Will Kenya escape the oil curse?

BY MARVIN SISSEY

In its 2013 report titled , Reverse the curse: Maximising the potential of resource driven economies, McKinsey & Company defines a “resource-driven country” as one  whose economy relies on oil, gas, and mineral sectors, accounting for more than  20% of exports or generating more than 20% of its fiscal revenue. With the discovery of what has been widely tipped to be ‘economically viable amounts of oil’ in the Turkana Basin (approximately 600 million barrels), Kenya is imminently headed to becoming an oil-driven country in less than half a decade to come. 

Precedent shows that we should receive the news of the availability of the  bountiful resource within our borders with a pinch of salt and keep our fingers crossed that we do not descend into what has been defined as ‘the African-Resource Curse’. Despite significant resource endowments, poverty remains widespread in all the oil-producing countries of sub-Saharan Africa including Angola, Cameroon, Chad, the Republic of Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, and Nigeria. 

If it is not unending conflict and internal strife, it is high level corruption and dictatorial regimes and, in some cases, even failed states. In fact, a country like Democratic Republic of Congo has become a fine example of how not to manage your resources given the oxymoron of the abject poverty of her citizens despite the mineral rich embarrassment of its lands.  

These problems are not limited to Africa, though. The global statistical numbers are astounding. According to the same McKinsey report, as far back as 2011, a massive 81 countries around the world could be classified as resource-driven and accounted for over 26% of the global GDP. Even then, ironically, 69% of extreme poverty cases live in these very same resource-rich countries. 

 

Another highly demotivating statistic – almost 80% of the countries whose economies have historically been driven by their resources have below global average per capita incomes.

So who is gaining from these resources, you may ask? Your guess is as good as mine – almost 90% of the investment proceeds of these resources are enjoyed by the upper middle income and high income countries – many who themselves don’t produce these resources. Basically, it’s a parasitic scenario where the rich countries are leeching on the poor resource-rich states. 

This story of gloom doesn’t have to be replicated in every oil producing country. There are model countries like Norway and Botswana that provide a fine learning model of how to use your resources for the betterment of your economic outlook and social well-being. 

Writing in a local publication recently, Dr Alex Owiti of the East African Institute recommended a number of critical safeguards to help Kenya join these model countries and avoid the oil curse. He suggested the setting up of a petroleum revenue management framework and a sovereign wealth fund with a cap on how much oil revenue is allocated to the national budget. I agree with him about the management framework although I reckon that our inferior economic status may not warrant us having a sovereign wealth fund. 

Still we can utilise better revenue sharing informed by distributive policies, taking into account the crippling poverty levels in resource-rich counties – using the equalisation system already set up through our devolution constitutional framework.

But one thing we should all fight for is to improve transparency in this sector. To this regard, Kenya should highly consider membership to the World Bank backed project – the Extractive Industries Transparency Initiative (EITI) .Currently, Kenya is neither a compliant nor candidate country for EITI whose role is to ensure that all revenue payments by oil, gas and mining companies are independently verified and disclosed to the public, thus helping citizens to exercise oversight, increase transparency, and reduce the risk of corruption and mismanagement.

 

It’s not too late for Kenya to chart its path that will make oil a blessing, and not a curse. 

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