Kudos to Kenya as it sells first oil

Thursday August 8 2019

 

By Karoli Ssemogerere

In 2019, major EAC economies had resorted to low-level warfare determined to protect their local industries. First maize, the dominant staple, registered “artificial shortages” linked to speculators in Uganda. World Food Programme reported Ugandan farmers could not meet their quota suggesting importation on the cards from lower-cost producers in Latin America.

This was on the back of an oversupply last year where government allocated Shs100 billion to buy extra stocks.

Recently, Tanzania wary of distorting its local market, authorised maize export to Kenya but only on condition they sold “flour” rather than “grain”. Tanzania has been slightly moderating its hardline stance against Kenya in everything. For years, Kenya has been the dominant FDI player in Tanzania, but the folks in Tanzania have muscled their entire weight to cut Kenya the region’s largest economic player to size.

Budget days belong to these two big players as they read substantial resource envelopes. Kenya hit $30 billion on the back of 6.3 per cent growth. Its deficit dipped below 6 per cent at 5.6 per cent. Lower lending costs will further cut the size of the budget relative to GDP.

Tanzania splurged $14 billion and Uganda a more modest $8 billion. Rwanda followed with $2.8 billion and Burundi $800 million. Semi-autonomous island nation Zanzibar reads its own budget, itself a fanfare of luxurious display of Swahili, not a single word of English spoken in the chamber!
Exporting oil is likely to ease pressure on balance of payments and support the currency.

Kenya has taken a positive step publicly announcing crude oil sales. It has also avoided a lengthy tax dispute with the oil processing companies giving them secure development contracts.
The players are standard in most of Africa: Tullow (Heritage) Uganda has CNOOC, which with Total, have agreed to purchase part of Tullow’s stake, but the decision is still bogged by a now six- year-old capital gains tax. Uganda at up to 6.5 billion barrels hydrocarbon potential has more than 10 times Kenya’s reported potential of 560 million barrels a major one up in determining location of petroleum infrastructure.

It may be useful for the Minister of Finance in light of tight market conditions, all indications are that Uganda’s oil will be more expensive to exploit (due to the longer distance to the sea) to adopt temporarily trucking the oil to the coast. Uganda in 2018 spectacularly failed to install a single sleeper of rail on its 960 km network, which remains a glossy 74 page brochure without actual feasibility studies and project design and a dispute between China (1) and China (2) two companies concurrently invited to bid/contract for construction of the railway.

It shouldn’t be all gloomy in the region. Kenya’s advance should open opportunities for Uganda and Tanzania to concentrate on agriculture, tourism and extractive minerals. In fact in Tanzania, agriculture is doing much better due to higher budgetary allocations. Kenyan companies will have surplus cash to invest across the border an opportunity Uganda and Tanzania should grasp to kick-start their slower growing economies. Kenya at great cost has stuck to a statutory interest rate regime that has kept lending rates low. Uganda and Tanzania have also seen downward shift in interest rates.

The news of first oil couldn’t have come at a better time. His Treasury Secretary and former protégé Henry Rotich is out of office after being charged with procurement related offenses related to two power projects early in his tenure.

Mr Rotich, a former head of macroeconomics at the Treasury, has fit the profile of energetic treasury bosses [former Kipipiri MP Amos Kimunya, Uhuru Kenyatta] and his departure without an obvious successor means even more influence for the Central Bank of Kenya Governor, opus dei numerary Patrick Ngugi a celibate who devotes his life to the opus dei ministry.

Mr Ssemogerere is an Attorney-at-Law and an Advocate.
kssemoge@gmail.com