Businessmen keep asking me how and when they will benefit from opportunities offered by the emergent upstream oil industry.
My answer is that some businesses are already benefiting from the ongoing oil and gas exploration. There are already billions of shillings pouring into the country to sustain the sector. Before drilling for oil and gas starts support logistics and field services must be in place.
In this article I will not address oil revenues but the trickle–down economy emanating from provision of support services to the oil and gas sector.
Service provision can substantially diversify our gross domestic product with opportunities cutting across the entire spectrum of the economy with huge multiplier effects.
Early in 2010, I attended a vendors’ conference in Kampala organised by the operator of oil fields in Uganda.
I was surprised by the wide variety of vendors for services and materials attending the forum from all over the world, pointing to high business opportunities brought about by oil exploration.
Listening to discussions, I detected local investors’ resentment of foreign entities. The entrepreneurs complained that they had not sufficiently benefited as business opportunities had gone to foreigners.
The Uganda government did not appear to have put in place effective means of monitoring how local content provision would be achieved.
Most production sharing agreements (PSAs) have specific requirements for “local content” in terms of provision of employment and supply of materials and services by local enterprises.
Nigeria, for instance, has gone ahead to pass laws to govern local content.
Most local content policies of oil and gas producing countries are similar and likely to read as follows: “Maximise the participation of the national people, enterprises, technology and capital through the development of locally owned businesses, local financing, and human capabilities in the conduct of all activities connected with the oil and gas sector, along its entire value chain.’’
Last week, I attended yet another forum on oil and gas in Kampala where it was mentioned that to get the production, pipeline, and refining infrastructure up and running, Uganda will import as much as 850,000 metric tonnes of equipment and materials.
This is about 18,000 truck loads of cargo plying between Mombasa and Ugandan oilfields.
One sees massive business opportunities in clearing and forwarding; heavy road transportation; lifting equipment; and of course insurance and re-insurance.
When construction of facilities and production starts, mechanical engineering work; civil works for site roads; field catering and accommodation; car hire and security services will be required. Other opportunities are in banking and legal services.
Until Kenya develops the necessary capacity, most of the specialised technical opportunities will go to foreign contractors who have developed networks with investors in other oil and gas producing countries.
Kenyans should partner with such overseas contractors and eventually acquire skills that will come in handy for local enterprises.
Sufficient finance and credit will be critical for local businesses to effectively set up service companies that are at par with global vendors.
This is where the banking sector becomes critical in supporting local content. At the community level, the immediate temptation for civil societies is to lobby for local people’s rights and entitlement to oil revenues.
Instead of this approach, the organisations should first look at how they can help the local population to develop a localised economy that provides support services needed by oil companies and partner contractors.
The incoming governors of potentially resource rich counties such as Turkana and Marsabit will need to develop capacity to supply semi-skilled labour needed by drilling companies to pre-empt importation of the same from other counties.
Locals will need to be enabled, through soft loans, to open businesses and grow crops that can feed the new population around oil wells.
The ministry in charge of the oil sector will need to start preparing Kenyans to participate in the new opportunities through setting up local content help desks. This is in addition to ensuring that there are robust laws and regulations to support local content and capacity as well as effectively monitor compliance.
Human resource capacity is paramount in achieving professional local content. Local universities will need to set up high quality courses in geophysics, drilling, and petroleum engineering.
Until local graduate capacity is set up, the government will require to sponsor students abroad for specialised oil and gas courses.
We have noticed that an upstream firm is already offering scholarships to Kenyans to train in the UK. Similarly, polytechnics will need to step up development of engineering technicians for the sector.
Mr Wachira is the director of Petroleum Focus Consultants. E-mail: Wachira@petroleumfocus.com