Beware oil curse

THE fanfare that followed the inaugural extraction and transportation of oil from Turkana to Mombasa was palpable, as it marked a turning point in the long journey of venturing into the extractives industry.

It has been six years of painful exploration, and so what has come out of it is a signal that the efforts were not in vain; we have potential for oil wealth.

However, it is too early to celebrate. We take this earliest opportunity to caution that the hard part now begins. We need proper analysis of the business before we go to other details.

It is incredible that we have a model where oil is transported by lorries for hundreds of kilometres away from the mining fields. A simple cost-benefit analysis illustrates that this is not viable.

In the same vein, the exploitation has begun without proper thought of the markets. It does not make sense to produce and think of markets later; that is warped economics.

Outside the realm of the markets, the usual questions come into play. For one, Kenya has to confront the proverbial challenge of the “oil curse” that has beset many other African nations.

We must acknowledge that this is a major breakthrough as it promises to catapult Kenya into the ranks of oil-rich nations. However, must get the economics and governance right, lest we fall into the trap of the dreaded oil curse.