Kenya’s first green bond starts trading on the NSE

Kenya's counties are facing significant challenges with development spending, as revealed by the latest data from the Controller of Budget. The report indicates that 25 out of 47 counties in the country did not allocate any funds for development projects in the first quarter up to September. This represents a stark 45% drop from the previous year when governors spent $34.6 million on development activities during a similar period. Reginald Kadzutu, an Economic Analyst, shed light on this issue in a recent interview with CNBC Africa. He explained that delays in the disbursement of funds were partly responsible for the lack of spending by the counties. Last year, the division of revenue bill faced challenges between the Senate and Parliament, leading to delays in approving the finances. Kadzutu noted that even after funds started flowing, some counties faced additional hurdles as the Treasury prioritized paying suppliers over releasing funds to the counties for development projects. Historically, he highlighted that counties have struggled to allocate sufficient funds for both recurrent and development expenditures, with absorption rates typically ranging from 20% to 30%. This ongoing challenge has a significant impact on job creation and infrastructure development within the devolved units. The purpose of devolved governments is to stimulate economic growth at the local level and create job opportunities. However, limited funding hampers these efforts, underscoring the need for a more robust financial strategy to support the counties' development initiatives. Shifting focus to the banking sector, commercial banks in Kenya are poised for another year of double-digit profit growth, surpassing analyst expectations. Kadzutu explained that despite the prevailing interest rate cap, which restricted lending activities, banks have managed to sustain growth by implementing cost-cutting measures. Many banks have streamlined their operations, adopted technology to improve efficiency, and reduced operational expenses to drive profitability. While the growth is primarily fueled by cost containment rather than increased lending, Kadzutu expressed optimism about a potential rebound in interest income post-repeal of the interest rate cap. Furthermore, the acquisition of National Bank by Kenya Commercial Bank (KCB) has raised questions about the viability of the deal. With costs escalating to 13 billion Kenyan Shillings, concerns have emerged regarding the sustainability of the acquisition. Kadzutu highlighted the need for transparency in assessing whether the purchase of National Bank aligns with KCB's long-term strategy and financial interests. He questioned whether the government's intervention in facilitating the acquisition signals a rescue mission for National Bank, necessitating a closer examination of the deal's potential returns. In a significant development, Kenya's first green bond commenced trading on the Nairobi Securities Exchange (NSE), garnering an 85% take-up rate. While the debut of the green bond signifies a positive step towards sustainable financing, challenges persist in the corporate debt market. The failure of companies like Imperial Bank, Chase Bank, Nakumatt, and others has instilled caution among investors, leading to a higher risk premium for corporate bonds. Enhancing corporate governance, transparency, and regulatory oversight are essential to restore investor confidence in the corporate bond market. Kadzutu emphasized the importance of robust governance practices and adherence to regulatory guidelines to mitigate risks and attract investors to the bond market. He cited ongoing concerns about companies trading on the exchange despite insolvency issues, underscoring the need for stringent measures to safeguard investor interests. As Kenya looks to strengthen its capital markets and foster sustainable investment avenues, addressing governance issues and promoting transparency will be key to unlocking the full potential of green bonds and other financial instruments. In conclusion, proactive measures to enhance financial oversight, governance standards, and regulatory frameworks are imperative to ensure the sustainable growth of Kenya's counties and the financial sector.