Foreign firms to plug universities’ infrastructure gap

Foreign financial institutions and private equity funds are lining up millions of dollars to invest in Kenya’s higher education, potentially helping to narrow the damaging infrastructure gap facing the sector.

The flow of private funds, experts said, is expected to reduce the financial deficit that has seen universities struggle to provide facilities to meet surging student numbers.

Last week, the International Finance Corporation, or IFC, said it was considering approving a US$40 million kitty to be extended to two private equity firms – Acorn Group and London-based Helios – to build university hostels in Kenya. The two firms are jointly set to build 3,800 units in Nairobi in one of the biggest privately funded infrastructural projects in Kenya’s education sector.

The hostels to be built near Kenya’s three top private universities – United States International University-Africa, Daystar University and Strathmore University – are expected to cost at least US$75 million.

“The student and young professionals' housing will be a big step towards reducing the deficit in affordable accommodation for those in tertiary institutions and those newly out of college but who cannot afford to buy properties of their own,” said the IFC – a member of the World Bank Group – in a note to investors.

Meanwhile, New York-based private equity firm Africa Integras is constructing hostels at Kenyatta University, Kenya’s largest by student numbers, under a US$50 million public-private partnership deal. The university will provide land for construction while investors develop the hostels, run them for 20 years to recoup investments, and hand them back to the institution. Kenyatta University has allocated 20 acres to the project, which will house up to 10,000 students.

Public-private model

Two years ago, Kenya’s President Uhuru Kenyatta gave an approval to public universities to engage private investors in expanding their facilities, as part of a larger government plan to draw on private capital to plug a growing infrastructure financing deficit. Under the public-private partnership model, the government said it expected to draw in at least US$29 billion in private funds over the coming decade.

In addition to Kenyatta University, Moi University has since announced plans to engage private financiers under the build-operate-transfer scheme.

The government recently announced it had contracted a consortium of infrastructure advisory firms – Genesis and CRISIL – as well as consulting firm PKF as transaction advisers for the project to be implemented in Moi University, Egerton University, Embu University College, Kenya Technical Trainers' College and South Eastern Kenya University.

Last year, the University of Nairobi completed a 22-storey education complex valued at US$28 million to meet increased demand for academic and administrative facilities, a project funded in conjunction with private financiers.

It is understood that Masinde Muliro University of Science and Technology, one of the newest public universities, has been looking for South African investors to help fund its expansion.

The government has allocated US$982 million to public universities for the 2017-18 financial year, leaving universities with a US$200 million deficit.

Kenya’s higher education institutions spend more than 80% of their budgets on recurrent expenditure – largely salaries and wages – at the expense of capital projects, research and innovation, a trend that is frustrating the focus on improving the quality of education.

Loans board under strain

Last Monday, the Higher Education Loans Board, or HELB, said it is in talks with several external financiers to boost its lending book which has recently come under strain due to increasing numbers of students seeking university loans.

HELB, the agency that disburses loans to university students on behalf of the government, says it has a deficit of US$20 million this year alone, meaning it will turn down thousands of applicants seeking the subsidised state loans. Currently, HELB has at least US$15 million of its loan book funded by external sources including USAID and local education foundations like Rattansi. A section of the book is funded by local banks.

Local investment analysts have been calling for universities to adopt the endowment model to fund their needs, as is the case with global institutions like Yale and Harvard.

“An endowment programme can help free these cash-starved institutions from concerns about having enough funds to finance their operations. If universities are to comfortably finance their academic programmes, research and admission of qualified students regardless of their ability to pay, then they need to consider setting up such programmes. Universities do need to seize this opportunity and engage their stakeholders” said Rufus Mwanyasi, the managing director at Kenyan investment advisory Canaan Capital Limited.

“Perhaps as a starting point, local [universities] can begin working the basics; putting together an investment committee, setting investment objectives, developing an active investment strategy and finally crafting a spending policy. Emphasis should be placed on diversification and long-term equity-oriented investments,” he wrote in a column in a local daily newspaper.