The Uganda - Tanzania oil pipeline is good business, nothing more

The reactions to Uganda's decision to pursue the Tanzanian pipeline route tell me that economic policy discourse in Kenya is dangerously imbued with nationalist, jingoist language.

Ordinarily, this great drive for everyone to be positive ought not to matter much, but it hinders the ability for great democratic discourse and plainly undermines pluralist thinking and good economic policy.

In arguing the various reasons as to why Uganda made its decision, most discussions in Kenya attribute bad faith to both Uganda and Tanzania, as if there are no legitimate reasons for both countries to consider alternative, viable routes for the pipeline.

For a number of reasons, this reaction is not only unhelpful, but also based on unsound economic reasoning.

One word, sovereignty, is used to describe the posture of the government of Kenya to international affairs.

In instances that I recall, it is usually stated to stop further comment from somebody who is considered a foreigner, and to put people in their places by asserting that Kenya is capable of determining its own choices and affairs.

Of course, used crassly, it displays nothing more than intolerance of an opinion considered foreign.

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Consider that sovereignty is precisely what the government of Uganda is asserting when it considers an alternative route for the pipeline running from the north west of Uganda through Tanzania.

In other words, that is a sovereign decision that must be accepted without question. To be honest, in the language of sovereignty, no country owes another a justification for its political and economic choices. Claims of betrayal and conspiracy are a bad loser’s response to failed diplomacy.

Many opinions suggest that the Republic of Uganda may be acting against its own interest by choosing to develop a pipeline route that tilts southwards.

That assertion further proves why nationalism leads to poor economic reasoning. Let’s start with the fact that the viability of the pipeline depends on the relative resource endowments of the three countries.

KENYAN LEADERSHIP

In terms of declared hydrocarbon resources, Kenya stands lowest in the pecking order, with Tanzania and Uganda having far larger proven reserves at hand.

Based on this reality, it is clear that the owners of the larger resources will have proportionately bigger voices in determining the situation, financing and the route of the pipeline meant to move oil to the port.

It would seem that Kenya’s best shot is to seek to persuade Tanzania and Uganda that there is greater value in directing the pipeline through Kenya, except that that argument too, lacks merit.

The diameter of the channel and the length of the pipeline are the two most important factors in determining the overall cost of constructing a pipeline.

The southern route that Uganda and Tanzania are exploring will be shorter than the alternative route from Uganda towards either Lamu or Mombasa.

Taking these facts dispassionately means there is a sound economic reason to pursue the shorter route, given that constructing a pipeline is expensive. It therefore makes good business sense for Uganda and Tanzania to work together to complete this pipeline.

That should not necessarily be read as a statement on Kenyan leadership, style or even capability.  Economic sense suggests simply that one route is more cost-effective.

CLEAR ECONOMIC SIGNAL

Recalling that the Constitution of Kenya in Article 227 requires State organs or public entities to adhere to cost effectiveness in public expenditure, it ought to be applauded that Uganda is making a decision informed by a similar view.

Indeed, in the reverse position, it appears that Kenya’s Constitution would have barred the Executive from taking a longer route purely to satisfy political exigencies.

It is almost certain that the first cross-border pipeline in East Africa will be the one agreed between the sovereign states of Uganda and Tanzania.

Although some Kenyan firms will lose anticipated procurement opportunities and service contracts along the chain, it is important that Kenya’s reaction does not undermine regional cooperation.

This situation is a signal to Kenya that local firms may express frustration but have no choice about inefficiencies such as corruption, insecurity and mismanagement of ports.

Foreign firms, however, can skilfully persuade their governments to find alternatives.

The lesson here is that Kenya’s days as the indispensable choice for the journey to the port are coming to an end. It’s the clearest economic signal yet that the national economy is inefficient and Uganda, our largest trading partner, is seeking an alternative.

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame