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How Kenya can avoid the oil curse

FINANCIAL STANDARD
By Mbatau wa Ngai | February 26th 2019
By Mbatau wa Ngai | February 26th 2019
FINANCIAL STANDARD

Reports that the State will prioritise debt repayment using revenues from oil once commercial production starts in 2022 is an indication the country may not avoid the ‘black gold curse’.

Treasury, in the Sovereign Wealth Bill 2019 proposes that windfall revenues from the expected oil exports be used in the building of schools, health facilities and giving Kenyans tax cuts.

The potential danger in these proposals is that they might lead the country on the slippery path of using ordinary revenues to meet recurrent expenses. This is the path trodden by many oil producers in the developing countries that have left them worse off than they were before they became exporters.

The thinking behind the new bill might explain Treasury’s rapid accumulation of domestic and foreign debt whose repayments are threatening to stall the drive towards Vision 2030. For example, the country’s interest repayments on debt in the first half of the current financial year stood at Sh69 billion. This is a huge amount considering the financial challenges facing the country.

Stormy waters

Treasury’s proposal to use oil revenues to pay off debt is, to many observers, the easy way out and reveals a bureaucracy afraid of thinking outside the box.

The tragedy in the adoption of this policy may lead the country into stormy waters in the event that the expected revenues do not materialise. The unpredictable nature of the global oil prices makes this possibility a reality that should be factored into any future equations.

There is the equally real possibility that Kenya may not discover and bring into production enough oil in time to make the government earn the revenues it needs to pay off the debts. This is true in situations where the bulk of the debt is short-term. Treasury officials should come up with ways of spending the expected oil revenues on development projects with high returns in the shortest time possible.

These include investments in agriculture and value addition to produce before it is sold in the local and foreign markets. Horticulture has proved itself over the years and a market survey revealed the country is barely scratching the surface in the export of many items.

This is backed by evidence from the latest Kenya National Bureau of Statistics report that revealed Nyandarua, Elgeyo Marakwet and Nakuru counties led to increased productivity levels due to investments in agriculture. The windfall revenues can also be utilised in helping to set up industries to produce import-substitution goods.

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