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Ideas & Debate

Transparency keeps resource curse at bay

petroleum
Kenya is now on the brink of capitalising its petroleum sector. FILE PHOTO | NMG 

Abundance of natural resources can catapult a nation to economic prosperity but paradoxically can lead to massive problems as well. Empirical evidence shows a negative correlation between natural resource dependency and economic growth which is often referred to as the ‘resource curse’. There are two major reasons proffered to explain the resource curse. One is the Dutch disease – a sharp increase and concentration in the production of a resource that results in the decline of other sectors of a country’s economy. The other is politics – scrambles and internal conflicts for control of natural resources and their rent as well as inequalities in sharing benefits derived from the resources.

Transparency and accountability have been touted as the elixir to the resource curse. Global trends have also shown this to be true. For instance, Norway and Botswana often cited for successfully avoiding the resource curse, have embedded transparency and accountability in their extractives industries.

There are now several multi-stakeholder initiatives that have been developed to encourage public disclosure of information and to empower civil society organisations to use the information to engage governments. Such initiatives include: the Natural Resource Governance, Publish What You Pay, the Revenue Watch Institute and the Extractive Industries Transparency Initiative (EITI).

Kenya has, in the past concentrated on growing its tourism, agriculture, manufacturing and service industries. Thus the input of natural resources to the country’s growth has been minimal. Tullow Oil has now announced that Kenya has pumped out 200,000 barrels of crude oil with a current market value of $12.6 million. The country is doing the spadework to make its first small-scale export by September.

As Kenya begins to exploit these recent discoveries, the need for transparency and accountability becomes uppermost. Kenya has fairly robust laws as well as pending bills providing for transparency and accountability in the sector. However, there are a few germane issues that arise.

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Although Kenya’s regulatory framework is replete with provisions on the right to access information, the government has only published and made accessible the policies, statutes, regulations and bills concerning the sector. So far, out of the 44 Production Sharing Contracts signed by the government, only 10 have been publicised.

With regard to accessibility of information, the government maintains an open data portal and has to some extent availed information on it on some of the on-going projects. However, key information regarding fiscal terms, negotiations and payments is missing on the sites.

The legal and regulatory framework covering contracts, exploration and production are quite extensive. However, the legal framework on revenue collection, revenue allocation and social and economic spending is skeletal at best or is completely non-existent.

Further, the inclusion and involvement of civil societies, non-governmental organisations and other stakeholders in the transparency and accountability framework is also noticeably absent yet the role of independent oversight across the value chain cannot be gainsaid.

Essentially, despite Kenya having expansive laws on transparency and accountability, there is a lack of implementation and enforcement of the laws, there are governance gaps in the end-most parts of the value chain; and there is lack of independent oversight.

In 2015, the government committed to implementing the EITI Standard and to identifying and enabling an EITI implementation focal point within the government. Years on, the government has still not fulfilled its commitment. Kenya is now on the brink of capitalising its petroleum sector. The EITI has been proven to be a good and useful tool for ensuring accountability and transparency in the extractive industries of numerous countries. It is therefore imperative for Kenya to adopt the EITI process at this early stage in order to not only ward off the resource curse but to also improve the investment climate by signaling to investors that the country is committed to the principles of good governance and transparency.

Kenya should consider undertaking a comprehensive study of the possibility of the country adopting the EITI; consider recognising the EITI in its legal and regulatory framework without any commitment to its implementation until such time as it is ready to do so; review the current legal and regulatory framework to determine the specific barriers that may affect the implementation of the EITI (for instance the confidentiality restrictions) and explore options to resolve them; and in the meanwhile, institute transparency and accountability measures in the entire value chain of the petroleum industry.

The writer is an advocate of the High Court of Kenya.

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