Skip to main content
November 20, 2018

Law on oil must drive prosperity

The Ngamia 1 rig in Turkana where Tullow oil has got huge oil reservoirs./FILE
The Ngamia 1 rig in Turkana where Tullow oil has got huge oil reservoirs./FILE

Kenya will soon join the ranks of oil exporting countries. President Uhuru Kenyatta announced that Kenya would pump and export an estimated 2,000 barrels of oil per day before the next general election. At the current oil prices, these petroleum exports will generate enough revenue to pay about 203 MPs their salaries and allowances for one year.

But is Kenya prepared to navigate the slippery slope of the hydrocarbons bonanza? Can oil revenues drive equitable or shared prosperity? Our record and experience with massive cash receipts like the Eurobond is not inspiring.

Africa’s experience with hydrocarbons and mineral ore has not been rosy. In a majority of Africa’s resource-rich countries, exploitation of natural resources is invariably linked to corruption, economic stagnation, conflict, social inequality and widespread poverty. This apparent paradox is referred to as the Resource Curse. Paul Collier, Oxford University economist, has argued that poor management of large inflows of natural resource revenues makes other export activities uncompetitive and stifles economic diversification, leading to lower economic growth.

For a long tine Nigeria was the poster boy of the Resource Curse. Armed rebels, operating under the name of the Movement for the Emancipation of the Niger Delta, have intensified attacks on oil platforms and pumping stations. According to leaked internal financial data accessed by the Guardian, Royal Dutch Shell paid Nigerian security forces hundreds of millions of dollars a year to guard their installations and staff in the Niger Delta.

A raft of legal interventions, including a sovereign wealth fund, benefit sharing as well as detailed regulations that specify production agreements are in various stages of drafting, public consultation and debate. All of these are intended to ensure that Kenya averts a Resource Curse and receipts from natural resources contribute to shared economic prosperity.

The latest in this plethora of laws and regulations is the Local Content Bill published by the Senate. The intent of the Bill is to create a framework to support “indigenisation” of financial, technical capacity and local value capture across all activities in the extractive sector, especially oil and gas.

The supreme purpose of local content legislation is to move communities beyond benefit sharing to equitable economic participation. This is especially critical for communities in the Rift Valley and coastal region who have been marginalised for over six decades. Hence, the local content legislation must give primacy to the county governments. Real and durable prosperity on a scale that diminishes the risk of a Resource Curse can only come through robust economic participation by local communities in whose locality the natural resources are found.

The Bill should establish devolved local content development committees, which must be embedded in planning units of resource-rich counties. These committees in consultation with local stakeholders develop local content plans. Such plans must address specific investment, development and human capacity needs.

Bust most of all governments, both county and national, must make fundamental investments in human capital and physical infrastructure to make local content aspirations feasible.

Dr. Awiti is the director of the East African Institute

Poll of the day