Dwindling Oil Fortunes Not Good For Kenya
Monday, November 17, 2014 - 12:00 -- BY ALY KHAN SATCHU
In 'Scarface ' a 1983 film directed by Brian De Palma, Tony Montana (Al Pacino) says to his Boss, Frank Lopez:
You short a couple of million,
I go on the street for you.
I make a couple of moves...
...a million here, a million there,
you got it.
The availability of cash as evidenced by the more than four times oversubscription of our Eurobond and by the news last week of a $750m (Sh67.5 billion) facility availed by the IMF (''This arrangement would serve an insurance purpose, providing Kenya with access to IMF resources in the event of exogenous shocks'' said the IMF) confirms that. The IMF's positive imprimatur (see IMF press release No. 14/518 November 13, 2014]) also improved the Shilling back below 90.
The IMF said this about the Shilling; ''A gradual depreciation of the Kenyan shilling mostly reflects developments in international currency markets.''
Today, the National Treasury is surely considering a Sukuk Bond, a Samurai (issued in Yen) Bond and a Diaspora Bond amongst others. Its not a golden flood of liquidity but its a post-independence sweet spot. This remains an important development.
Now as we leverage Kenya Inc's balance sheet, the new challenge is execution (interestingly this shape of challenge applies to Kenya Airways).
Execution is all about making sure the money is spent on what it was meant to be spent on and that there is reduced ''slippage''
I am a big believer in the resourcefulness of our human capital like the Swiss professor Urs Wiesmann who was the prime author behind Kenya's Socio-Economic Atlas released last week.
My concern at this moment is this: We are necessarily placing a big bet on oil and gas and cementing our position as the pivot (the energy conduit and route to the sea] state for this region. Now go take a look at the price of oil. Its been slammed from above a $100 a barrel to below $80. There is an outside chance that we can break down to $50 a barrel. The share prices of the oil companies (Tullow Oil is down 45.84 per cent since the start of the year and Africa Oil is negative 60.67 per cent over the same period) have cratered. The markets are signaling loud and clear that the economics have changed and how. Both Tullow Oil and Africa Oil are exploration companies. They find the oil and then they typically go and find a Bbg major with deep pockets to exploit the oil. It is imperative that we see the majors step in, otherwise the can will get kicked down the road.
The consequential effects on our economy of the can being kicked down the road are not good, not good at all.
Our policy-makers need to react real quick to the new normal. The right signal at this point in time would be to slash the proposed Capital Gains Tax. It is always better to tax something rather than nothing.
AI
