Experts urge caution on oil revenue expectations

Experts urge caution on oil revenue expectations

The first barrel of oil will roll out of Turkana oil fields next month, signaling a tipping point for Kenya as dynamics shift towards an oil exporting economy.

While the initial production of crude will not have any meaningful impact on the economy, analysts see the need to manage the transition and expectations before the actual exports commence.

Under the Early Oil Pilot Scheme, Tullow Oil Company will start shipping the product by road from Lokichar by end of next month, before actual exportation—to be undertaken on trial—commences in June.

Initially, 2,000 barrels was projected to be produced per day, but further drilling of at least eight more wells in North Lokichar by Tullow should step up production, to take recoverable resources to over a billion barrels from the current estimated 750 million barrels.

Financial experts project a stronger currency once actual production commences as Kenya will get increased foreign currency, whose impact will be felt in various key sectors such as agriculture and manufacturing.

“If you look around the world, oil has, in many instances, hollowed out local manufacturing as a strong currency creates a feed-back loop where imports are cheaper than building out local industry,” says financial analyst Aly Khan Satchu, as he warned that the first exports will not be enough to move the dial.

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The oil industry can ground everything else, and this is a challenge that many African countries must address, as evident in oil producers Nigeria and Angola.

Sterling Capital executive director John Kirimi says whenever an interruptive sector comes up, some industries in that economy suffer. “That is why we need to learn from oil exporting countries and avoid cases of total fiasco as is the case with Nigeria, which exports a lot of crude but is still a net importer,” he said.

There is need for government to manage the import-export ratio amid a stronger shilling, courtesy of the oil exporting power. With enough foreign exchange, sectors will find it easier to bring in cheaper machinery, but some will also find it difficult because export goods could be more expensive abroad. “With a stronger shilling, interest rates also go up,” says Kirimi.

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“This is another area that needs to be looked into.” The experts also say that sectors along the value chain of the oil economy will blossom, both directly and indirectly, with an expected demand pull for skilled workers alongside an adjacent demand for housing, infrastructure development and foodstuff.

Managing the expected windfall must begin with fast-tracking the Petroleum (Exploration, Development and Production) Bill, 2015. “People will expect big things and I don’t think the revenue from the first batch, for example, will be a lot considering sunk cost among other needs,” says Kirimi, as he urges the government to enhance sensitisation through an independent organisation.

The bigger issue among the major expectations, according to Satchu, is whether Kenya can still position Lamu as an oil and gas hub when Uganda has high-tailed it to Tanga, Tanzania, as Ethiopia continues to open up the Djibouti route.

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