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Oil Deposits found in Kenya

By: Ibitola Adesuyi  

Kenya has been in the headlines for the attack on a Nairobi mall by the militant group, Al-shabaab, an al-Qaeda affiliate in Somalia, that killed about 68 people, and injured over 175. This attack was the deadliest attack in Kenya’s history since Al-Qaeda bombed the U.S. Embassy in 1998, killing 213 people. [1] However, Kenya has also been in the news the discovery of massive oil reserves that could put the nation on the right trajectory for growth. In March 2012, Tullow Oil, a London oil company, discovered oil in Ngamia-1, a region in Turkana, in the Northern part of Kenya. Since then, other global oil companies such as Total Group from France, National Oil, a state-owned oil company, and African Oil, a Canadian company, have joined Tullow Oil in the search for more oil reserves. Additionally, more regions in Turkana such as Kericho, Nyakach, and Twiga are also being explored for oil. Oil is one of the world’s most valuable resources and could potentially increase Kenya’s revenue significantly, but this discovery has drawbacks. Given the history of other oil-exporting countries, and the history of corruption in Kenya, this new oil discovery could actually be a calamity.

 

Originally, African Oil estimated that Turkana had over $368 million barrels of oil, but now African Oil estimates that Turkana could contain over $1 billion of oil barrels of oil [2] This is good news for Kenya because it currently imports all of its fuel, which is about 80,000 barrels of oil a day at a cost of $8 million; however, this cost is offset by its coffee and tea exports. [3] Once Kenya  oil production becomes self-sustaining, which is scheduled to start in 2016, it could dramatically reduce the cost of oil in the country. Since the oil would be coming from the home country, it would reduce the cost of fuel imports into the country and the cost of fuel to its citizens. Additionally, it could increase the amount of Foreign Direct Investment (FDI) into the region. It is estimated that Kenya will attract about $1.3 billion per year over the next five in FDI inflows, [4] an area dominated by other oil-producing countries such as Angola, Nigeria, and Ghana.  It is estimated that the new discovery will create 16,000 jobs. This oil discovery could solidify Kenya’s position as the economic center of Eastern Africa, which is a fantastic accomplishment for the country. However, there are several consequences that come with the discovery of oil.

 

Recently, Nigeria, one of Africa’s top exporter of oil, suffered $1.65 billion in oil theft, most of which were done by public officials. Also, the Niger-Delta region, the region where oil is produced has been neglected by the both the oil companies and the Nigerian government at the expense of oil. The needs of these communities were shunned until they revolted against the Nigerian government for neglecting their community. Of course, a quick fix was initiated to quell the revolts. However, the region still experiences neglect as fishermen complain of the oil killing their fish and children are forced to swim in oil-contaminated water. Also, oil spills are common in the area, which stem from oil thefts and mismanagements by oil companies.  It estimated that as many as 546 million gallons of oil spilled into the Niger Delta over the last five decades, or nearly 11 million gallons a year. [5] Unfortunately, this scenario could be repeated in Kenya.

 

Since the discovery of oil, there have been several conflictsover this oil. First, the residents of the Turkana community stormed the Tullow Oil sites, which forced the company to suspend its operations until a memorandum of understanding, a legal agreement that outlines the details of an agreement between parties that includes each party’s requirements and responsibilities, was signed by Tullow Oil, the government, and local leaders. As a result, Tullow Oil agreed to increase its social responsibility allocations from $1 million to $2 million. Also, the company will be required to start village-to-village road shows, radio shows, and community bulletins to intensify public education.  Also, every four weeks, the government and key ministries will meet to dissolve any conflicts through the MOU. [6]

 

Another conflict is in the neighboring county of Pokot, which is  in a dispute with Turkana over the oil fields claimed by Turkana. Pokot County claims that Ngamia 1, where the initial oil deposits were found, belongs to Pokot County and not Turkana. This dispute is in court to determine who will receive the funds from oil revenues. This is an example of the social  catastrophes that oil can create where there are scarce resources in a country initially.

 

The fate of Kenya and its oil deposits lies in its own hands. With many examples from other oil producing nations of how oil can dominate a country’s interest and shift it away from the interest of the people, Kenya should use this as a learning tool as it steps starts producing oil. At this early stage of oil production, the Kenyan government should start to strengthen its government to make sure of the enforcements of that oil companies obey all laws and are responsible. With a fragile government, there needs to be transparency with any oil undertakings in Kenya, especially Turkana. The community must be seen as a priority so it is not neglected, and the entire population should  benefit from the oil revenues. The wealth should not be concentrated to a few individuals. With this oil discovery, Kenya has the opportunity to diversify its exports, and propel it further into the world market, but it must make sure not to become overly dependent on it. Greediness can arise within politicians when oil revenues start to flow into a country, and each person’s self-determination takes predominance over all. Therefore, there needs to be increased transparency with any oil deals, and also increased accountability for those in charge of oil agreements. Kenya has the ability to be a model for oil-exporting countries, but its reforms to handle the consequences of oil production must start now, not in the future when problems have already arisen.

 

Ibitola  Adesuyi is a senior at Emory University majoring in Economics and International Studies. Her academic interests include international finance and economic development, with a particular interest in Sub-Saharan Africa. This summer, Ibitola interned with the Global Institute for Change where she conducted research on massacres, election trends, political and socio-economic issues in Nigeria, Cameroon and Zimbabwe.

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