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Kenya joins China-led infrastructure bank

China-led Asian Infrastructure Investment Bank (AIIB) has accepted Kenya’s application for membership in a move that is expected to open a new channel for cheaper financing of Nairobi’s huge spending needs.

AIIB said on Wednesday that it had accepted Kenya and Papua New Guinea as new members to the 86 member mega bank.

“We’re very happy to welcome Papua New Guinea and Kenya as prospective members of AIIB,” said AIIB vice president and corporate secretary Sir Danny Alexander in a statement.

Kenya, which is battling a shortage of infrastructure financing, partly due to rising cost of loans, has been on the lookout for cheaper financing options that will help reduce the burden on the Exchequer.

Kenya is expected to officially join AIIB once it completes the required domestic processes and deposits the first instalment of capital with the bank.

The bank focuses on funding the construction of roads, railway lines, ports and energy as well as rural infrastructure, mainly in Asia.

Beijing has effective veto power in the bank’s major decisions, which require at least 75 per cent support. India is the second largest shareholder, with 7.7 per cent of the votes, followed by Russia with 6.1 per cent and Germany with 4.27 per cent.

Mr Rotich had, however, said in 2016 that the Treasury was keen to expand its financing options for infrastructure projects in order to close the government’s infrastructure funding gap, conservatively estimated at Sh180 billion annually.

At inception, AIIB had an immediate investment portfolio of $50 billion (Sh5.12 trillion) and a share capital of $100 billion (Sh10.21 trillion) as it sought to play in the space previously dominated by the World Bank Group, which has more than doubled the financial muscle of the former.

“There is need to expand our funding and all these options are welcome to Kenya,” Mr Rotich had said.

“Once we join, we can access highly concessional financing just like we do with the World Bank,” he had said.

Kenya has been hunting for cheaper loan options after it ceased to enjoy concessional terms under the International Development Association – World Bank’s lending arm for low-income countries – and the African Development Bank.

Mr Rotich had said in 2016 the country was also keen on joining the Organisation of Islamic Co-operation to access soft loans from the Islamic Development Bank.

With the strengthening of the dollar, there have been suggestions that Kenya should consider borrowing in yuan, which was on November 2015 admitted into global basket of benchmark currency by the IMF comprising the dollar, sterling pound, euro and yen.

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