Opinion

Oil exports: Difficult part is managing expectations

Oil exports: Difficult part is managing expectations
  • Among common themes on how to manage the expectations and avoid the resource curse, is by providing accurate, reliable and timely information to all stakeholders.

  • This becomes crucial in helping shape public expectations. Secondly, there is the need to improve the quality of institutions and strengthen the capacity of the judicial system so as to be accountable and transparent.

It is  evident from the flagging-off of the maiden 200,000 barrels of crude oil by President Kenyatta that Kenya has now joined the league of oil exporting countries.

As earlier revealed, Kenya secured export deals worth $12 million to China. Already, some political actors are demanding a share of the cake as they foresee promising horizons from the oil sector.

UNREALISTIC

It is expected that oil revenues will finance a large proportion of the national budget, liberate Kenya from donor-dependence and boost investments in infrastructure (such as roads, power plants, education and health infrastructure).

One of the inescapable challenges in modern governance of the extractive sector is expectations management. In the Kenyan case, there are expectations that the precious resource and the associated revenue will deliver substantial social, economic and infrastructural improvements.

Clearly, these expectations, whether realistic or unrealistic, need to be managed in order to avoid any negative consequences. In his book, Why Men Rebel, Ted Gutt directly linked the process of high expectations in a society to the emergence of violent conflicts that arise from the aftermath disappointment.

The good news is that there is a broad understanding of some of the measures that need to be put in place to handle what people expect and avoid the “resource curse”. Botswana, Canada, Australia and Norway are among the countries that have effectively managed their natural resources.

CORRUPTION

Among common themes on how to manage the expectations and avoid the resource curse, is by providing accurate, reliable and timely information to all stakeholders. This becomes crucial in helping shape public expectations. Secondly, there is the need to improve the quality of institutions and strengthen the capacity of the judicial system so as to be accountable and transparent.

Norway’s success is attributed to the country’s ability to avoid the ‘resource curse’. It had in place good institutions by the time the extraction of oil began in the 1970s.

Norway was a mature democracy with sound institutions. Norwegian politicians hardly posed any risk of wasting public resources on selfish political activities. Norway also institutionalised the rule of law and developed a good judicial system to detect, determine and deter theft of official resources. As a result, illegalities such as grabbing of collective wealth through corruption is rare in Norway.

Kenya is substantially different from Norway. Where Norway was an advanced economy with per capita GDP of over US$10,000 in 1970, Kenya has per capita GDP of US$1,991 on purchasing power parity currently. Where Norway was a stable democracy at the time of oil discovery, Kenya is a fragile state that engages in high voltage politics. Corruption is rife in Kenya.

CAPACITY

President Kenyatta has committed himself to fighting corruption, but graft scandals dominate headlines.

However, not everything is gloomy, as Kenya is trying in terms of building capacity to manage the country’s emerging oil economy. The Petroleum Act 2019 for instance offers hope for the industry.

Under the new edict, Parliament shall now be involved in: Review and ratification of future production sharing contracts (PSC) [and] field development plans conforming to Article 71 of the Constitution. To further guarantee establishment of suitable changes that improve sustainable administration of the resources in the country; the 75-20-5 per cent oil revenue sharing formula between national government, counties and local communities is now in effect. In essence, the formula now binds the three partners to seek shared success by constructively engaging each other.

The onus, therefore, is on all of us to ensure prudential management of these natural resources for decent livelihoods.

Mr Njoroge is an advisor at The Africa Utility Forum. Email: