Construction of Ksh455 Billion Nairobi-Mombasa Expressway Nears Start After Finance Deal with Pension Funds

In Summary

• The US government has terminated five major USAID contracts in Kenya, worth Ksh32.5 billion, raising concerns about the future of US-backed projects and potential job losses for over 35,000 workers.
• Everstrong Capital is seeking to raise Ksh129.2 billion from Kenya’s pension funds to finance the Usahihi Expressway project, a major infrastructure initiative connecting Nairobi and Mombasa, despite concerns about the pension sector's appetite for such large investments.
• The Treasury borrowed Ksh27.8 billion from the CBK, increasing the government’s outstanding overdraft to Ksh63.05 billion due to persistent cash flow pressures.
• Kenyan banks anticipate a rise in personal loan defaults in early 2025, with falling disposable incomes and high interest rates, although loan rate reductions may offer some relief.
• The Kenya Revenue Authority (KRA) exceeded its VAT collection target by Ksh4 billion, driven by stronger remittances in key sectors and tax reforms.
• Former Kuscco CEO George Ototo has been arrested in connection with a Ksh82.8 million theft linked to a bogus land deal and an ongoing Ksh13.3 billion fraud investigation.
• The construction sector faces challenges with counterfeit cement, as a significant percentage of cement samples fail quality tests, prompting calls for stricter regulations.
• Kenya's external loan interest rates hit a record high of 4.6%, driven by the cost of refinancing the 2014 Eurobond and increased debt servicing costs amid higher global interest rates.
• Taxable bonds in Kenya are seeing a price rally, with bonds issued at higher interest rates gaining premium value as domestic interest rates decline, attracting more investors.

In a report by the People Daily, Everstrong Capital will raise Ksh129.2 billion from Kenya’s pension funds to finance the Usahihi Expressway, a 440-kilometre dual carriageway connecting Nairobi and Mombasa, as part of a $3.5 billion (about Ksh455 billion) project. Construction is set to begin in December 2025 through a Public-Private Partnership (PPP) between Everstrong and the Kenya National Highways Authority (KeNHA). The American investment firm has already entered into a deal with CPF Capital Advisory Limited, and is aiming to raise Ksh129.2 billion through local pension funds. While Kenya’s pension industry has grown to Ksh2 trillion by mid-2024, experts express doubts about pension funds’ willingness to take on such a large exposure, given their conservative investment strategies. The funding gap is expected to be bridged through alternative sources, including commercial banks, Saccos, unit trusts, and high-net-worth investors, with Everstrong also exploring green bonds and climate finance to attract sustainable investment. The funds used in construction will be recovered through toll fees across the 440-kilometre highway. 

The US government has terminated five major USAid contracts and grants in Kenya worth Ksh32.5 billion, signaling a broader foreign aid freeze under President Trump’s administration. The cuts, affecting education, clean energy, and civic education programs, include the cancellation of an Ksh11.49 billion contract with the Research Triangle Institute and a Ksh10.2 billion literacy program. According to the Business Daily more terminations are expected, raising concerns about the fate of US-backed humanitarian projects in Kenya, including health initiatives. The move has sparked fears of job losses for over 35,000 workers, with some organizations already preparing legal challenges against the abrupt funding suspension. 

In a report by NTV Kenya the Treasury borrowed Ksh27.8 billion from the Central Bank of Kenya (CBK) last week, marking the largest weekly overdraft since December, as cash flow pressures persist. This pushed the government’s outstanding overdraft to Ksh63.05 billion, now 1.06% of domestic debt. The overdraft, a short-term facility to cover urgent expenses, comes amid declining revenue flows. Interest is charged at the CBK rate, recently lowered to 10.75%. Overdraft costs surged 87% in the fiscal year ending June 2024, reflecting ongoing fiscal strain. Meanwhile, Kenya’s domestic debt rose to Ksh5.95 trillion, drawing scrutiny over the government’s reliance on CBK financing..

