Agriculture will drive East Africa's growth not oil

The discovery of commercially viable oil and gas deposits in East Africa has caused a lot of excitement among ordinary citizens, as well as political and business leaders. This has led some sections of the population and leaders argue that the region could soon reach the take off stage and develop substantially like the Asian Tigers, on the back of the oil and gas sector.

Tanzania has huge gas reserves, while Kenya and Uganda have discovered oil and gas in commercially viable quantities, with first oil expected to start flowing in two-four years.

Uganda has about 3.5 billion barrels oil while Kenya so far has over 600 million barrels of oil deposits that have been confirmed to date.

Rwanda is also exploring for oil and gas, but has various firms involved in mining of different minerals like wolfram and cassetirite in different parts of the country, as well as the methane gas deposits on Lake Kivu.

These discoveries present huge opportunities and could potentially turn around the region into the Africa Tigers if the revenues accrued from the sector are managed well.

However, as the region starts posturing as the next big oil producer, with oil as the driver of growth, some experts disagree.

They argue that though oil and gas present East Africa Community (EAC) a big stimulus to develop and improve the lives of its citizens, the future of the region lies in agriculture and agro-processing.

Fredrik Lindblom, a partner and trainer in oil and gas contract negotiation and law-making at DLA Piper Norway, a global law firm, says the region’s demographics (EAC has a young population) and abundant arable land make agriculture the future development driver of the region.

A maize farmer inspects his crop in Rwanda. 

“Agriculture has huge potential compared to oil which is a finite resource that will get exhausted in a few decades,” he says. He notes that when oil production starts, the revenue raised should be used to develop the agriculture sector, especially promoting commercial farming and agro-processing, instead of thinking that oil is the future of the trading bloc.

Lindblom supports his argument saying besides being a finite resource, the oil and gas sector employs few specialised workers, “but the agriculture industry is a mass employer”. This makes it better placed to contribute more to the region’s growth sustainably compared to the oil and gas industry.

He notes that what is required is to provide the necessary infrastructure and funding to agriculture to support its growth.

He was speaking on sidelines of a training workshop on oil and gas contract negotiation and law-making in Kigali last week. The training attracted lawyers from Kenya, Tanzania, Rwanda and Uganda.

Presently, the majority of the people in the region (up to 70 per cent on average) are employed in the agriculture sector directly or indirectly. EAC has close to 200 million people. Oil and gas, as well as mining activities require mostly specific skilled personnel, with just a few hundreds of unskilled labourers participating. This limits their trickle-down effect as far as influencing sustained regional growth is concerned, experts add.

Lindblom notes that it is important for oil firms to focus on the right kind of corporate social responsibility, involving those activities and ventures that support community development. 

He says there is need to create realistic expectations among the people, arguing that unrealistic expectations can result in discontent and unjustified demands from the citizens, especially those living in resource-rich areas.

He notes that oil and gas laws must also be enforced to ensure benefits from the revenues are shared by all citizens. He says though there is need for local content, it should be at the right level, noting that it is important for EAC member countries to invest oil money in vocational training to equip the citizens with the necessary skills for industrial development. 

“The oil and gas sector does not create a lot of jobs directly, but it essential to ensure that oil firms contract local suppliers and employ qualified residents,” Lindblom says.

Last year, people in the Turkana area in Kenya attacked Tullow Oil demanding for jobs, which led to suspension of operations for weeks. In Uganda, local suppliers are always complaining that the oil firms give contracts to foreign companies ignoring them, including small ones. However, the oil firms argue that most local companies in the region lack the capacity to handle such deals.     

Meanwhile, Rwanda’s Minister for Justice and Attorney General, Johnston Busingye, says the fact that prospecting and exploration was ongoing across the region was indicative of a bigger resource potential than the region was currently aware of, and calls for better laws if the region is to benefit from its natural resources.

“The consequences of poor contracting and poor contract management, as well as unfavourable laws, can result into increased poverty, environmental degradation and social instability,” he said earlier.

East African countries should avoid giving oil firms wide ranging tax concessions and excessive incentives because they have little merit and deny the host country of critical resources, said Vivienne Yeda, the East African Development Bank (EADB) director general.

Yeda said the relationship between foreign or local investors search for maximum risk-adjusted profits and the host states expectation of maximum revenue, skills transfer and training, development of infrastructure, employment and job creation was fundamental to the extraction of resources, noting that “these interests do not usually converge.”

“The pillars for balancing these interests should be established in the applicable legal and fiscal regimes of the respective countries and must be well defined and documented in the investment agreements,” said the EADB boss. 

Yeda emphasised that public sector lawyers and law dons were in a special position to determine the future of the region’s extractive industry. She said as advisors to their governments, public sector lawyers had the opportunity, the influence and the resources to deliver a brighter future for the region if only they remained vigilant and sharpened their skills and negotiation prowess.

“With a stroke of a pen, you can determine the destiny of a generation,” Yeda told the training workshop organised by the regional financier in partnership with global law firm, DLA Piper.