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Why the discovery of oil and minerals is no silver bullet

By Mbatau wa Ngai | Feb 20th 2016 | 3 min read
By Mbatau wa Ngai | February 20th 2016
Tullow oil rig used in drilling at Ngamia-1 well on Block 10BB, in the Lokichar basin. Kenya has seen a surge of interest for oil blocks after striking oil in 2012. [PHOTO: FILE/STANDARD]

The just-ended Uganda elections give the country’s leaders an opportunity to shift gears from politics to economics in a manner that would yield maximum benefits for their citizens in particular and the region in general. One area that deserves immediate attention is oil —its transportation from the oil fields to a port.

Analysts hope the debate over whether Uganda should use its southern route through Tanzania or the northern one has been concluded in favour of the latter and that substantive work to build the pipeline will begin without further delay.

This hope is predicated on Tullow Oil’s revelation that Kenya would be among the 10 cheapest crude oil producers at Sh2,550 ($25) per barrel, including the pipeline tariff to the sea port. This means that Kenya would be making a profit even at the prevailing low global prices were it producing the crude today.

But this does not absolve the country’s leadership from crafting and implementing policies that would mitigate against the cyclical boom and burst that is typical of the industry.

There is a broad consensus that the place to begin is in going over the proposed Mining Bill 2014 which is before Parliament with a fine tooth-comb to ensure that the country gets the best deal in agreements it enters into with oil exploration companies and their counterparts in mining.

Equally important, steps should be taken to ensure that the country has adequate and well-trained personnel to not only drive the industry but to also supervise it according to the law. This is why the revelations by Taita-Taveta University College Principal Hamadi Boga, earlier this month, that the country lacks trained mining engineers and geological experts should be taken up seriously and acted on by both the mining ministry and the government.

At the very least, Treasury and the Education Ministry should liaise with the parent university to chart the way forward. Obviously, this would require taking the students to study outside the country. Luckily, the government does not have to meet all the costs especially for post-graduate studies as the country has, traditionally, many development partners willing to help shoulder the financial burden.

There are many companies in these countries that would also be more than willing to offer internship and mentorship to these young graduates. Training and mentorship should, ideally, be part of the agreement with the oil and mining companies.

Government plans to position the country as the regional centre for minerals exchange and processing should also be shared with prospective investors as they would offer much needed expertise and other logistical support. The agreements with investors should also be tailored in a way that allows all the contracting parties to share the gains and losses fairly during the good and bad times.

Obviously, the bar for transparency and accountability in this formally opaque industry must be set high to meet the rising expectations of local communities who must, nevertheless, be made to understand that the discovery and exploitation of these natural resources is not a silver bullet. The locals also need to get proper guidance on how to spend the compensation money they are paid as it has the potential to offer a ladder out of a state of penury to one of relative ease provided it is managed properly.

The same message needs to be written in stone among county and national leaders. This would encourage them to invest the earnings in ventures that would allow them to weather the bad times better than their counterparts in and outside the continent many of whom have come to regard the discovery of oil and minerals as a curse.

Indeed, economies like those of Nigeria and Venezuela are reeling from the six-month long low oil prices and have had to reduce spending on social services to the bone. The fact that these countries have to import most of their foodstuffs has done these economies no favour.

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