“This morning, I have been informed by the Minister of Energy that our country has made a major breakthrough in oil exploration. This is the first time Kenya has made such a discovery and it is good news for our country,” stated President Kibaki as he announced the discovery of oil deposits in Turkana. Though the Energy Minister, Kiratu Murungi, has warned that the find is only the results of the preliminary prospecting, and that the oil production is unlikely to commence for at least three years. The oil deposits are relatively large, worth approximately USD $250 billion, almost ten times more than country’s annual GDP, significant enough to change the country’s political and economic trajectory.
However whether the discovery of oil in Turkana, one of the poorest places in the country, is a going to be a good thing for the country and the region remains to be seen. Intuitively one would theorize that the discovery of such large oil deposits, in one of the country’s poorest areas, is a good thing. The discovery of such large amounts of oil represents huge potential for the region’s and the country’s economic and political development and could give a “big push” to the economy through more investment in economic infrastructure and more rapid human capital development.
Having said that, its important to point out that economic growth is not an automatic effect of the discovery of mineral resource wealth. Look at the example of other resource rich countries on the continent. Governance i.e. the quality of regulation and the predictability of changes of regulations, anti-corruption policies, such as transparency and accountability in the public sector, will be important for effective natural resource management and will be critical determinants of the extent to which the growth effects of the discovery of oil will materialize. And quite frankly we’re not doing too well in any of those departments.
It has only been two days since the President announced the discovery of oil and there has already been a scandal surrounding the sale of land in Turkana. Yesterday the Daily Nation reported that in 2010 a Cabinet Minister’s firm sold a Turkana oil block for more than 800 million shillings. The Daily Nation reported the story as an example of how small firms might be using influence in the government to make hundreds of millions of shillings by trading in oil prospecting licences.
“The way the game is played is all too familiar: as a well connected speculator the first thing you will do is make sure that the obligations in the license are as minimal as possible and that the terms will not require you to spend too much money. With the license in your hands, you make sure that you are in a position to influence government officials to vary the terms as many times as possible as you wait for the opportunity to “flip”/sell the license at a handsome profit,” said the Daily Nation (full story here).
Such dealings will inevitably create scenarios in which oil licences can be allocated to inefficient/corrupt cronies of government regardless of performance criteria. Add this to the country’s fragile institutions and factionalized politics, and the resource gains from the discovery of oil may be lost. Of course the potential problems are not inherent in the discovery of oil, which in itself is a good thing. The issue is whether or not the resource is successfully managed and whether political structures and institutions will support sustained economic growth from the oil.
What are your thoughts on the discovery of oil in Turkana, blessing or curse?