Business
East Africa’s new great oil game
Although Uganda discovered oil in Bunyoro in 2006, production was delayed by disputes with oil companies over the size of a planned local refinery and pipeline routes. Following Kenya’s discovery of oil in Turkana in 2010, Kampala has sped up its plans and signed a pipeline deal with Nairobi.
The dragon’s desire
On 5 February, Uganda signed an agreement worth more than $8 billion with the China National Offshore Oil Company, France’s Total and Ireland’s Tullow to build a refinery at Lake Albert, an export pipeline to Kenya’s coast and an oil-fired power station. Such investment depends critically on integration. “Assuming the reform agenda progresses – a moderate level of customs harmonization and deepening of a regional trade integration – this would have a tremendous effect on regional growth,” says Angus Downie, a research analyst with the Lomé-based Ecobank.
By 2020, two mammoth railway projects are due for completion: firstly the Dar es Salaam-Isaka-Kigali route; and secondly the Mombasa-Nairobi-Kigali route. The railways are two of the largest attempts at regional transformation for a century. They are both critically dependent on China’s state-owned banks and construction companies. Through a combination of grants, loans and tied aid agreements, China is almost single-handedly reshaping the region.
According to a Nairobi-based economic analyst, “Look, even if you had four, five or six World Banks, there is no way they would have sunk in this kind of capital to individual projects in one region. There is not a bank or an international bond issue that would commit these kinds of resources to single-issue projects. It is just too risky.”
He then added, “Let’s agree, despite all the talk of corruption associated with them, that these are transformative projects that the region needs.” But the political economy is another matter: the rush for growth is sharpening inequalities and political discontent. “Not only the rate of growth matters, but also the quality. Governments need to ensure that it is shared across the board,” says Negatu.
A recent report by the Society for International Development sounds alarm bells: “The trouble in East Africa is that the speed of change is overwhelming the capacity of the industrial and service sectors to provide the jobs and alternative livelihood opportunities.” Elsewhere, it says, “A formal wage-paying job is a privilege for a tiny minority of East Africa. Just 1.6% of Uganda’s, 4% of Burundi’s, 5% of Tanzania’s and 6% of Kenya’s working populations are formally employed.”
Social contract unraveled
Without adept political management, the prospect of economies expanding quickly but without a commensurate increase in jobs would worsen inequalities and social tensions. Fast-growing cities such as Nairobi and Kampala are drawing in migrants from across the region, but very few formal jobs are available.
