Why Kenya lost oil export pipeline deal to Dar

Kenya is losing its economic spark in the East African region, a new report has said. This is because of poor government policies that are not in line with those of the rest of the countries under the six-member East African Community.

The Parliamentary Budget Office — the economists and fiscal analysts who advise MPs on the budget and the economy — said the country’s poor economic policies, plus some of the Government decisions had eroded confidence of the other East African countries in joint projects.

“Kenya is slowly losing its comparative advantage of being a hub of the region. This is a result of policies that are not in tandem with its East African counterparts. As seen recently, Uganda has decided to build its crude-export pipeline through Tanzania,” said a PBO report on the 2016-17 budget.

The verdict of the House economists is that the Jubilee administration has to shoulder the blame for the collapse of the multi-billion shilling oil pipeline partnership with Uganda. Uganda said the pipeline through Kenya was expensive. Rwanda too plans a diversion of the standard-gauge railway route to Tanzania citing cost challenges.

Kenya was banking on a joint multi-trillion shilling pipeline and port project with Uganda, South Sudan, Ethiopia for the port of Lamu. Uganda has ten times the amount of crude oil found in Kenya and Kenya had hoped to entice Uganda to build a pipeline to the Lamu Port and use it to export its oil.

Worrying trend

The construction of the first three berths is set to begin this year in Lamu, but Uganda has opted to use the Tanzania route. The standard-gauge railway in Kenya was also built with the understanding that it will pass through Uganda, and on to Rwanda, for the landlocked countries to use to import and export their goods via the port of Mombasa.

Kenya expanded the Port of Mombasa and works are on-going to boost its efficiency. But now Rwanda has walked away and it wants to go for the Tanzania route. The House Budget experts also pointed out that many of the East African countries – Uganda, Rwanda, Burundi—and even the Democratic Republic of Congo which is not in the EAC bloc, had cut down on their imports from Kenya.

The Budget Office report said it was ‘worrying’ that exports to the EAC members were going down. “It is crucial to note the Kenya’s trade balance with the EAC has been gradually reducing albeit still positive. This is because the country has experienced a slower growth of export to the EAC while the growth of imports has significantly improved thus raising a worrying trend. Unlocking Kenya’s export potential, a high priority,” the Budget Office report released yesterday noted.

They also said that while the rest of the region was working hard to cut down on their deficit, and as a consequence, their external borrowing, to three per cent by 2021, Kenya’s deficit was ballooning, showing that come 2021 it will not be in line with the rest of the region.

The increasing budget deficit — of Sh689 billion — in the next financial year, portends more borrowing, and if not managed well, there is a likelihood of depreciation of the shilling and a rise in interest rates in the country.