Kenyan banks anticipate a rise in personal loan defaults as households struggle with reduced disposable incomes and high interest rates, according to the CBK's latest credit survey. While non-performing loans (NPLs) in key sectors like manufacturing and real estate have declined, personal and household loan defaults are expected to increase in early 2025. An Old Mutual survey highlights lifestyle adjustments, including switching to cheaper brands and cutting expenses, as Kenyans navigate financial strain. However, falling bank loan rates in 2025 may offer some relief to borrowers facing high repayment costs as reported by the Business Daily.

The Kenya Revenue Authority (KRA) collected Ksh34.6 billion in VAT in January 2025, surpassing its target by Ksh4 billion, driven by improved remittances in key sectors such as beer, soft drinks, tobacco, sugar, and wines & spirits. According to Capital Business the strong performance is attributed to tax reforms like VAT Auto-Population of Returns, which streamlines filing and enhances compliance. Additionally, customs revenue exceeded targets by Kshh8.12 billion, reaching Ksh82.6 billion, boosted by reforms such as Centralized Release Operations. KRA aims to collect Ksh2.704 trillion by the end of the 2024/2025 financial year. 

In a report by the Business Daily former Kuscco CEO George Ototo surrendered to authorities after a four-day police hunt over alleged theft of Ksh82.8 million through a bogus land deal. His surrender follows a PwC forensic audit uncovering a Ksh13.3 billion fraud at Kuscco involving financial misstatements, forgery, and money laundering. Ototo and four other former executives face multiple charges, including conspiracy to commit a felony, stealing, and making false documents. The disputed land transaction, initially valued at Ksh48.3 million in 2020 and later at Sh35 million in 2022, lacked proper documentation and was found to be part of Ololua forest. Bail determination is set for today.

Kenya’s construction sector is grappling with a surge in counterfeit cement, leaving homeowners like Duncan Kamande in distress after investing heavily in substandard materials. A 2022 Kenya Bureau of Standards (KEBS) report revealed that three out of five cement samples failed quality tests, though recent surveillance shows some improvement. According to The Star industry experts, however, argue the problem persists, with counterfeit cement selling for as low as Ksh600 per bag. The Anti-Counterfeit Authority (ACA) and Kenya Association of Manufacturers (KAM) have since formed a committee to tackle the crisis, urging stricter quality controls and consumer awareness. 

Kenya's external loan interest rates hit a record high in the year to June 2024, with the weighted average rate rising to 4.6%, up from 3.2% the previous year. This increase reflects the higher cost of refinancing the 2014 Eurobond, which was replaced by a more expensive bond issued at a 9.75% coupon rate. As a result, the country’s overall external debt interest rate rose to 3.8%. Despite efforts to shift towards concessional loans, such as those from the World Bank and IMF, elevated global interest rates and geopolitical tensions have made financing more expensive. According to the Business Daily this has led to increased debt servicing costs, with external debt now accounting for 48.8% of Kenya's total public debt. 

Taxable bonds in Kenya have seen a significant price rally, joining infrastructure bonds in trading at a premium in the secondary market. This shift comes amid a fall in interest rates on new government securities. Bonds issued at higher interest rates have soared in price as investors seek a premium for holding these papers. Since the start of 2025, yields on benchmark 10-year bonds have dropped by 0.85%, from 13.6% at the end of December 2024 to 12.75% by February 7, 2025. According to the Business Daily the price of a 10-year bond issued in March 2024, with a 16% coupon, rose to Ksh112, surpassing its par value of Ksh100, reflecting the growing demand for these fixed-return investments. While taxable bonds traded below their par value last year due to high interest rates, the current decline in domestic interest rates has made them more attractive to investors. Tax-free infrastructure bonds have also seen a further rise in premiums, with a February 2024 bond selling at Ksh118.68 at the Nairobi Securities Exchange (NSE).