Why you should consider investing in Kenya’s water and sanitation sector

By Evans Ongwae

Kenya’s water and sanitation sector is ripe for private investments, says Water Sector Trust Fund’s (WaterFund) General Manager for Programmes, Mr Isaac Kega. The WaterFund official asserts that various reforms are making the sector attractive to investors, to put their money into various Water, Sanitation and Hygiene (WASH) projects.

“Private investors hold the potential to bridge the gap in the sector, and therein lies opportunity,” he says, pointing out that government allocation is inadequate.

He adds that WaterFund supports the sector in the development of risk planning systems, with a focus on areas such as financial management, procurement and project implementation, among others.

Mr Kega cites another reason for the private sector to invest in water and sanitation. “We have built the capacity of banks to understand the sector and provide access to loans... Water Service Providers (WSPs) seeking commercial loans from banks are usually advised to open escrow accounts, and this is security to enable timely repayments.”

WaterFund’s General Manager for Internal Audit and Risk Assurance, Mr Edwin Korir, adds that a robust regulatory and policy framework governs the sector. This assures investors that they will gain value from their investments.

Mr Korir says, for example, when a bank is assured that the sector has a regulator and policies that guide the different players, it gains confidence that this a space where it can do business.

“The Water Act 2016 outlines the mandates of the different entities that operate in the sector, and this provides predictability,” says Mr Korir. He adds that investors need to understand the sector’s regulatory framework.

The Water Services Regulatory Board (WASREB) provides regulatory oversight for water supply and sanitation. It has in place guidelines for the appointment of board members of Water Services Providers (WSPs) or water companies owned by county governments.

All parastatals in the sector are further governed by the State Corporations Act. They all operate under the Mwongozo Code of Conduct. Mwongozo requires that these entities undergo yearly legal and governance audits.

Says Mr Korir: “This sector can be profitable because water is a basic need and demand for it exists. As we improve the efficiency of WSPs, investors will benefit.”

He gives the example of Nyeri Water and Sanitation Company Ltd (NYEWASCO), which was recently honoured for its super performance. NYEWASCO emerged the overall best performer in 2021/2022 in Eastern and Southern Africa, following a survey by the Eastern and Southern Africa Water and Sanitation Regulators Association, a regional network of water supply and sanitation regulators.

Water.org’s Senior Expert for Utility Partnerships, Mr Fidelis Tamangani, says good governance is among the factors that enable water firms to access commercial loans. Other key factors are a firm’s cash flow and the collateral it has.

In Kenya, Water.org provides technical assistance to utility firms and commercial banks so that they can work together to unlock financing for water and sanitation services. Essentially, Water.org, which supports universal access to water and sanitation services, acts as a bridge that links the two. “Water.org shares knowledge with commercial banks on how to finance borrowers for Water, Sanitation and Hygiene (WASH),” says Mr Tamangani. The borrowers could be utility firms or small and medium enterprises (SMEs) that supply goods and services along the water and sanitation value chain, or even households.

Mr Tamangani notes that banks don’t understand the water and sanitation sector well. “We are working with them to encourage them to get into this space. They need to understand that water utilities can borrow and successfully repay commercial loans,” he explains.

Similarly, Water.org encourages WSPs to go for commercial finance ranging from $1 million to $2 million, to implement their projects.

Mr Tamangani says whereas blended finance has been the norm, to guarantee sustainability, commercial finance is the future. He explains: “Blended finance incorporates subsidies and is dependent on donor funds. Commercial finance is sustainable because as water utilities become more efficient in their operations, they can borrow without relying on subsidy. The aim is to work without subsidies in the long-term, for expanded access to water and sanitation services.”

Mr Tamangani reveals that Water.org is supporting Co-op Bank in assessing the bankability of four (4) WSPs project proposals for commercial financing without subsidies from WaterFund.  The organisation is also in discussion with Equity Bank, Sidian, Family Bank, NCBA, and National Bank, among others, to consider financing WSPs.

Water.org helps WSPs to design bankable project proposals, and advises them on the requirements they must fulfil to access commercial finance.

Reflecting on the success of the recent Water and Sanitation Investors Conference (WASIC), Ms Linda Gwada, the Head of Corporate Communication at WaterFund, highlighted its role in providing a platform for showcasing public-private investment opportunities and fostering discussions on innovative financing models for achieving universal access to water and sanitation by 2030. She further noted the visibility WASIC offered to innovations and technologies that enhance sectoral efficiency and sustainability. Looking ahead, Ms Gwada expressed anticipation for the next WASIC, envisioning an even larger event that will further solidify Kenya’s position in the global water sector.

The conference was organised by the Ministry of Water, Sanitation and Irrigation, with WaterFund as the organising host and the Council of Governors as the collaborating host.

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