[Column] Wangui Wambugu: Can Kenya avoid the oil resource curse?
27-09-2019 13:30:00 | by: Bob Koigi | hits: 4908 | Tags:

Dating back to the seventies, developing countries that are rich in resources have consistently performed poorly in the face of the great potential for wealth and greater living standards that natural resources can bestow on them.

But rather than reaping the benefits, these nations are marred by corruption, poverty and political strife in what is known as the “resource curse”. And now, Africa has a new entrant into the oil global market: Kenya recently shipped its first 200,000 barrels of crude oil set to earn the country 1.2 billion Kenya shillings.

Flagging the consignment for export to China, President Uhuru Kenyatta asserted that the money will be utilised in a manner that yields maximum returns for future generations. These are laudable goals. Yet in order to create the conditions that will help Kenya avoid the resource curse, a lot of work is still to be done, because despite its recent success, the country lags behind on a variety of fronts.

A lot to be done

For starters, the government still needs to implement important legislation that will govern the distribution of the oil-sourced wealth. For example, the 2016 Mining Act, outlining how resources accrued from minerals and petroleum should be shared, still needs to be put into place – creating a void that risks various political stakeholders beginning to squabble over the profits.

If countries suffering from the resource curse are a warning, then for society at large to benefit from the petroleum riches, local and regional communities need to be guaranteed involvement in the petroleum industry as it develops from now on. They specifically need to have a say in environmental protection, public health, employment opportunities and in the way the oil mining activities may affect their current economic activities, seeing that most are pastoralists in Turkana, where the oil was found.

To be sure, the 2019 Petroleum Act provides for a profit-sharing scheme of the expected 1.2 billion Kenyan shillings of oil profits, where the national government receives 75%, county governments 20% and the local communities get 5%. Yet definite amounts will only be known after the cost of the Early Oil Pilot Scheme is tabulated and a formula agreed upon for recovering the costs. At that point, having a stable legal framework in place is crucial to avoid political infighting.

Another issue is the fact that Kenya is challenged in terms of infrastructure. Lokichar basin with major oil deposits is about 850 km from Lamu port of export. A Uganda-Kenya joint pipeline project was proposed as early as 2015 to facilitate transportation of the oil. However, the project was cancelled in 2016 when Uganda decided to build a rival pipeline with Tanzania instead, leaving Kenya to go it alone and foot the entire Kshs 4.5 billion bill for the 1,500 km of pipeline.

It therefore will be an expensive venture to finally get the necessary infrastructure set up. Consolation may be found in the fact that Kenya has 400,000 square kilometres under which oil can be drilled, which will become economically viable once infrastructure is in place. This alone should be incentive enough to take the necessary measures as soon as possible, hopefully in an economically sound manner to the benefit of all.

Nigeria and Angola: oil, corruption, poverty

Indeed, Kenya would do well to take this advice to heart. One only need to look at other African oil producing nations, and they’re not doing well. The Niger Delta, for instance, has borne the brunt of pollution, mismanagement of funds accrued from oil trade in Nigeria and Benin is pervasive. Reportedly, corruption from a 2011 deal between Eni and Shell and the government revealed that Nigeria lost $6 billion – double its annual education and healthcare budget.

The companies also stand accused of having paid $1.1 billion  in bribes to Nigerian officials, exposing the nexus between powerful companies in political networks. And it is the same in Angola, which despite its oil wealth, is one of the world’s poorest countries as former long-time president Dos Santos made corruption state-policy during his 38-year rule. A prospering political elite connected to state oil company Sonangol arose, leaving the current government to deal with a “wasp nest” of graft.

President Joao Lourenco has vowed to overhaul the oil industry by reducing Sonangol’s influence in regulatory matters, and create a new regulatory agency. While the success of such initiatives will be seen in the future, they’re a slow step in the right direction. And as the example of Senegal shows, taking it slow may be the right way to go about it.

Senegal: a model to be emulated?

Senegal is in a similar situation as Kenya, planning to join the league of oil exporters by 2023. In an attempt to forestall any future conflict about the petroleum industry, Senegal’s president Macky Sall launched a national dialogue on oil and gas in 2018, consisting of a series of national consultations bringing together “stakeholders drawn from all the regions and in sections of society.” This way, profit-sharing agreements can be finalised and funds set up before the oil is even gushing. 

Indeed, observers judge this approach to help the industry develop more transparently, ensuring that oil rents are going where they’re needed, particularly education and infrastructure. In conjunction with the overhaul of the country’s 1998 Petroleum Act in March this year – establishing production, tax and licence frameworks, including ownership of resources, among others – Senegal is considered to be well-prepared to enter the oil markets and extract national benefit from a burgeoning industry.

The way forward

Can Kenya emulate Senegal's success story and build this new industry smartly? Senegal's highlight is a transparent system. Kenya has a background of entrenched corruption in every sector, but it has no shortage of references and lessons. If Kenya takes the time now to carefully implement its policies, my hope is that this great nation will do right this time. Kenya can tick every box if the will exists.

The government and stakeholders owe Kenya this success. Other industries are struggling or dead altogether. In oil lies a chance to break the resource curse plaguing the continent. Will Kenya touch the tape at the finish line?  On your marks Kenya!

Wangui Wambugu Director at Intrinsic Concepts