Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects
Selling to the Government
Kenya is not a signatory of the WTO Agreement on Government Procurement. U.S. firms have had limited success bidding on government tenders in Kenya. There are widespread reports that corruption often influences the outcome of public tenders. Therefore, it is advisable for U.S. firms bidding on government tenders to engage the U.S. Commercial Service in Kenya for advocacy support.
In January 2016, a new procurement law, the Public Procurement and Asset Disposal Act (PPADA), came into force, operationalizing Article 227 of the 2010 Constitution and reserving preferences to firms owned by Kenyan citizens and to goods manufactured or mined in Kenya. For tenders funded entirely by the government with a value of less than Kshs 50million (approx. $500,000), the preference for Kenyan firms and goods is exclusive. Where not possible, the Act requires a report detailing evidence of an inability to procure locally. The Act also calls for at least 30% of government procurement contracts to go to firms owned by women, youth, and persons with disabilities. The Act further reserves 20% of procurement contracts tendered at the county level to residents of that county. Additional regulations enacted in 2020 stipulate that:
a) Exemption of bilateral/multilateral agreements (otherwise known as government to government or G2G) from the Act. These must however prove to be fair, transparent, competitive, and cost-effective.
b) A company that violates provisions of the Act may be blacklisted/debarred for a period not less than three years. This extends to directors and partners of the said company. Any successor entity is also debarred.
c) Mandatory requirement for successful bidder transfer technology / skills through training and mentorship to Kenyans; must reserve 75% employment for Kenyan citizens of which 20% must be reserved for Kenyans at professional/management level; and must include a local content plan.
The Government of Kenya has adopted an initiative, dubbed “Buy Kenyan Build Kenya,” to increase competitiveness and consumption of locally produced goods and services thus contributing to job creation, value addition, product diversification and growth of local industries. This requires state ministries and agencies to procure at least 40% of all inputs locally. Implementation has remained a challenge as legal guidelines are yet to be implemented. However, National Treasury announced it will be providing a list of products/services that must be procured locally. In addition, in the 2020/2021 Finance Bill, there was introduction of 35% duty on various items such as leather goods, metal and electrical parts, etc. to cushion the local industry.
Foreign contractors planning to participate in construction/infrastructure projects are required to register with the National Construction Authority, (the industry regulator) before signing contracts or starting any construction works. Foreign firms are also required to subcontract or enter a joint venture with a local firm for not less than 30% of the value of the contract work. The local firm should be an NCA registered contractor. In addition, foreign firms are required to transfer technical skills to locals.
The PPADA established the Public Procurement Administrative Review Board (PPARB), an independent procurement appeals review board that is to hear and determine tendering and asset disposal disputes. The Board has the capacity to overturn contract awards that are deemed to have flouted procurement regulations and companies with complaints are encouraged to appeal with this entity. PPADA is intended to make procurement more transparent and accountable. Open competitive tendering is the most preferred method of tendering however the Act stipulates six alternatives for procurement:
1) Restricted Tendering
2) Direct Procurement
3) Request for Proposals
4) Request for Quotations
5) Procedure for Low Value Procurements
6) Specially Permitted Procurement Procedure
The Act gives guidelines on when each of the options is applicable. In most cases for large budget items, open tendering is the standard practice as it is seen to be the most transparent and least controversial process; however, it has been prone to abuse in some cases and frivolous lawsuits in others.
The World Bank, IMF, European Union, and other donors have conditioned some of their official assistance programs, including direct budget support, on reform of public procurement. In April 2021, the IMF approved a 38-month program in Kenya under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) in the amount of $2.3Bn. The arrangements support Kenya’s response to the COVID-19 shock and the authorities’ plan to strengthen the monetary policy framework, support financial stability, reduce debt vulnerabilities while advancing the structural reform agenda, including strengthening the anti-corruption framework and addressing financial weaknesses in state-owned enterprises (SOEs). The SOEs lined up for structural reforms include Kenya Airways, Kenya Airports Authority, Kenya Railways Corporation, Kenya Power, Kenya Electricity Generating Company, Kenya Ports Authority and the three largest public universities - Nairobi, Kenyatta, and Moi.
U.S. companies bidding on Government tenders may also qualify for U.S. Government advocacy. A unit of the U.S. Commerce Department’s International Trade Administration, the Advocacy Center coordinates U.S. Government interagency advocacy efforts on behalf of U.S. exporters bidding on public sector contracts with international governments and government agencies. The Advocacy Center works closely with our network of the U.S. Commercial Service worldwide and inter-agency partners to ensure that exporters of U.S. products and services have the best possible chance of winning government contracts. Advocacy assistance can take many forms but often involves the U.S. Embassy or other U.S. Government agencies expressing support for the U.S. bidders directly to the foreign government. Consult Advocacy for Foreign Government Contracts for additional information.
Financing of Projects
Kenya has largely pursued a debt-driven infrastructure development agenda, including such large projects as the Chinese-built Standard Gauge Railway from Nairobi to Mombasa. As public debt has risen at an unsustainable pace, however, Kenya has more recently shifted towards a public-private-partnership (PPP) led model to reduce fiscal pressures. Of note is the just concluded Chinese-built Nairobi Expressway and the 175km Nakuru-Mau Summit Road to be built by French firm Vinci Group. The project is yet to reach financial close.
In June 2018, the Government of Kenya (GOK) signed a Memorandum of Understanding (MOU) with the United States Government. Under this MOU the Governments agreed that private companies that implement strategic infrastructure and Big Four priority projects are responsible for securing appropriate financing for such projects. In 2019, the U.S. Export-Import Bank approved a $400 million line of credit to the GOK for projects that involve U.S. exports.
There are three sources of external assistance: multilateral, bilateral, and Private Voluntary Organizations (PVOs). The first category can further be divided into United Nations Organizations and non-United Nations multilateral institutions. Bilateral donors lead in provision of project financing, followed by multilaterals and PVOs.
Multilateral Development Banks and Financing Government Sales
Kenya’s 2022/2023 budget estimates stood at US$29bn with a budget deficit of US$7.5bn to be financed through domestic and external borrowing. Kenya historically borrows from bilateral and multilateral financial institutions through concessional loans and government bonds. Some of the institutions Kenya has borrowed from in the past include the World Bank, African Development Bank, IFC, AFD of France, EIB of Europe, JICA and various others. Unless a project is deemed a G2G project, foreign funded projects are held to the WB procurement guidelines for competitive bidding. Government agencies will advertise ongoing procurements in the local press, on their websites, on DG Markets as well as the newly launched https://www.tenderskenya.co.ke. It is imperative that a company bidding on any government tender adhere to all the requirements stipulated in the tender documents no matter how mundane the requirement seems. In Kenya, MDBs have funded projects such as roads, electrification programs, ICT projects, health, etc.
Price, payment terms, and financing can be a significant factor in winning a government contract. Many governments finance public works projects through borrowing from the Multilateral Development Banks (MDB). A helpful guide for working with the MDBs is the Guide to Doing Business with the Multilateral Development Banks. The U.S. Department of Commerce’s (USDOC) International Trade Administration (ITA) has a Foreign Commercial Service Officer stationed at each of the five different Multilateral Development Banks (MDBs): the African Development Bank; the Asian Development Bank; the European Bank for Reconstruction and Development; the Inter-American Development Bank; and the World Bank.
Learn more by contacting the:
- Commercial Liaison Office to the African Development Bank
- Commercial Liaison Office to the World Bank