Audit boss Nancy Gathungu: Treasury cheating on roads levy

Kenya's audit office has uncovered a significant governance breach: the Treasury Department securitised billions in roads levy revenues without securing required parliamentary approval, according to Auditor General Nancy Gathungu's findings published this week. The development signals deepening fiscal management concerns that extend far beyond Kenya's borders, with direct implications for European investors betting on East African infrastructure stability.

The roads levy—a dedicated fuel tax mechanism designed to fund highway maintenance and expansion—represents a cornerstone of Kenya's transport infrastructure agenda. By securitising these future revenues, the Treasury effectively mortgaged income streams meant for ongoing road projects, converting them into upfront capital. While securitisation itself is a legitimate financial instrument used globally, the parliamentary bypass represents a constitutional violation and signals institutional dysfunction that should alarm foreign capital.

This isn't an isolated incident. Simultaneously, the office of Principal Secretary Charles Hinga revealed that the Treasury failed to allocate dedicated funding for affordable housing within Supplementary Budget I—a stunning admission that 1,700 housing projects across the country risk stalling indefinitely. For context, Kenya's Big Four Agenda explicitly identified affordable housing as a national priority, with European construction firms, property developers, and infrastructure funds having already positioned themselves in this sector based on government commitments.

**The Investor Risk Calculus**

For European entrepreneurs and investors, these developments represent a critical reassessment moment. Kenya has been positioned as East Africa's most stable investment destination—a narrative that depends heavily on institutional credibility and transparent fiscal management. When the auditor general must publicly call out Treasury-level constitutional violations, it suggests oversight mechanisms either failed or were circumvented deliberately.

The roads levy securitisation is particularly concerning because it reveals a mismatch between government fiscal commitments and actual capacity. Rather than securing parliamentary approval (which would require transparent debate), the Treasury took a shortcut. This approach may indicate either: (1) legislative opposition to the securitisation terms existed, or (2) Treasury leadership doubted parliamentary scrutiny would approve the arrangement. Either scenario is problematic for investor confidence.

The housing allocation failure compounds concerns. European construction and real estate investors typically operate on 18-36 month project timelines. Government budget commitments form the foundation of these calculations. When a supplementary budget—specifically designed to address unforeseen allocations—fails to include promised housing funds, it suggests either incompetence in fiscal planning or deprioritisation of stated goals. Both interpretations damage long-term investor sentiment.

**Market Implications**

These governance lapses will likely trigger closer scrutiny of other Kenyan government revenue streams and project commitments. European institutional investors manage fiduciary responsibilities to pensioners and stakeholders; they cannot afford exposure to opaque fiscal management. Expect increased due diligence costs and potentially higher risk premiums demanded by European capital providers.

The broader concern: if Kenya's Treasury—managing Africa's fifth-largest economy—operates outside constitutional guardrails without swift intervention, what does this say about the reliability of government-backed infrastructure financing more broadly? This question will echo through European boardrooms and investment committees evaluating Kenya, and potentially tainting regional sentiment toward other East African opportunities.

Recovery requires swift parliamentary investigation, public accounting for the roads levy securitisation, and visible reallocation of housing funds. Without these steps, Kenya risks a gradual capital flight—not dramatic, but sufficient to raise borrowing costs and reduce foreign direct investment velocity.

---

#