancement to credit risks will need Innovative financing models rolled out through co-financing and blended financing, risk pooling through tailor made infrastructure insurance products, private entity receiving a concession from the public sector to finance, design, construct, own, and operate a facility stated in the concession contract. For liquidity risks, an evolution would see firms forecasting cash flow regularly, monitoring and optimizing net working capital, and managing existing credit facilities. Environmental risks would best be mitigated by addressing legal challenges related to effluent discharge, catchment encroachment, land compensation and tapping into climate financing. An advancement concerning the joint effect of Operational risks, Credit risks, Liquidity risks and Environmental risks key stakeholders within the infrastructure investments project life cycle need to establish an integrated risk approach. Amelioration regardless of the size of the firm, managers should ascertain their risk appetite and formulate strategies aimed at transforming the risk profile such as trade-offs with corresponding cost.