The Dynamics Of Kenya’s Oil Strike and it’s Implications

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Recent developments have placed east Africa in a unique position. The assumption of the past was east Africa had a maximum of six billion barrels of oil as opposed to the sixty billion of their western counterpart. Everything changed when Canada’s Africa Oil Corp. announced oil was discovered in Turkana. Due to geography, Ethiopia may reap rewards as well. Oil has already been discovered in Mozambique and Tanzania.

The Turkana oil strike can potentially transform the economy of Kenya. This may be the first step towards the county becoming a leader in regional power. Despite the excitement of the leaders, the news is not all good. Kenya has already been cautioned by analysts regarding the perils of being victimized by the resource curse. Uganda presents a good example to the east African nation regarding the steps to be avoided.

Drilling will not begin anytime soon. Production is being delayed due to the rig shortage impacting the entire world. The unexpectedness of the discovery means Kenya is not prepared for the regulatory framework or for handling the oil sector. James Phillips serves Canada’s Africa Oil Corp. as the Chief Operating Officer. He stated the company would not proceed until rules were developed by the energy minister of Kenya determining the acceptable ways of producing and selling oil.

Despite Kenya believing they are ready, their production of oil and gas exploration is still being regulated by the Kenya Petroleum Act. This law contains thirteen pages and passed in 1986. The leaders of the country are ready to pass an exemption tax for exploration companies to circumvent the impact the taxes will have on purchases and imports. These developments reflect the unwillingness or inability of the leaders of Kenya to consider the complexity of the situation.

Oil exploration has a significant downside contributing to the resource curse. Oil wealth is a product as well as an instigator of corruption. The corruption in countries rich with resources has been labeled as both bureaucratic and political. This involves the corruption among the lower-level officials and the key decision-makers. Kenya is already displaying the earlier signs of issues and oil may potentially cause more harm to the corrupted political class.

The environment and local poverty are significantly affected by the exploration for oil and gas. Other industries can be displaced leading to less resilience and diversification than in the past. Some of these issues are already impacting Kenya and oil production has not yet begun. One of the poorest areas in the country is Turkana. This area has been neglected by the respective governments due to the severe poverty and dry condition. This will not change because there is already an association between the oil and the politicians.

The most classic example of proper oil management is Norway. Although there are numerous reasons Norway will never become Nigeria, the most significant and pronounced is good governance. The former ambassador to Nigeria for the United States is John Campbell. He stated the reason Norway is able to sustain a good relationship with their oil wealth is due to a high degree of transparency regarding their sovereign wealth fund. The managers have direct accountability to democratic institutions.

Campbell also mentioned the first OECD country publishing their figures for oil revenue according to the Extractive Industries Transparency Initiative was Norway. Although Campbell believes Kenya should join the EITI, he believes a comprehensive and systematic regulatory framework needs to be developed to address environmental impacts. Transparency regarding contracts and revenue must be addressed and a benefit-sharing mechanism must be created between the local and national governments to ensure the Turkana people are not overlooked.

Finally, the investing and corporate entities must enforce high standards of responsibility and accountability. All of this is important for reaching a satisfactory conclusion. Kenya must be willing to consider the negative components of oil production and exploration and proceed with caution for any of this to be possible.