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Oil, gas finds could widen income inequality, warns report

NEWS
By By MACHARIA KAMAU | November 26th 2013
By By MACHARIA KAMAU | November 26th 2013
NEWS

By MACHARIA  KAMAU

KENYA: Kenya’s new found wealth in oil and minerals could dramatically widen the rich-poor gap that has already spiralled out of control.

A new report by Society for International Development (Sid) paints a gloomy picture, where in years to come, the vast majority could exist far below any poverty line after commercial production of oil and minerals peak in about 15 to 20 years.

The widening gap will partly be driven by little or no capacity among the poor to participate in the sector but also corrupt dealings in the sector that include the contracts between Government and exploration and production firms that are shrouded in secrecy.

The report also warns that important sectors like manufacturing could suffer neglect as Kenya focuses on the emerging sectors.

Manufacturing is key to the economy, contributing 10 per cent to the gross domestic product (GDP) – which is the value of all goods and services in the Kenyan economy – and is tipped as critical in employment and wealth creation going forward.

The report, titled Status of East Africa Report 2013, shows that people currently living below the poverty line are unlikely to benefit from the resources once the country starts exploiting them.

Sid said the poorest in the East African nations, which have found huge reserves of oil, natural gas and deposits of rare earth minerals, are least prepared to tap into the opportunities offered by the new sectors.

“In an economy based on the extraction and export of oil, gas, unprocessed precious metals and agricultural commodities, there are few opportunities for them,” said the report released on Friday.

Further, it said, not only is the region’s physical and financial wealth concentrated among the rich few, but the disparity widens dramatically over time as the poor get a shrinking share of the expanding income.

“As a result, the majority of East Africans exist in conditions of deprivation and desperation, while a select few enjoy a lavish but fear-filled lifestyle,” added the report.

Least unequal state

At the moment, Kenya stands as the second most unequal country in East Africa after Rwanda while Burundi is the least unequal among the five East African community partner states.

The disparity between the rich and poor people in Kenya has been widening since the mid-1990s.

“Kenya’s inequality trend is striking. Between 1992 and 1995, the gap between the richest 10 per cent and the poorest 40 per cent closed substantially,” the report notes.

“However, from 1995 to 2005, the income gap widened, ending up with the richest 10 per cent of Kenyans earning 2.8 times more than the poorest 40 per cent of their compatriots,” it adds.

Rwanda on the other hand has moved from being rated as among the top State in East africa in equality rankings to one that is the most unequal.

“Rwanda is East Africa’s most unequal country. In 2011, the richest 10 per cent of Rwandans earned 3.2 times the income of the poorest 40 per cent of their compatriots,” said Sid East Africa.

Sid says that income inequality rose between 1985 and 2006, taking Rwanda from the most equal to the most unequal country in the region. After 2006, inequality is trending downwards.

According to the report, Burundi and Tanzania are the two least unequal countries in the region while Uganda standards in the middle.

It says the level of inequality in the three countries might be lower compared to Kenya and Rwanda but the disparity is still glaring.

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