Determinants of Private Finance Initiative for Project Financing; A Study of National Road Construction Projects in Kenya

Abstract

Purpose – The purpose of the study was to assess the factors determining the financing of private finance initiative projects specifically road construction projects in Kenya

Methodology - Across-section survey research design was used in the study. Questionnaire was used as instrument for data collection. Quantitative data were analyzed using both inferential and descriptive statistics while the qualitative data were analyzed thematically. Inferential statistics such as regression and correlation analysis were used in analyzing the association between the study variables. Pie charts, bar graphs and tables were then used to present the analyzed data.

Findings – The study found that 69.3% of the variations on financing for private finance initiatives can be explained by project characteristics, government attributes, political environment and economic environment. This is also an indication that the variables tested were very strong determinants of the financing of the road projects in Kenya under the private finance initiativesprivate finance initiatives. Aspects of project characteristics such as cost, scope and size of the project (Mean 4.55) and project technical feasibility & maintenance (Mean 4.09) were found influence the project financing of road projects to a very large extent. The study further found that different aspect government attributes such as cost of the loan (Mean 4.73), tax policy (Mean 4.27) stable macroeconomic conditions (Mean 4.27), favorable legal framework (mean 4.18), project development objectives (PDOs) (Mean 4.18) and sound economic policy (4.09) were found to influence financing of road projects to a very large extent. The findings finally revealed that stability of political environment influenced the financing of road project financing to a very large extent (Mean 4.73).

Implications - The findings of the study will contribute to the formulation of borrowing policies. Government bodies such as the treasury can use the findings of the study to come up with policies regulating borrowing for private finance initiatives in Kenya. For example, the findings can be used to regulate over borrowing to finance road projects at the expense of other development areas. The study will also contribute to the existing theories on private finance initiative. Theories such as public choice theory focusing on political decisions which are not in line with public interest may not fully explain the determinants of financing of private finance initiatives. This study found that other factors such as the project characteristics and economic environment influences financing of private finance initiatives

Value - By highlighting on the determinants of project financing for private finance initiatives projects, governments and policy makers will be able to come up with policies aimed at ensuring favorable environment for the implementation of road projects.  Furthermore, government will be at a position to know the factors determining their eligibility for funds for financing particular projects before seeking for the finances. The study will also be of importance to the Private Finance Initiative partners such as World Bank, African Development Bank (ADB), Trade Mark East Africa Organization (TMEA) and Japan International Cooperation Agency (JICA). By highlighting on the determinants of project financing for private finance initiative projects, the partners will be at a position to make more informed decisions when determining the projects to fund.