Will it be a curse or blessing for Kenya?

Monday March 26 2012


With the discovery of oil, Kenya is at a crossroads where it must take the highway to heaven or hell.

Imagine a country with a massive National Petroleum Investment Fund in which proceeds from oil sales are saved.

Profits from the fund are paid out as dividends to all Kenyans in the form of free education, health care, public infrastructure projects and stipend for the poor and jobless. Petrol is cheap and readily available.

Now flip the coin and imagine a country where petrol shortages are the order of the day, whose soils and water have been poisoned by leaks and whose politicians compete to steal oil revenue with impunity.

Worse still, unemployment is high and hundreds of people are regularly burned in fires as they puncture pipelines in suicidal attempts to get a share of the oil.

Many countries in the world which have struck oil have been cursed with corruption, greed and political strife.

In Africa, Nigeria is the biggest example.

The continent’s leading producer has earned hundreds of billions of dollars from oil revenue since it was discovered 50 years ago yet a majority of its people are some of the world’s poorest.

Revenue from the resource is stolen by its rulers, both military and civilian. Whenever elections are called, oil money is used to steal them.

In the Delta region, where the oil is extracted, there is 90 per cent unemployment.

Today, Nigeria, despite its oil wealth is a country in danger of breaking apart because of tribal and religious unrest.

In Russia, the oil boom mostly enriched oligarchs. But the quality of life in Russia continues to deteriorate.

Saudi Arabia is the world’s biggest producer yet oil revenues tend to flow into the bank accounts of the royal family. Unemployment is at 25 per cent and the kingdom still resembles a poor third world country.

These are the countries that have been afflicted by the oil curse. Instead of this black gold helping them improve the quality of life for their people, it has caused suffering.

But not all oil producing nations are cursed and Kenya has a chance to choose which way to go.

Norway, a country of nearly five million people is one great lesson on how to invest oil money. It has set up a fund that currently has an excess of $150 billion and is growing rapidly.

The Norwegians, the world’s third biggest exporters behind Saudi Arabians and Russians, have proven that oil doesn’t have to be an obstacle to stability and long-term growth.

The Petroleum Fund of Norway was set up in 1990 to function as a fiscal shock absorber. According to a BBC documentary, it is run under the country’s Central Bank and converts petrodollars into stocks and bonds.

But instead of paying dividends, it uses revenues and appreciation to ensure the equitable distribution of wealth across generations.

The key to getting the best from oil is getting the politics and governance right. Countries ruled by tribal kingdoms, authoritarian regimes, kleptocracies and military dictatorships have tended to misuse national oil revenues.

On the other hand, countries where there is democracy and more openness in the running of public affairs do better.

In this regard, Kenya, with one of Africa’s most democratic constitutions, has a headstart.

It should be better off than Uganda, for example, where Yoweri Museveni is calling all the shots in the oil sector. But then again, Kenyan politicians have proven to be some of the most corrupt on the continent.