Kenya is preparing its largest sell-off of state assets in nearly two decades as it seeks to raise funds for infrastructure spending while navigating a tense political climate after last year’s deadly protests over proposed tax increases.
The government plans to sell a US$1.58 billion stake in telecoms and fintech group Safaricom, Kenya’s largest listed company, to provide seed capital for a national infrastructure fund expected to be launched this week in Nairobi.
The proposed sale to South Africa’s Vodacom, which already holds a significant stake in Safaricom, has sharply divided opinion in the country but reflects growing pressure on African governments facing shrinking development aid, rising debt burdens and limited scope to raise taxes.
John Mbadi, Kenya’s cabinet secretary for the national treasury and economic planning, said the government had little room to borrow more, with over 40 percent of state revenues already consumed by external debt servicing.
“Borrowing more was not an option,” Mbadi said, adding that urgent investment was needed in food security, power generation and transport infrastructure.
Raising taxes has also become politically fraught. President William Ruto was forced to retreat from proposed tax hikes last year after mass youth-led protests nearly overran parliament, leaving the political environment fragile.
Mbadi said Kenya needs annual growth of more than seven percent to generate enough jobs for its young population, compared with current growth of about five percent.
“You cannot realise this without heavy investment in infrastructure, and you cannot with the kind of fiscal space that we have today,” he said.
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Under the plan, the government will dilute its stake in Safaricom from 35 percent to 20 percent. An upfront payment in lieu of future dividends is expected to raise an additional US$309 million for the treasury.
Vodacom, a subsidiary of Britain’s Vodafone, would increase its holding to 55 percent, paying a premium of about 24 percent over the past six months’ weighted average share price. The remaining 25 percent would continue to trade on the Nairobi Securities Exchange.
The deal requires legislative and regulatory approval and has drawn criticism from analysts and politicians.
Deepak Dave, a former chief risk officer at the Trade and Development Bank, said selling a profitable, dividend-paying asset to invest in illiquid infrastructure projects carried significant risk.
“The disposal of a commercial, dividend-generating, liquid investment to place money in illiquid equity is bad strategy,” he said, questioning whether the state could manage the fund effectively.
Mbadi said the infrastructure fund would be commercially run, designed to “de-risk” projects and attract private capital into energy, transport, irrigation and airport upgrades.
Proceeds from further divestments, including a planned sale of a stake in the Kenya Pipeline Company next year, are also expected to flow into the fund.
Background
Safaricom holds a central position in Kenya’s economy and digital ecosystem. Its M-Pesa mobile money platform, launched in 2007, now processes transactions worth nearly two-thirds of the country’s gross domestic product and reaches more than 80 percent of adults.
The company provides the state with around US$140 million a year in dividends, making the proposed sale particularly sensitive.
Industry groups have warned that Safaricom operates critical national infrastructure and have called for safeguards such as a government “golden share” to protect national interests, even as officials argue that the state will retain board influence and job protections.
Kenya’s planned divestments form part of what is expected to become the country’s largest privatisation programme in almost 20 years, as authorities seek alternative ways to fund development while containing debt and avoiding further social unrest.
If you want, I can tighten this further for an AFP brief, add a markets angle, or write a separate backgrounder on Safaricom and M-Pesa.
