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Monday, September 19, 2016

Kenya’s local content law must empower resource-rich communities

Kenya will soon join the ranks of oil exporting countries. President Kenyatta declared that Kenya would pump and export an estimated 2000 barrels of oil per day before the next general elections. At the current oil prices, these petroleum exports will generate enough revenue to pay about 203 members of the national assembly their salaries and allowances for one year.

But is Kenya prepared to navigate the slippery slope of the hydrocarbons bonanza? Can oil revenues drive equitable or shared prosperity? Our record and experience with massive cash receipts like the Euro Bond is not inspiring.

Africa’s experience with hydrocarbons and mineral ore has not been rosy. In a majority of Africa’s resource-rich countries, exploitation of natural resources is invariably linked to corruption, economic stagnation, conflict, social inequality and widespread poverty. This apparent paradox is referred to as the Resource Curse. Paul Collier, Oxford University Economist, has argued that poor management of large inflows of natural resource revenues makes other export activities noncompetitive and stifles economic diversification, leading to lower economic growth.

For a long tine Nigeria was the poster boy of the Resource Curse. Armed, rebels operating under the name of the Movement for the Emancipation of the Niger Delta (MEND), have intensified attacks on oil platforms and pumping stations. According to leaked internal financial data accessed by the Guardian, Royal Dutch Shell paid Nigerian security forces hundreds of millions of dollars a year to guard their installations and staff in the Niger delta.

A raft of legal interventions, including sovereign wealth fund, benefit sharing as well as detailed regulations that specify production agreements are in various stages of drafting, public consultation and debate. All of these are intended to ensure that Kenya averts a Resource Curse and receipts from natural resources contribute to share economic prosperity.

The latest in this plethora of laws and regulations is the Local Content Bill published by the Senate. The intent of the Bill is to create a framework to support “indigenization” of financial, technical capacity and local value capture across all activities in the extractive sector, especially oil and gas.

The supreme purpose of local content legislation is to move communities beyond benefit sharing to equitable economic participation. This is especially critical for communities in the Rift Valley and Kenya’s coastal region who have been marginalized for over six decades. Hence, the local content legislation must give primacy to County Governments. Real and durable prosperity at a scale that diminishes the risk of a Resource Curse can only come through robust economic participation by local communities in whose locality the natural are found.

The Bill should establish devolved local content development committees, which must be embedded in planning units of resource-rich Counties. These committees in consultation with local stakeholders should develop local content plans. Such plans must address specific investment, development and human capacity needs.

Bust most of all governments, both county and national, must make fundamental investments in human capital and physical infrastructure to make local content aspirations feasible.

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