Kampala: The announcement last week of a promising oil discovery in Kenya, combined with news that Tanzania’s offshore gas fields are proving even richer than first thought, raises the prospect of an East African region transformed by natural resource wealth. Farther south, Mozambique, long impoverished by internal conflict, is now an advertisement for hydrocarbon-driven growth, with revenues from gas expected to top $250 billion.
It is too soon to say how much oil will be found in Kenya, but industry experts see the results of Tullow Oil’s first test well in the country as confirming significant potential. According to Bloomberg, other companies are already queuing up for a place in the new exploration frontier.
An oil and gas bonanza does, however, bring notorious risks as well as opportunities.
National economies suffer in the long run if natural resource revenues are simply eaten by local elites, rather than invested prudently to diversify and strengthen other economic sectors. The disappointed expectations of sidelined citizens can lead to strife. This is exacerbated when oil is found in places inhabited by people who already feel marginalised by post-colonial development.
Such was the case in Uganda, where commercial quantities of oil were first found, in 2006, in the Bunyoro kingdom. Tullow’s successful Kenyan well was sunk in Turkana county, and will rekindle interest in the oil potential of Uganda’s neighbouring Kadam Moroto basin.
The semi-nomadic peoples on both sides of the border already have legitimate grievances about central government neglect of their needs. Oil wealth under their feet may sharpen rather than resolve those grievances.
In Uganda, oil is becoming another battleground for civic activists and opposition groups to air their discontent with a government that, according to an Afrobarometer opinion poll published last week, now has an approval rating of only 26 per cent.
Many people fear that President Yoweri Museveni plans to capture oil rents in order to feed patronage networks to prolong his 26-year rule.
So, the “resource curse” risks are real and serious, but should not lead to premature cynicism or gloom.
East Africa’s potentially huge but as yet largely unmapped petroleum and mineral resources have aroused global interest mainly because of increased demand from an economically resurgent Asia. This is sometimes unfairly portrayed as Asia’s — and especially China’s — “voracious appetite for resources.”
But Asia’s economic take-off is excellent news not only for the hundreds of millions of Asians who once lived in dire and chronic poverty, but also for the global economy.
And an important launching pad for that take-off, not just for China but also for Malaysia, was the prudent use of their own natural resources to invest, to acquire technology, and to diversify. East Africans should take hope from this.
Transparency, accountability, a coherent and fair regulatory framework, a sensible business plan for saving and investing part of the natural resource wealth for future generations — all the things that local and international activists routinely call for — will certainly help East Africa make the best use of its underground and underwater assets.
These are difficult things to achieve, and the road will likely be potholed and bumpy, but they are possible.
Leastwise, the context today, with so many African states engaging in exploration and production, is rich with learning opportunities and examples of “best practice.”
The world is already a much more transparent and connected place than it was 30 years ago, and there is a real opportunity to consign the mistakes of the past to the dustbin of history.
Another danger on the horizon, however, is the emergence of petro-state rivalries within the East African region.
Uganda’s 2006 discoveries led to government visions of adding value to Ugandan oil by building a refinery that could both meet domestic demand and supply refined products to regional markets.
That was perhaps a rosy vision but it was neither stupid nor venal. However, Uganda’s progress from exploration to production stalled in a series of disputes between the government and international oil companies, and the situation is now different.
South Sudan’s decision to pipe oil to a refinery in Lamu, rather than paying exorbitant transit charges to the northern neighbour from which it seceded last year, is one game changer.
Kenya’s discovery last week is another. Depending on the amount of recoverable reserves that are eventually found in Kenya, the country may well also choose the value-adding local refinery option.
With Tanzania also prospecting for oil, which may well co-exist with its natural gas deposits, the worst-case scenario would be a region divided rather than united by its natural resources, bristling with oil-financed military hardware, and quarrelling over cross-border reservoirs.
The best-case scenario would be a serious effort by the national governments to share information and technology and to work towards a co-ordinated strategy for the development of the region’s energy resources as a whole.
Serious consideration should also be given to the question of whether a unified currency might serve as an antidote to the economic ailment known as the “Dutch disease,” whereby national currencies appreciate with natural resource sales, weakening the export competitiveness of agricultural products and manufactures.
Should East African countries pool their currency risks, or go it alone?
In short, petroleum may well be a defining issue for the future of the East African Community.
- Nick Young is the managing editor of Oil in Uganda (www.oilinuganda.org)