More Oil Found in Kenya

The aerial image of Turkana desolate and remote. It is hoped that the discovery of this resource will be a blessing for the region and there shall not be any repeat of the Niger Delta situation.

In announcing about the oil in Kenya the Prime Minister Raila Oginga said

“What [Tullow Oil and Its partner Africa Oil] have found in Kenya today is better than what they have found elsewhere in continent of Africa including Ghana and Uganda in terms of the depth. ”

A month a go Tullow Oil had striked Oil in Ngamia One at a depth of 1041 metres. The oil well was deepened to 1515 meters and   good quality oil bearing reservoirs zones were still encountered. This discovery has motivated Tullow Oil and Africa Oil to continue drilling up to a depth of 2700 meters and later the drillers will move the rig  31 kilometres further to the Tullow Operated Block 13T, to Twiga-1 (formerly known as Mbango-A) where the drilling activities will continue in the second half of 2012.  A further rig is being sourced to drill the Tullow Operated Block 10A Paipai prospect in Marsabit County.

In addressing the journalists the Minister for Energy Kiraitu Murungi said that “Kenya will strive to implement the international best practice by instituting best legal and institutional arrangements for oil exploration and production in the country (Kenya).”

The ministry of energy plans to bring together 200 opinion leaders from the Turkana county to discuss about the new resource and ensure that it becomes a blessing for both Turkana and Kenya. In the words of Kiraitu Murungi “those who think that there is going to be a Niger Delta in Kenya are mistaken. We believe that what is called Africa’s oil curse will not replicate itself in Kenya and hence there will be no oil curse in the country”

Many analysts argue that the oil discovery places Kenya in a better place to speed up its development prospects.  The government also plans to use this resource to speed up the attainment of the vision 2030.

All eyes at the moment are on how the government will manage this new resource in the country. While on the one hand there could be the “Africa oil curse” on the other hand there is the Dutch disease which is a concept  that explains the apparent relationship between the increase in exploitation of a natural resource at the expense of other sectors of the economy.  The mechanism is that an increase in revenues from natural resources (or inflows of foreign aid) will make a given nation’s currency stronger compared to that of other nations resulting in the nation’s other exports becoming more expensive for other countries to buy, making the manufacturing sector less competitive.

According to Daily Nation, the dutch disease is not fatal, and it can be prevented. This requires a mix of industrial, labour market, trade and exchange rate policies that enhance the country’s competitiveness in the non-commodity sector, for example in lowering taxes on labour. More worryingly, the sudden wealth that comes from natural resources can erode the quality of institutions. Politicians may be less pressured to undertake needed reforms and the windfall revenue may be spent on “white elephants” (non-productive prestige projects) or large transfer schemes that end up benefitting the political elite. Many talented individuals on the other hand will be tempted to seek rents rather than engage in productive activities and corruption can increase.

Kenya therefore has a triple task at the moment that it does not sink into the resource curse problem on one hand and on the other it does not sink into the Dutch disease as a result of a sudden inflow of enormous inflows of foreign currency and lastly that its institutions do not deteriorate as a result. It is important that the country avoids too much dependence on this resource forgetting to develop its other sectors such as the service sector, agriculture and other manufacturing sectors. But most important the government should invest first and foremost in the most basic needs of the country such as water, health and education of its citizens. All efforts must be made to avoid wastage in white elephants and ensure that all investments are of benefit to the people of Kenya.  It is also important to invest a significant proportion of the revenue in the  Turkana County and other poorest counties in the country.

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