19 March 2016

East Africa: Dar Is Rising, Kenya Falling but Still the Oil Isn't Flowing

Photo: The Observer
File photo.

There has been a buzz in East Africa since Tanzania's President John Magufuli announced on March 2 that he had clinched a deal with Ugandan President Yoweri Museveni for a pipeline transporting crude oil to the port of Tanga.

The 1,410-kilometre pipeline, that will connect Uganda's Albertine basin oil fields to Tanzania's Indian Ocean coast, is projected to cost $4 billion.

There is regional drama here, because Tanzania is seen as having beaten out early favourite Kenya.

News reports quoted Kenyan officials saying the Uganda-Tanzania deal wasn't done yet, and that it was scheduled to hold meetings with Kampala.

The pipeline through Kenya would cost slightly more - $4.5 billion. Tullow, which has oil discoveries in Uganda and Kenya, came out in favour of the route through Kenya, saying it offered "obvious economies of scale."

Clearly, there is more than economics at play here. First, though, the pipeline project has to take off, and with oil still hovering just over $30 a barrel, there are those who are sceptical that it will do so any day soon.

Matters have not been helped by the fact that Uganda's violent and shambolic February election has given investors the jitters and it could take a few more months for the dust to settle and the Museveni government to succeed in calming nerves and restoring confidence in the country.

That said, from one point of view, there is a not-so-silent race between Kenya and Tanzania for the title of the largest economy in East Africa.

Because nearly every Kenya election has dented growth, economists like David Ndii have worried that if that pattern holds after the next vote, and Tanzania continues its current performance, by 2020 it will have overtaken Kenya and have an economy that is 20 per cent larger.

Winning the Uganda pipeline would, at least at the symbolic level, cement Tanzania's position as the region's new economic giant.

Still, that is probably be the lesser story. The option of the Uganda pipeline through Kenya had it landing in Lamu. There was logic to that. It was seen as part of the Lamu Port and Southern Sudan Ethiopia Transport (Lapsset) corridor.

Geopolitically, Lapsset was conceived at a time of three key regional trends coming together:

There was at that point a lot of optimism about the future prospects of newly independent oil-rich South Sudan.

Kenya had just entered the Somalia fray and there were expectations that that troubled country would soon be stabilised.

Ethiopia was growing by leaps and bounds, and a tie-up with the EAC economy through Kenya was seen as the next big step.

However, South Sudan unravelled, and despite its recent admission into the EAC and a power-sharing deal to end its unusually brutal civil war, in recent days fears have grown that it will relapse into violence.

In Somalia, the African Union peacekeeping operation, Amisom, seems to have fought to a draw with the Al Shabaab militants.

And Ethiopia has not waited around, pushing aggressively with a new railway to Djibouti that was launched last year, and now a planned oil pipeline.

That's why it is significant that the Uganda pipeline is to Tanga, not Dar es Salaam or Bagamoyo.

That is much closer to Kenya's Mombasa, and may indicate that we could actually be seeing greater convergence between the Kenyan and Tanzanian economies, rather than divergence.

Charles Onyango-Obbo is editor of Mail & Guardian Africa (mgafrica.com). 

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