Socio-economic development – imperatives for oil, gas and minerals sector

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DR MOHAMED OMAR

There is a distinct focus on the role of the oil, gas, and minerals sector in the socio-economic development of the country.

The recent announcement that the Amosing-1 and Ewoi-1 exploration wells in Block 10BB, onshore Northern Kenya, have resulted in the discovery of two new large oil fields is big news. These two wells continue the 100 percent success rate in the South Lokichar Basin with seven out of seven discoveries to date.

In particular, much has been said and written about the newly discovered oil in Turkana and the potential of other sites on account of preliminary analyses done in those places.

The excitement is real and palpable, but that is now, increasingly tempered with a cautionary note on the pitfalls of oil and gas if not well managed or planned.

In stressing the need for better planning for the sector, analysts and commentators have often cited other developing countries which have abundant resources but whose dreams for prosperity have not been realised.

To ensure that the country optimises the potential of its resources and avoid the kinds of challenges faced by other nations, there are a number of imperatives that must be in place. It is worth noting that some of these pre-conditions are currently being addressed to varying degrees while others need to be developed afresh.

First, a successful extractives industry hinges on a clear vision and long-range planning. On account of the potential significance of the sector to the economy and also of the complex nature of the industry with respect to timelines, need for skills development, and infrastructure, a clear vision and policy direction becomes very vital.

It is in recognition of this fact that the oil, gas and minerals sector has been, incorporated into the Vision 2030’s second medium-term plan, as the seventh sector of the economic pillar. The implication here is that a transformed and competitive extractive industry will be a key driver of the successful implementation of Vision 2030 and making Kenya the focal point of the region and a frontier for foreign direct investment.

This calls for a fundamental shift in the way the extractive industry is conceptualised and structured.

The idea is to look upon the oil, gas and minerals as an ecosystem that has several components, including exploration, production, research and development, trading, services, training and skills development, as well as logistics and supply chain management.

Each of these elements of the ecosystem will eventually generate revenue thereby diminishing the reliance on the extractives alone.

Should the natural resources be, depleted in years to come, there will still be a vibrant cluster of related economic activities that will contribute to the country’s economic growth.

Countries whose natural resources have not translated into socio-economic development are those that have adopted a narrow view of the industry by focusing on the natural resources as stand-alone sources of income and not leveraging complementary revenue streams.

The second important element is the development of robust legal and regulatory framework to govern the industry.

This offers the broad framework within which the sector can be, managed and run. This may include tax regimes, criteria for sharing proceeds from the industry, mechanisms for undertaking geophysical survey, and possible incentive packages for investors.

A clear and sound legal and regulatory framework will help inform and clarify issues related to royalties, foreign and domestic stakes, and engagement with the local communities where the resources are, found, and the interactions between the national and county governments in matters pertaining to the said resources.

Third, what is today a nascent industry revolving around oil and gas is expected to grow in the coming years if the designated oil wells are proved to have reserves that meet the threshold for commercial viability.

Throughout that growth process, transparency and accountability will have to be the defining features that characterise the approach to governance among all stakeholders including investors, communities, counties, and the national government.

The fourth imperative relates to the status of human capital development of the population to actively participate in the industry particularly in terms of vocational and entrepreneurial skills.

The question here is, what is being done today with respect to skills acquisition in order to fully prepare for the oil that is expected to flow and the minerals that are to be extracted in the coming three to five years?

At that point, engineers who can conceptualise and design projects will be required but equally important are the middle-level technicians with hands-on vocational training. Indeed, a critical mass of young people should immediately be, enlisted to join apprentice-type vocational programmes to prepare them for the task ahead.

Similarly, people with entrepreneurial zeal to act as contractors, suppliers, and logistics providers need to be trained and supported in anticipation of the numerous opportunities to be availed by the extractives ecosystem.

Infrastructural and institutional development forms the final pre-requisite for a successful oil, gas and minerals sector. A series of facilities and support infrastructure will have to either be developed afresh or upgraded if they already exist.

Every step of the value chain – exploration, production, refining of petroleum products or processing of minerals, and logistics -requires infrastructural and other support mechanisms. These may include roads, railways, provision of adequate and affordable energy, but also access to finance for budding entrepreneurs and services from different government agencies.

Omar, is the Director, Economic Pillar at the Kenya Vision 2030 Delivery Secretariat (VDS) http://www.vision2030.go.ke/

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