Robust fundamentals, including the market’s size and high current level of road construction activity, as well as a well-stocked road project pipeline will bolster Kenya road construction opportunities, Fitch Solutions predicts.

According to the report, the positive outlook is underpinned by the large needs for road infrastructure improvements to Kenya’s single largest road network combined with a robust demand outlook.

Kenya’s largest road infrastructure projects under construction ranks second place regionally in terms of its overall value and in fourth place regionally in terms of projects.

“The country’s well-stocked project pipeline indicates that Kenya’s road construction sector will sustain these high levels of activity throughout the medium term. Kenya hosts the highest-value pipeline of planned road projects in Sub-Saharan Africa, comprising the third-highest number of projects in the region.

“Our positive growth outlook on the sector is further supported by the fact that Kenya’s extensive road network— sub-Saharan Africa’s third longest— has considerable needs for improvement: Approximately 82% of the network remain unpaved.

“Upgrading projects will benefit from Kenya’s wide access to development funding, as the country’s infrastructure sector ranks among the top five markets globally in terms of the number of financing roles held by development banks and export finance institutions.”

Fundamentally, Kenya’s total trade value to grow by an average 4.7 per cent per year in real terms between 2021 and 2025. Accordingly, Kenya’s road freight volumes are forecast to grow by an average 4.2 per cent per year between 2021 and 2025.

Fitch Solutions notes that while these growth rates are lower than those of those of neighbouring Tanzania, Kenya’s road construction industry benefits from considerably higher current levels of trade and road freight.

Freight transport and increased demand to support outlook

In addition to freight transport, Fitch Solutions project that the Kenyan demand for road construction will be supported by a growing vehicle fleet. The country’s overall vehicle fleet, which already is Sub-Saharan Africa’s second-largest, is forecast to grow by an average 5.3 per cent per annum between 2021 and 2025.

Fitch Solutions notes a range of risks, including high levels of corruption that create an uneven playing field for international companies. A weak investment environment encumbered with time-consuming bureaucratic and tax requirements poses some risks to the growth outlook.

Also, the weak capacity to enforce the law and low standards of transparency and accountability in the public sector will limit the appeal of public-private partnerships in Kenya’s road sector, Fitch Solutions asserts. This is despite a comparatively comprehensive legal Public-Private Partnership (PPP) framework in the country.

Chinese contractors dominate Kenya’s infrastructure who occupy over 60 per cent of infrastructure construction roles in Kenya. Fitch Solutions anticipate that a gradual shift towards more financially sustainable project in the transport infrastructure sectors of both Kenya and the wider region.

The research firm, however, notes that while this would not in principle stop the participation of Chinese contractors. It would put other international contractors on a more level playing field in respect of Chinese firms whose risk-tolerance has yet benefitted from Chinese lenders’ state-subsidised financing, Fitch Solutions asserts.