Ideas & Debate

Exploring the trade-off in Kenya’s mining sector

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Oil exploration in northern Kenya. FIE PHOTO | NMG

On June 2, the two-year contract for the Early Oil Pilot Scheme between the Kenyan government and Tullow Oil drew to a close.

Under this scheme, Kenya made its debut shipment of oil into the international market with a consignment of 240,000 barrels which fetched the country Sh1.48 billion.

Tullow Oil notes that whereas it remains broadly bullish about Kenya’s prospects as a budding oil exporter, greater certainty around the country’s tax framework would go a long way in catalysing investment into the sector. This came on the back of the Tax Laws (Amendment) Act of 2020 through which taxable supplies used in geothermal, oil or mining prospecting now attract unlike in the past where they were VAT-exempt.

Whereas there is no doubt that the economy is presently confronting extraordinary circumstances which necessitate adjustments to meet revenue targets, such tweaks to the tax regime threaten to erode the gains made towards a stable and predictable environment for investment.

Kenya’s Mining and Minerals Policy of 2016 identifies a stable, transparent and competitive fiscal regime as one of the key pillars through which the country will be able to harness the economic potential of its mineral resources. The mining sector is a vital cog in Kenya’s economic engine. The latest available data shows that in 2017, the sector was the fifth largest source of foreign direct investment, accounting for net inflows worth Sh4.5 billion. It is critical that considerable attention is paid to the trade-off between the short-term gains of mobilising more revenue and the long-term dividend brought about by a stable and predictable fiscal environment.

The Mining and Minerals Policy adopted four years ago was a major milestone for Kenya in its quest to optimise the economic potential of mineral resources. The establishment of the National Mining Corporation, as the investment of the government in mining, and the Directorate of Mines as the regulator, provided much-needed avenues through which activity was decentralised from the Ministry of Mining.

Tonight on NTV Kenya starting 7:30pm, Business Redefined hosts the Principal Secretary for Mining, Kirimi Kaberia, to discuss the state of the mining sector and the progress made four years after adoption of the Mining and Minerals Policy.