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Why Kenya stands to benefit more from oil than Tanzania from gold

15th April 2012
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Debate has earnestly started in Kenya concerning the way the country will use its oil resources, now in preliminary well drilling in the Turkana region, one of the most inhospitable regions in the country.

It isn't without comparison to how the finding of the Kilwa (Mnazi Bay and Songosongo) gas helped to change the southern parts of the country from sleepy conservative villages, often mired in mutual fear of witchcraft, to busy towns with numerous guest-houses, a vibrant flesh trade and frenetic land purchases. Unbeknowst to all, the land is being given to the Israelites, or perhaps the Europeans....

The focus of the debate – though commercial production of the oil finds, according to President Mwai Kibaki, could take up to three years – is what will happen to the economy when oil comes ashore, as its huge export earnings stand to appreciate the shilling and bring down other sectors.

Economists talk of an oil curse – which is inaccurate and would rather be linked to the 'Dutch disease,' as, in the latter case, is a problem of allocation of capital and comparative pricing comes up in an economy owing to the impact of a natural resource bonanza on a country's currency. Nigeria suffered both – curse and disease.

Speaking of an oil curse and a Dutch disease at the same thing could be faulty, and it was clear that the Kenyan commentators were rushing to talk of a curse whereas everything they put on the plate amounts to a disease. The difference is that with a curse, the country starts to behave irrationally because of major natural resources find, where loyalties shift from an existing political system to insurgency, as those living around the natural resource want to control it. Various sections of the population, or armed sections of the state, could also stage revolts if they think their chunk in a resource bonanza is too little.

In the case of Tanzania the prospects of an oil find on the coastline, especially when that find extends to Zanzibar’s territorial waters already threatens the solidity of the Union even before oil is actually confirmed to exist, or trial wells are sunk. The reason is insufficient national cohesion, since the 1964 union was based on kindred populist policies on both parts – in particular after 1967 – and never really permitted interactive engagement of populations, for instance, via purchases of land in a market context. As a result Zanzibar was lately debating a bill to disallow Mainlanders in tourist guide trade in the Isles.

Threats of an oil curse in the case of Kenya appear to be minimal, though it is hard to tell if there is sufficient armour against such potential, since Kenyans have fought pitched battles on who bought land and what rights do they have in the localities where they bought land.

As if it is a rewinding of the 1952-56 Mau Mau conflict, youths are organizing in the Rift Valley to drive out central province settlers, mainly Kikuyu, who purchased land there – in like manner as the Kikuyus battled (randomly killed) European settlers who had taken over land in the central highlands. But analysts and theologians don't get the link.

For one thing, land purchases arising from developing oil aren't too extensive as the land in the northern area, the migratory cattle keepers of Turkana, Samburu and others aren't overly tied to the land.

At the same time, sparse populations and, by implication, low prices of land compared to other parts of the country, favour local participation in purchasing land, as Tullow Oil (the main drilling firm) can enter into land ownership links with local purchasers, even among its own managers. No land contests arise.

In Tanzania no such links came up with regard to the gold mining areas in Shinyanga and Mara regions, as the land was never bought in the first place, and instead people were cleared – often at short notice – for an allocated investor to come in. The result is poor development of linkages between the gold mining and local economies, save at the level of procurement of routine supplies; even then excessive amounts of food and supplies are regularly flown in from South Africa, reflecting a culture of maximizing costs in order to diminish taxable profit levels. It results from not investing locally, by not owning the land.

Since Tanzanian economists have never talked about a Dutch disease in the way the economy has fared after gold was discovered, and all the dispute surrounding the mining mirrors a natural resource curse, to what extent is Tanzania having either of the two syndromes, or both?

Put differently, how far has the shilling appreciated and the pursuit of gold eclipsed other sectors of the economy, apart from a possible rise in the instability of institutions owing to battling over the control of natural resources? In a way the evidence is marginal portions of both 'syndromes that the economy did not change much and instability was low.

One area where Tanzania and Kenya become less prone to the Dutch disease relates to the size of the economy vis-a-viz oil resources, or gold in the case of Tanzania. That is why economists were lately sizing up the extent of the Dutch disease in the Botswana economy owing to diamond mining, where it was seen to be real – given the fact that Botswana is closer to Zanzibar in its population than can remotely be compared to Tanzania or Kenya. It has 1.7m people; diamonds often earned well over 80 per cent of the foreign exchange.

This aspect would make Tanzania and Kenya similar to Nigeria in having a large population and thus a greater ability to withstand the natural resource curse, except that institutions were already unstable in Nigeria, and oil discovery ignited fire in a dry bush.

Nigeria is largely comparable to Zanzibar, whose cohesion as a country is limited, again because it had a similar political background as Nigeria or, for that matter, Uganda. The Sultan of Sokoto was a privileged traditional ruler. As in Uganda, the first item on the post-independence government list was to depose him from that pedestal and it never ended well.

Whereas the Dutch disease and natural resource curse look unavoidable for Zanzibar once there is a big oil find, the Kenyan case can be compared to gold in Tanzania, as a significant but not overwhelming resource input that places the currency above its means.

Veteran permanent secretary and ex-LART chief Dr Jonas Kipokola, defending mining policy initiatives of the mid 1990s which brought in Barrick Gold and others, pointed out that Tanzania imports twice what it exports in value, and all of that is due to the flow of foreign direct investment. In large measure, a natural resource curse effect has dwindled because of extensive privatizations to start with, rendering policy making varied, not gold-focused, dizzy.

That is precisely where Kenya has a better chance in making use of oil findings than Tanzania with gold, the key link being in likely sourcing of plenty of capital either in the exploration and drilling stage, or in putting up the necessary infrastructure and procurement of materials for oil pumping.

With a more localized source of capital, procurement and management, plenty of the proceeds and profits will be pumped back into the economy by way of purchasing properties where Tanzania could obtain a chunk of the capital manna if, by that time, the EA Common Market would be in existence in substance. We are yet to accept it.

SOURCE: GUARDIAN ON SUNDAY
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