Oil, minerals to be top foreign exchange earners, says report

Petroleum and mineral resources could soon surpass traditional exports such as agricultural produce and tourism to become the country’s leading foreign exchange earners, a new report says.

The Economic Outlook Report released by PineBridge Investments East Africa on Wednesday says oil and minerals could contribute more than five per cent of the country’s gross domestic product once production and export commences in the next four years.

The share of revenues earned from these sectors is expected to expand further in the medium to long term.

“Oil production has the potential to radically change the structure of the Kenyan economy. Oil will allow Kenya to diversify export earnings, slow down the import bill and act as a catalyst for infrastructural spending especially on the transport network,” investment manager at PineBridge Nicholas Ithondeka said.

SLOW GROWTH

The firm also scaled back its 2013 growth projection for Kenya from 5.6 per cent to 5.4 per cent owing to the slowdown recorded in the second quarter.

The International Monetary Fund projects that the economy will expand by 5.6 per cent this year compared to a growth of 4.6 per cent recorded last year.

PineBridge also predicts that the overall inflation will rise above 10 per cent during the first half of 2014 due to uncertainties surrounding the long rains expected between March and May.

Another reason for the expected rise in inflation is upsurge in the international food prices and those of other commodities, driven up by increasing liquidity in global money markets.

While the investment firm is optimistic that most of the key sectors will maintain a positive growth, it has warned that the tourism sector may shrink on account of security concerns fuelled by the attack on the Westgate Mall by terrorists more than a month ago.

“Key economic sectors are expected to maintain a positive growth momentum with agriculture expected to grow by 5 per cent compared to 3.8 per cent last year. The tourism sector is expected to under-perform this year on account of safety concerns,” a senior investments manager at PineBridge Mr Edward Gitahi said.

Mid this year, British oil explorer, Tullow Oil, said that Kenya’s oil resources exceed the minimum threshold for production, an indication that the country could soon become an oil producer.

Base Resources, a company that is licensed to mine titanium in Kwale recently said that it expects to make the first export of the mineral at the end of this year.

ONGOING LEGAL TUSSLE

Mining of the multi-trillion rare earth metals and niobium in Kwale is expected to commence once the ongoing legal tussle between Mining Cabinet Secretary Najib Balala and Cortec Mining Kenya, the company licensed to extract the minerals, is resolved.

Once commercial exploitation of minerals begins, the economy is expected to benefit from increased foreign direct investments, which are expected to flow into the country to finance the building of plants for mineral extraction and oil production.