Tag Archives: political risk

Oil and Security in Kenya (updated)

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Ratio Magazine, “Kenya Oil Find:  Good News?”:

  • Turkana has just become a lot riskier: It is already a marginal, underdeveloped area with relatively high insecurity. If the recent clashes in Isiolo, underreported and often glossed over as inter-ethnic cattle rustling, are anything to go by, similar tensions may well surface in Turkana.
  • Kenya’s land titling and overall land management regime is notoriously corrupt and unreliable and also a perennial source of conflict. This will be worse in Turkana. The implementation of the new constitution with its transition from a central to a more devolved government on country level creates more uncertainty: Not all regulations and institutions have been fully set up. Throw oil, a marginal area and informal land rights into this and you have a potentially explosive situation.
  • Kenya’s political risk: The past few days, with the GEMA meeting putting the country on notice that peace and security may well depend on one individual, are just one of many reminders that the issues that pushed Kenya to the brink of a Cote d’Ivoire style scenario are far from being resolved. Oil tends to increase the premium on power. Thankfully, with production at least five to seven years off, this means that Kenya will have at least one, possibly two electoral cycles until oil revenues start flowing.

The latest from Petroleum Africa: “Africa Oil and Tullow Oil Hit More Kenyan Pay“:

Tullow’s exploration director Angus McCoss, said:”This ongoing wildcat is an excellent start to our exploration campaign. The net pay encountered so far in Ngamia-1 is more than double that encountered in any of our East African exploration wells to date. We now look forward to the drilling and evaluation of the deeper potential of this well and the acceleration of our seismic and drilling campaigns in the region.”

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“Political Stability”, “Investor Confidence” and meaningful elections in East Africa

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Wednesday’s Nairobi Business Daily features a story headlined “Political stability lifts investor confidence in East Africa“:

Easing political tensions and the ongoing search for uniform governance standards in East Africa has lifted business confidence in the region and is encouraging investments that could boost employment.

Buoyed by recent peaceful elections, investors in the five EAC member countries said governance based on the rule of law had significantly lowered political risk, creating a stability that has allowed them to engage their expansion gears once again.

Rwanda and Burundi successfully concluded presidential elections last month, a trend that has been crowned by Kenya and Zanzibar early this month when they conducted peaceful referenda.

“It is satisfying for investors — and regional blue chip players in particular — when elections are peaceful the way we are witnessing them,” said Mr Peter Munyiri, KCB deputy CEO in charge of group business.

The bank, which has just raised Sh12.5 billion from its highly publicised rights issue, says it will use part of the money to mobilise savings and create a large pool of credit across the region, “Certainly the political and sovereign risks in the region set an attractive business environment and KCB can comfortably lend more money, with the region also expected to become the home for lots of overseas funds looking for investment destinations,” said Mr Munyiri.

It is certainly striking to see the presidential elections in Rwanda and Burundi labeled as “successful” when in both cases the sitting administrations essentially disqualified the opposition and conducted elections without meaninful competition–in Burundi without even a token alternative on the ballot. The notion of a security tradeoff between “stablity” and democratic political openness is certainly a familiar refrain in East Africa but it is rare to see a statement this explicit of an attractiveness to investors of meaningless but peaceful voting.

A follow up question is whether investors care about the political reforms so fervently hoped for as a result of the safe passage of the new Kenyan constitution, or is it just that fact that the vote was held without significant violence? Each of these countries presents a very different situation in many respects: at one extreme, Rwanda is relatively underdeveloped and poor outside Kigali and is hugely dependent on aid, but gets high marks for having relatively little corruption, and rapid progress in some areas of development while seeming to move further away from political openness. Kenya has had fairly robust overall growth most years post-Moi and receives a relatively small amount of its direct government budget from official assistance; at the same time it remains notoriously corrupt, has huge inequality and radically uneven development. In recent months, Kenya reformed its election commission and midwifed a new constitution that 90% of Kenyans reportedly are glad to have passed. So the trend on democracy in Kenya seems to be running now in the opposite direction from Burundi and Rwanda.

With security concerns rising with the latest bomb blast killing 6 MPs in Mogadishu and the July bombings in Kampala, how does the “investor confidence” factor play out in assessing the risks that are worth taking to support democracy in Uganda with elections coming in February?