EDITORIAL: Set up sovereign fund after sector clean-up

In economic terms, the domestic mining industry remains more of a distraction than an enabler. Statistics from 2015 show that it contributed only four percent of the Gross Domestic Product (GDP), much of it probably coming from quarrying activities associated with the booming construction industry.

Under the Vision 2030, however, expectations are that the sector will contribute up to 10 percent of the gross output, which would rank it closer to the major sectors in the economy. It is perhaps with this optimism and the Turkana oil finds in mind that the government is preparing for the success.

From the political side too, a lot of expectations, real and imagined, have been raised, leading to both positive and negative agitation.

In the midst of all this, the government has embarked on legislation to guide the sector as well as manage receipts from mineral and oil sales. The draft Kenya Sovereign Wealth Fund Bill, 2019, is one such efforts.

The wealth fund, a common feature for natural resource-rich nations — whose best practices are found in the Nordic countries and worst case scenarios in Malaysia and Angola — will secure as well as distribute the receipts.

According to the draft, the fund will receive royalties and permit fees: 15 percent will go to economic stabilisation, 60 percent to infrastructure while 10 percent will reserved for Urithi or legacy. On exhaustion of the natural resources, the assets’ dividend will go to infrastructure development.

This is a good effort at reducing conflict associated with extraction of natural resources but it can only be as useful as the laws governing the sector and their implementation. The sector has so far exhibited opacity, with prospecting mining licences dished out to fly-by-night companies and individuals. No open auction has ever taken place for the resources and only bureaucrats know the criteria and price of the permits.

Sometime back, the IMF lamented about non-disclosure, which sadly extends to Parliament. Kenya has just survived paying billions in a case where bribery secured a multi-trillion mining licence and the officials involved are yet to pay for their corruption.

A sovereign fund while welcome will secure the funds but it is more like putting the cart before the horse. Let us clean the entire value chain, including re-evaluating the licences, before we think of what to do with the proceeds.