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Extractive Industries in Kenya: A Blessing or A Curse

Extractive Industries in Kenya: A Blessing or A Curse. Patricia Kameri-Mbote Key Note Speech UNDP & Civil Society Leisure Lodge , November 2014. Key Points. Introduction The Opportunity Role of Law & Policy Benefit Sharing Local Content Regulations Conclusion. Introduction.

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Extractive Industries in Kenya: A Blessing or A Curse

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  1. Extractive Industries in Kenya: A Blessing or A Curse Patricia Kameri-Mbote Key Note Speech UNDP & Civil Society Leisure Lodge, November 2014 University of Nairobi ISO 9001:2008 1 Certified http://www.uonbi.ac.ke

  2. Key Points Introduction The Opportunity Role of Law & Policy Benefit Sharing Local Content Regulations Conclusion University of Nairobi ISO 9001:2008 2 Certified http://www.uonbi.ac.ke

  3. Introduction • Endowment with natural resources – renewable and non-renewable • Many African countries are blessed with oil and mineral wealth that has the potential to transform their economies • Ideally the development of these resources can be a blessing for the entire continent • But historically, the resources have often proved to be a curse than a blessing especially to the citizens University of Nairobi ISO 9001:2008 3 Certified http://www.uonbi.ac.ke

  4. Introduction - 2 • This is attributable to • The competing needs, rights and interests • Diverse array of actors with differing capabilities, resources and agency • Greed on the part of those tasked to deal with the resources • Poor governance – rules framed for dealing with the resources are skewed to favour those in power • Neglect of local economies where resources are University of Nairobi ISO 9001:2008 4 Certified http://www.uonbi.ac.ke

  5. Introduction - 3 • Many conflicts in Africa are linked to natural resources (scarcity or abundance) • Scholars who have studied the environment-conflict linkages have concluded that degradation/depletion of resources such as land, water, forests and fish will contribute greatly to social turmoil in the coming decades • The discovery of non-renewable resources such as minerals and natural gas is likely to accentuate conflicts in Kenya if not properly managed • Somali-Kenya boundary • Boundaries between counties University of Nairobi ISO 9001:2008 5 Certified http://www.uonbi.ac.ke

  6. Introduction - 4 • Many of the resources are in areas which have been neglected by governments over the years • There are already conflicts in the areas • Resource capture or sabotage by armed militia in context of no security • Use of resources to bankroll militia and to establish rogue economies • Clash between existing land uses in and around the areas and mining and related uses such as development of housing for the companies University of Nairobi ISO 9001:2008 6 Certified http://www.uonbi.ac.ke

  7. The Resource Curse • Manifests in a number of ways: • Proliferation of rogue economies based on natural resources • Neglect of other sectors – agriculture; pastoralism • Elevated currency exchange rates • Control of resources by ruling elites and their cronies to the exclusion of broader populace • Overall high cost of living above affordance of local communities • Those in control of resources not interested in proper governance that will deny them access and control over the resources University of Nairobi IS O 9001:2008 7 Certified http://www.uonbi.ac.ke

  8. The Opportunity • For a country formerly solely dependent on agriculture & renewable natural resources, discovery of non-renewable resources is great • Kenya is dealing with her oil and gas when other countries in Africa and globally have dealt with theirs • Last in EA to discover resources • Need to learn from best practice and avoid mistakes made by others • Devolution provides an opportunity for dealing with the resources taking the interests and rights of the locals into consideration University of Nairobi IS O 9001:2008 8 Certified http://www.uonbi.ac.ke

  9. The Opportunity - 2 • The robust Constitutional framework provides safeguards for the rights of local communities • These can be sharpened through legislation to breath life into the Constitution taking rights and interests of the local communities into account. • Effective management of the resources can benefit citizens locally and nationally • We have had history dealing with renewable natural resources such as forests and wildlife • Need to avoid mistakes made especially with regard to the engagement of communities and benefit sharing University of Nairobi IS O 9001:2008 9 Certified http://www.uonbi.ac.ke

