The Expectations of Stakeholders in Eastern Africa’s Oil and Gas

About the Project

Our project is titled Energy Development in New Producing Countries and seeks to understand how natural resource development can achieve inclusive economic growth through the localization of economic activities. We are engaged in a multiyear, multi-disciplinary study with three objectives:

• Assess the direct fiscal impact and trade-offs of policy choices.
• Understand how industry can be localized to create economic growth.
• Estimate spillovers and welfare impacts to society.

Our initial focus is on four countries – Kenya, Mozambique, Tanzania and Uganda – that expect to develop significant oil and gas reserves in the next 5-7 years. Through natural resource development, these countries hope to achieve middle-income economic status by 2030-2040.

Key Points

Local content is a political imperative in Eastern Africa, and how it is implemented has implications for the economics of oil and gas projects and could also affect expected government revenues. Policymakers need to weigh the trade-off between encouraging local content against endangering the viability of a project by loading it with ill-equipped, untrained or costly local options. Highlights from a KAPSARC workshop on this issue include:

• Stakeholder expectations about local content should be tempered by an understanding of the size of the reserves and the development plans under consideration.

• For most new-producing countries, the opportunity to create meaningful local content is front-loaded in the value chain; primarily in the upstream activities. This is a significant point in Eastern Africa because the time needed for workforce and SME development will exceed the CAPEX phase of many upstream projects. Consequently, the promise of midstream and downstream local content would have missed the opportunity.

• Getting the expectations of stakeholders “right” will help maintain the social license to operate. One of the simplest ways to do this is to begin discussions, in real terms, on what an individual or family can expect in gains in welfare from the windfall revenues that will go to the government.