Kenya has been urged to make water and sanitation projects more attractive to private investors by reducing the financial risks associated with such investments, as the country seeks to close a major infrastructure funding gap and expand access to clean water.
Industry experts say banks, development finance institutions and private investors should provide patient capital, blended finance and first-loss funding to absorb the high initial costs of water projects before they become commercially sustainable.
Unlike sectors such as energy and telecommunications, water and sanitation projects often struggle to attract commercial investment because water tariffs are heavily subsidised and rarely cover the true cost of delivering the service.
The World Bank estimates that Kenya requires about Sh1 trillion ($7.7 billion) to achieve universal access to clean water and sanitation by 2030. However, projected public funding stands at Sh529 billion, leaving a financing gap of between Sh325.6 billion and Sh471 billion.
To bridge this shortfall, the government is stepping up efforts to attract private investment through Public-Private Partnerships (PPPs) and the newly established National Infrastructure Fund, which is expected to finance commercially viable infrastructure while supporting projects with significant social impact.
According to PwC Kenya and East Africa director for government and public sector Benson Okundi, water projects require financing models that combine public and private resources because they deliver essential social services while generating relatively low financial returns.
He noted that blended finance structures, alongside patient and first-loss capital, can help make such projects bankable by reducing risks for commercial investors during the early stages.
The financing model reflects a growing global trend in which concessional funding is used to attract larger volumes of private capital once projects become operational and begin generating stable revenues.
Kenya’s infrastructure financing challenge extends beyond the water sector. The World Bank estimates the country faces an annual infrastructure funding deficit of about Sh270 billion ($2.1 billion) and requires nearly Sh517 billion ($4 billion) in annual investment to meet its development needs.
Historically, infrastructure projects have relied on government funding, donor support and concessional loans. However, rising public debt and tighter fiscal conditions have limited the state’s capacity to finance major projects independently, increasing the need for private sector participation.
Water infrastructure remains particularly difficult to finance because investment returns materialise over decades, while regulated tariffs are designed to keep services affordable. Unlike toll roads or power projects, water systems generate slower and lower financial returns despite delivering substantial economic and public health benefits.
PwC argues that the National Infrastructure Fund could help unlock investment by offering guarantees, viability gap funding and blended finance mechanisms that reduce investor exposure during project development.
The approach complements reforms proposed under the Water (Amendment) Bill, 2023, which seeks to strengthen partnerships between county governments and private investors by allowing counties to enter direct agreements with private firms for water and sanitation services.
Also Read: Tragedy As 23-Year-Old Man Drowns While Trying To Rescue Woman In Siaya Pond
PwC associate director of transaction services Isaac Otolo said the government’s focus on bulk water infrastructure presents new opportunities for private investment in capital-intensive projects, adding that water security should be treated with the same strategic importance as energy security.
Experts say mechanisms such as first-loss capital, where governments or development finance institutions absorb initial losses if projects underperform, have successfully encouraged private investment in sectors including renewable energy, climate adaptation and affordable housing.
Kenya hopes to replicate this model through the National Infrastructure Fund, which is also expected to mobilise investment into transport, renewable energy, digital infrastructure and urban development.
PwC’s Public Sector and Infrastructure Insight 2026 report identifies Kenya as one of Africa’s more attractive destinations for infrastructure investment, citing the PPP Act, 2021, an active PPP Directorate and government-backed guarantees that enhance project bankability.
The report also highlights Kenya’s relatively stable macroeconomic environment and improved risk-sharing frameworks as factors that reduce political and foreign exchange risks for long-term investors.
Across Africa, the African Development Bank estimates annual infrastructure financing needs at between $130 billion and $170 billion, against current investment of $68 billion to $108 billion, leaving a funding gap of up to $62 billion each year.
Although African institutional investors and sovereign wealth funds collectively manage more than $2.1 trillion in assets, less than five per cent is invested in infrastructure, largely due to concerns over project preparation and investment risk.
PwC notes that only around 10 per cent of infrastructure projects on the continent reach financial close because of political uncertainty, currency volatility, weak project preparation and lengthy payback periods.
Experts argue that national infrastructure funds can improve project bankability by financing feasibility studies, environmental assessments and engineering designs before projects are presented to commercial investors.
They caution, however, that attracting sustainable private investment will depend on strong governance, transparent project selection and independent management of infrastructure funds to maintain investor confidence and prevent political interference.
Ultimately, stakeholders say the priority is mobilising sufficient long-term capital to expand access to affordable clean water while recognising that investments in public services generate broader economic returns through improved health, increased productivity and stronger urban development.
