President Uhuru Kenyatta’s move not to assent to the 2015 Petroleum (Exploration, Development and Production) Bill, due to contentious issues on revenue sharing between the national and county governments and the communities, should be of concern in the policy discourse for the extractives industry.
Kenya has ambitious plans to begin commercial production of oil and gas by June 2017 even though most existing legislation governing the sub-sector is either under review or in draft.
Notwithstanding that sharing oil revenues is critical, the beneficiation of natural resource revenues to the current and future generations in the long term, will be imperative. The Kenya Sovereign Wealth Fund Bill seeks to address issues of intergenerational equity.
The World Bank estimates that Africa holds 30 per cent of the world’s mineral reserves, 10 per cent of the world’s oil reserves and eight per cent of the world’s gas reserves.
By all indications the continent is well endowed with natural resources whose revenues, if well managed, can provide quality education and healthcare to the populace, develop key infrastructure and amenities as well as create jobs. However, this remains only an expectation.
The reality is that resource-rich developing countries (RRDCs), defined by the International Monetary Fund as “low- and lower-middle-income countries whose exhaustible natural resources (such as oil, gas and minerals) comprise at least 20 per cent of total exports or 20 per cent of natural resource revenues”, seldom use resource revenues for the well-being of citizens and neither do these resources contribute to stable economic performance.
More often, resource revenues are looted by political and business elites, are a source of conflict and in most cases lead to economic distortions due to spending on “showy” mega projects.
The narrative of below-than-average human development indicators, corruption, resource-related conflict and political instability seems to be the rallying theme of most of the RRDCs in Africa.
The preoccupation of governments after the discovery of natural resources (oil, gas and minerals) to establish a sovereign wealth fund is not unique to Kenya.
These resource-rich, often developing, countries set up such funds with good intentions, chief among them to avoid the “resource curse.” Could the sovereign wealth funds (SWFs) be the panacea to this challenge?
While there’s no universally accepted definition for SWFs, they are basically a pool of money or assets held in a foreign country, with predetermined investment strategies to meet a country’s financial objectives.
In crafting its SWF Bill, Kenya has used Norway as an aspirator country. However, it is worth noting that Norway established its SWF in 1991, 20 years after it produced its first oil in 1971.
Norway has the highest GDP per capita in the world and some of the oil fields discovered in the continental shelf in the 1960s continue to produce oil.
That is not to say Kenya should wait a quarter of a century to establish its fund, but instead should move with caution. Good governance of funds for intergenerational benefits will have to be prioritised.
Source: businessdailyafrica.com