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Opinion & Analysis

How to sustain role of extractive industry

The discoveries of oil in Turkana and Coal in Mui Basin, amongst other extractives, raise an important issue relating to investments that the country has to grapple with.

Reports in the dailies a few days ago indicated that the process of bidding for coal Blocks in Kitui had resulted in concerns whether local firms had participated in the process and stood a chance to benefit from the investment by winning the bids.

This was despite the reported efforts by the Ministry of Energy to encourage bids from local investors, including provision that foreign companies that partnered with local entrepreneurs had higher chances of success in their bids.

The above reports raise a critical issue that the country needs to be aware of and address more structurally. First, from an international trade perspective there is the normal rule that businesses should be given equal treatment.

Consequently if a government gives preferential treatment to some category of businesses, it will be expected to give the preferential treatment to the others.

However this rule is not absolute. It is important that every country develops policies to ensure that its local industries are not only protected but also given an opportunity to thrive. This is at the heart of trade promotion and deepening of the economy.

Within the extractive industry, the debate takes place around the idea of local content. A lot of times when people think about benefits from oil, minerals and other extractives the only see tax revenues and employment.

While these are important, the discourse around local content argues for being innovative in leveraging the extractive industry not only to benefit the local economy but also to build local capacity in the process.

It is therefore a broad term. It can encompass job creation, enterprise development and transfer of skills and technologies. The aim is to ensure that the developments in the extractive industry have a more long-term and sustainable positive effect on the country’s economy.

As we start to put in place frameworks for governing the extractive industry we need to think creatively what our local content strategies and objectives are.

While encouraging joint ventures as reported in the Mui basis is a useful first step, a more sustainable and exhaustive strategy should be developed.

This will help to address issues such as what does local content really mean?? Is local the national level, or is local the locality (or county) where the resource is situated.

Or is it both? When you want to give preference in terms of supply or other contracts, will you give it to Kenyan owned Companies, Kenyan registered companies or Companies operating in and owned by locals from, say Kitui in the instant case. Related to this is what our national objective on local content is.

Is it support to capacity building for locals? Or technology transfer?? or employment preference? The draft Petroleum (Exploration and Production) Bill starts to capture some of these issues, though greater clarity is required.

In developing the area of local content, the country could look at how countries like Nigeria and Ghana have treated the issue.

In Ghana, for example, there is a comprehensive local content policy which sets a framework to ensure that the control and benefits from the oil and gas discovery and production remain with Ghanaians.

The goals identified in the Ghanaian context include sustainable utilisation of oil and gas resources, equity, local value-addition, job creation, indigenising knowledge, expertise and technology in the oil and gas and related industries.

In addition every participant in the oil and gas industry is required to prepare an annual Local Content Plan detailing how they intend to meet the local content requirements.

This is the level of thought and detail that Kenya should consider to ensure that issues of local content are comprehensively incorporated into the extractive industry.

Dr Odote is a senior lecturer, Centre For Advanced Studies in Environmental Law and Policy, University of Nairobi.

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