  10. The Importance of Law & Policy • The NG & CG have roles in ensuring that a clear framework is established for the development of this sector • The vesting of the minerals in the government should not be a bar to engagement of local communities • While laws on mining have been amended, there is still need to go beyond actual mining • The extractives industry affects different policy realms • Depletion of resource and management thereof University of Nairobi ISO 9001:2008 10 Certified http://www.uonbi.ac.ke

  11. The Importance of Law & Policy - 2 • Fiscal Policy; Sustainable development; Company law & policy on shareholding • The length of time it takes to get commercial extraction raises need to seek for engagement along the project chain • Article 71 provides a way of ensuring participation by the citizenry through their elected leaders at concession stage • Certain transactions shall be subject to ratification by Parliament- involve a grant of a right or concession by or on behalf of any person, including the NG, to another person for the exploitation of any natural resource of Kenya University of Nairobi ISO 9001:2008 11 Certified http://www.uonbi.ac.ke

  12. The Importance of Law & Policy - 3 • Parliament tasked with the enactment of legislation to provide for the classes of transactions that shall be subject to ratification • Article 10 on National values is critical in legislating for the EI – sustainable development; stakeholder engagement; participation; good governance; the rule of law; inclusion etc • To preempt the resource curse in the EI sector in Kenya, participation of people in decisions that affect them is critical University of Nairobi ISO 9001:2008 12 Certified http://www.uonbi.ac.ke

  13. The Importance of Law & Policy - 4 • Good governance provides anchorage for this by ensuring participation in decision-making, government’s accountability and the society’s respect for its rules and laws • We need, through law and policy, to establish transparent, accountable and inclusive mechanisms for contract review and award • The citizenry must be empowered to demand adherence to set rules through procedural rights • Access to justice; Right to information; and • Public participation in environmental decision-making University of Nairobi ISO 9001:2008 13 Certified http://www.uonbi.ac.ke

  14. The Importance of Law & Policy - 5 • Another issue that should be ingrained in law and policy is that of intra- and inter generational equity to avoid exclusion of some members of the local community • Policy on 30% tender awards to gender, youth and persons with disability is a good example • The country should participate in international forums forging cooperation in the management of minerals resources; environmental protection; observation of social and cultural values and equitable access to mineral resources and benefit sharing University of Nairobi ISO 9001:2008 14 Certified http://www.uonbi.ac.ke

  15. Benefit Sharing • The Constitution provides for enactment of legislation ensuring that local communities and their economies benefit • It is heartening to note that Senate has initiated bill on benefit sharing in the extractive industry • This needs to be cascaded from NG and CG levels to local communities’ and individuals’ levels • Equitable benefit sharing in the EI aiming towards obtaining justice for all people is critical • Both monetary and non monetary benefits should be explored University of Nairobi ISO 9001:2008 15 Certified http://www.uonbi.ac.ke

  16. Benefit Sharing -2 • Monetary- Revenue sharing, preferential rates, property taxes, equity sharing and development funds. • Non-monetary benefits - livelihood restoration and enhancement and general community development • Compensation is also a form of benefit sharing where payments or benefits are provided by companies to affected communities as compensation for economic, social, environmental, or cultural damage directly caused by the mining operations University of Nairobi ISO 9001:2008 16 Certified http://www.uonbi.ac.ke

  17. Benefit Sharing -3 • There is need for investment in capacity building for the communities in investment of resources from EI • To make benefit sharing sustainable and linked to general development of the sector so communities do not perceive it as a windfall • To act as lever for cooperation between EI activities and community • To promotes partnership and incentives • We can look at benefit sharing schemes from other jurisdictions University of Nairobi ISO 9001:2008 17 Certified http://www.uonbi.ac.ke

