Reorganise Kenya economy

The decision by financiers of the proposed oil pipeline to connect the Kenyan town of Eldoret and Kampala, the Ugandan capital, to suspend its construction though costly must be viewed against the emerging realities of energy supply economics in East Africa.

Uganda, a landlocked state, has for decades relied on Kenya for the supply of petroleum products it needs to run its economy.

That supply route has become even more important in recent years as the Ugandan economy expanded raising its uptake of petroleum products.

That is what informed the 1996 plan to extend the oil pipeline from its current farthest terminal in Eldoret to Kampala.

Besides being the cheapest means to transport processed petroleum products, the pipeline is the fastest and most reliable means to move such large amounts of oil.

Over the past decade, Uganda has become a key trading partner of Kenya’s, overtaking the United Kingdom to become the country’s top most export market.

Statistics show that petroleum is Kenya’s leading export to Uganda worth the billions of shillings that the two governments planned to invest in the pipeline.

But Uganda has recently discovered large deposits of crude raising the prospects of setting in motion major changes in the dynamics of trade in petroleum products across East Africa.

Since it made the big oil find announcement two years ago, Uganda has indicated that it wants to build a refinery on location to process the oil for domestic consumption and export to its neighbours.

The plan is to have the refinery working in five years time – a development that Kenya cannot afford to ignore because of the possible implication on the local economy.

If Uganda becomes self sufficient in petroleum and remains with a surplus to export to the neighbouring states, the immediate impact will be a significant drop in the volume and value of Kenya’s exports to its western neighbour and to key markets such as Rwanda, Burundi, Eastern Congo and South Sudan.

Because petroleum products have also been the main driver of growth in Kenya’s exports, loss of these markets means that growth will ultimately slow down.

And as the World Bank has recently noted in its assessment of Kenya, any country with an ambition to scale the ladder of economic development in the manner envisioned in the Vision 2030 blueprint must develop a strong export sector.

The real import of these changes is that if Kenya does not front run them with an equally major reorganisation of its domestic economy, this could exact long-term costs on the country’s development goals.

It is in this light that the proposed change in the design of the Eldoret-Kampala pipeline to alter the direction of product flow is befitting.

This effort must, however, go beyond construction of the pipeline into a general reorganisation of the Kenyan economy to prepare it for the new dispensation.