Corruption as the main problem facing oil production in Kenya

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Corruption as the main problem facing oil production in Kenya

Oil forms part of the major exports in Kenya. The main challenge is that this industry is still new and developing. Tullow Oil discovered oil in the year 2012 in the country. By the year 2016, Tullow Oil discovered over 700 million barrels. This makes Kenya one of the oil exporting country in Africa. However, corruption is becoming a major problem in oil production. We are therefore presenting to you corruption as the main problem facing oil production in Kenya.

You may also read: ABOUT TULLOW IN KENYA

The sector is one of the highest paying in terms of foreign revenue. Kenya concluded the first export deal with 200, 000 barrels at a cost of Ksh. 1.2 Billion in 2019. This is when Kenya officially joined the league of oil exporting countries in Africa.

Kenya expects to begin full oil production and export via a pipeline by 2022. This is a good plan that could boost the economy and take it to another level. However, corruption is likely to stand in the way of achieving the goal of becoming one of the major oil producing countries.

Mismanagement of the newly discovered oil reserves is likely to deny Kenya an opportunity to prosper in terms of economic growth. If these reserves are well managed, Kenya could be on a journey of sustainable economic growth but will corruption make it possible?

Possible effects of corruption on oil industry

Corruption is a major economic problem and the government is making efforts to end this vice. Despite the efforts, corruption is still rampant. Specific laws designed to end corruption were formulated but still no change has taken place. It’s becoming a bigger problem with discoveries of opportunities such as oil and gas reserves.

1. Reduced direct foreign investment on oil

Trade partners view corruption as a cost in business which sometimes becomes high and unpredictable. This puts Kenya at high risk of losing its trade partners. Loss of trade partners threatens the status of the economy because it reduces foreign investment. The newly discovered oil reserves could spur growth of the economy if the government develop plans to end corruption.

2. Corruption can lead to inflation

High rate of corruption reduces incentives significantly due to highly inflated prices. This scares away investors because they view corruption as an indirect tax imposed on them.

If inflation occurs due to corruption, all goods produced in the country are greatly affected including oil.

3. Corruption lead to conflict

There are scandals of conflict mainly spurred by corruption in the oil sector. This puts the economy at risk of breakdown because it directly affect foreign investment from oil.

Corruption is the reason behind Kenya being seen as a “Sick Nation”. It is catastrophic and could easily spur conflict within the country. Corruption is the major cause of ethnic violence and other Political problems in Kenya.

Conclusion

Policy makers should adopt Participatory resource management mechanisms in the country to avoid misuse of oil and corruption. By the time revenue from oil start to flow, projects to be funded by oil revenue should be identified. This will help in reducing corruption scandals and spur economic growth in Kenya. It will also help to eliminate corruption as the main problem facing oil production in Kenya.