  18. BS in Other Jurisdictions • Venezuela’s Natural Resource Funds (NRFs) directed to development purposes among citizens in EI areas • The state of Alaska in the U.S.A where benefits derived from EI have played a big role in ensuring development among the citizens • Establishment of a Permanent Fund and involvement of members of the public in the establishment of the Fund • The Fund has considerably contributed towards the improvement of the lives of the citizens as each citizen of Alaska is entitled to a share of the wealth generated from the sale of oil. University of Nairobi ISO 9001:2008 18 Certified http://www.uonbi.ac.ke

  19. BS in Other Jurisdictions -2 • Norway’s Government Pension Fund Global which is a tool that was established to support the management of the revenue derived from the petroleum industry • The government has established social welfare schemes which draw their monies from these funds • The Libyan government also established the Libyan Investment Authority (LIA) which is a government-managed fund that promotes investments in agriculture, real estate infrastructure etc. University of Nairobi ISO 9001:2008 19 Certified http://www.uonbi.ac.ke

  20. BS in Other Jurisdictions -3 • The adoption of such schemes has ensured that • Communities benefit adequately from EI activities • Transparent and democratic governance is adopted and it has also ensured that the institutions dealing with the extractive industries are strengthened • In entering into benefit sharing arrangements with the communities, the companies are supposed to ensure that the principle of prior informed consent is upheld and by this they are supposed to ensure that such arrangements are entered into in good faith University of Nairobi ISO 9001:2008 20 Certified http://www.uonbi.ac.ke

  21. Local Content in O& G Sector • Beyond BS, Kenya should frame LC rules to ensure that wealth taken out of ground is spread locally • Local people and local economy benefit from investments • Ownership & operation of assets in sector • Increased employment • Transfer of skills and technology • Manufacturing & production of materials and parts to be used in sector not imported • Service sector • Contractual commitments embedded in concession contracts (role of Parliament) University of Nairobi ISO 9001:2008 21 Certified http://www.uonbi.ac.ke

  22. Local Content in O& G Sector • Create environment where investors procure more services, labour and materials from local businesses • Complemented by local laws stipulating requisite level of shareholding in companies for them to qualify as local • Countries such as Ghana (2013), Angola, Nigeria (2010) and Brazil 2003 have framed these • Require minimum thresholds for the use of local services and materials • Ghana seeks to have 90% of local participation in all aspects of the oil and gas value chain by 2020 University of Nairobi ISO 9001:2008 22 Certified http://www.uonbi.ac.ke

  23. Final Note on LCR in O&G • LCR perceived as uncompetitive and can invoke WTO mechanisms • LCR should be temporary measure to allow sector to stabilise and country to benefit through improvement of local capacity and industry • Strengthening demand directed at local market • Diversification of industrial sector • Development of technology intensive sectors • Enhance national security by building relevant sectors University of Nairobi ISO 9001:2008 23 Certified http://www.uonbi.ac.ke

  24. Final Note on LCR in O&G-2 • For LCR to pre-empt resource curse, need to tweak other policies – employment; fiscaletc • In Kenya’s framing of LCR, need to consider national and local county level considering the different levels of development University of Nairobi ISO 9001:2008 24 Certified http://www.uonbi.ac.ke

  25. Conclusion • EI in Kenya needs to get it right at outset if it is to benefit Kenya and Kenyans & avoid the ‘resource curse’ witnessed elsewhere • The importance of a sound legal, policy and institutional framework cannot be over-emphasized • Clear vision, policies and legislations; proper revenue management structures; transparency and accountability measures; and the involvement of communities in the management of these resources and also in the management of the environment University of Nairobi ISO 9001:2008 25 Certified http://www.uonbi.ac.ke

  26. Conclusion - 3 • Effective and efficient and effective institutions are in place • No need to re-invent the wheel even as we craft our model, we can learn from the successes and failures of others University of Nairobi ISO 9001:2008 26 Certified http://www.uonbi.ac.ke

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