Nairobi County Governor Kidero Seeks Funds to Exit Debt Hole

Kenya’s Nairobi county will tap commercial lenders and the World Bank for loans and may sell municipal bonds to finance plans for urban renewal and repay “monster” debt, Governor Evans Kidero said.

The county, formed on March 4 under Kenya’s new devolved system of government, needs funds to build low-cost houses and schools, upgrade hospitals and provide more clean water, he said. It also plans to repay about a fifth of its $405 million debt, some of it owed to domestic lenders including Equity Bank Ltd., in the fiscal year that starts July 1, he said.

“We are in a huge hole,” Kidero said at his office in Nairobi, the Kenyan capital, on April 23. “The first thing is to strive to provide services but also get out of that hole.”

Nairobi, which accounts for almost two-thirds of economic output in East Africa’s biggest economy, serves as a regional base for companies including Google Inc., Toyota Motor Corp. and Standard Chartered Plc. The city mushroomed from its start in 1899 as a rail-supply depot connecting the port of Mombasa to Uganda, with little consideration for city planning.

About half of Nairobi’s 3.1 million residents live in slums and 70 percent of people are unemployed, according to Kidero, while poorly maintained roads and drainage cause regular traffic jams and flooding.

Former CEO

Kidero, the 55-year-old former chief executive officer at Mumias Sugar Co., Kenya’s biggest producer of the sweetener, became governor after last month’s election. The vote was the first since the enactment of a revised constitution in 2010 that devolved power to 47 newly created county governments.

The administrations, which replace local government structures of mayors and town councils, are being allocated funds by the central government. In addition, they can gather taxes, including property and entertainment levies, and borrow money as long as the national government guarantees it.

Nairobi’s municipality previously announced plans in 2010 to sell as much as 100 billion shillings ($1.2 billion) of bonds to finance upgrades to infrastructure.

“Nairobi is now in a better position to raise money from the markets because debt will be guaranteed by the government,” Fred Moturi, a fixed-income dealer at Sterling Capital Ltd., said in a phone interview. “Their capacity for raising debt is significantly high.”

In sub-Saharan Africa, Lusaka, the Zambian capital, said in January it was seeking legal and financial advisers for its maiden municipal bond sale. Nigeria’s Lagos state sold a bond worth 80 billion naira ($504 million) in November, while South African municipalities including Tshwane, the area that includes the capital Pretoria, have also sold debt.

Infrastructure Pledge

Kidero estimates he needs $1.5 billion in his first year in charge to make good on his pledge to improve infrastructure.

“I want Nairobi to be known as the easiest place to set up business,” Kidero said. “We will decide on a single business window for payment of all licenses to stimulate the interest of investors.”

As Kenya’s largest county by population, Nairobi will receive a central-government transfer of 16.9 billion shillings, or about half its 31.5 billion-shilling budget in 2013-14, Kidero said.

The remainder will come from collecting business taxes, permit fees and car-park charges as the county takes steps to automate payments and enforce tax compliance, he said.

There will be a “revision of rates, fees and charges to reflect the present socio-economic realities,” with levies currently below market rates, Kidero said.

Pursuing Debtors

The county will also pursue the 51.3 billion shillings it’s owed by debtors including the central government, land owners and Kenya Power Ltd., the country’s monopoly electricity provider, he said. The proposals must be approved by the county assembly.

The goal is to pay off 5.7 billion shillings of debt next year, Kidero said. Payments are owed to creditors including Equity and Cooperative Bank of Kenya Ltd., he said.

Kidero’s government needs to pick investment priorities, Vimal Parmar, head of sub-Saharan Africa research at Nairobi-based Burbridge Capital Ltd., said by phone.

“He will not be able to do all these things at once,” Parmar said. “He will need to ration capital and prioritize the things that add more value to Nairobi county first.”

The county plans to cut wage costs to 550 million shillings a month from 800 million by cutting jobs. More than a-third of 11,000 employees on Nairobi City Hall’s payroll are unaccounted for, Kidero said, citing an independent study. “We don’t know where they are or what they do,” he said.

Zero Tolerance

“My administration is going to be participatory and have zero tolerance of corruption,” Kidero said, adding that he’s already fired 11 people for submitting fraudulent invoices.

Kidero characterized his no-nonsense approach by calling himself the “New Sheriff in Town” after winning his gubernatorial bid. A print of him in a cowboy outfit with the tag line “Kidero Unchained,” a play on Quentin Tarantino’s Oscar-winning film “Django Unchained,” is on display in his office.

A pharmacist by profession who has an MBA from the United States International University in Nairobi, Kidero’s previous jobs include managing director of Nairobi-based Nation Media Group’s newspaper division and regional director for SmithKline Beecham Plc before it was acquired by Glaxo Wellcome Plc in 2000 and became known as GlaxoSmithKline Plc.

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