oil and gas

East Africa Regional Cooperation in Oil & Gas: Possible Reality?

The history of regional cooperation in East Africa is quite long and fascinating. As early as 1917, Uganda and Kenya had a customs union arrangement which Tanzania (then Tanganyika) joined in 1927. Over time, regional integration efforts in East Africa have changed form –for instance, there was a time when integration took the form of a common service organization where Kenya, Uganda, and Tanzania shared a common banking regulator, railway, postal service, airline, university system, and other services. Today, regional integration is governed by a treaty signed by member states which include Kenya, Uganda, Tanzania, Rwanda, Burundi, and most recently South Sudan. According to the treaty, the objective of the East Africa Community (EAC) is “…to develop policies and programmes aimed at widening and deepening co-operation among the Partner States in political, economic, social and cultural fields, research and technology, defense, security and legal and judicial affairs, for their mutual benefit.” It makes sense for economic cooperation to drive regional integration because together, the EAC member states together with Ethiopia represent a single market of nearly 280 million people and have a combined GDP of nearly USD 220B with an average GDP growth rate of 5.3% in 2014.

The EAC allows member states to plan together and leverage the power of collaborative action to bring economic development to the region. Perhaps one of the most visible areas of collaboration is the transport corridor programs which seek to provide improved physical access to markets among member states. For the infrastructure sector, the EAC prioritizes interventions for road, rail, maritime, air transport and oil pipeline systems that will “attract investment into the region, improving competitiveness, and promoting trade.” Infrastructure projects are expensive and it makes sense for member states to collaborate and make the economics more manageable. However, in the oil and gas sector, cooperation remains elusive and it has recently become an arena for classic zero sum games. In this scenario, the potential for mutual benefit is not optimized, and often cooperation does not deliver better outcomes for involved parties. In the long run, this dynamic is self-affirming and may undermine the very ideals it seeks to build up.

Pipeline Matters

Higher exploration activity is often correlated with a greater rate of discoveries, but with little development or focus on upstream oil and gas, East Africa has limited infrastructure to support an integrated petroleum sector. The downstream sector is relatively more developed as the networks for marketing and distribution of petroleum products has been built over time. However, the infrastructure to support such activities as export, refining, and development of related industries such as petrochemicals, is limited across the region.

Crude Pipeline Alternatives -East Africa Source: Oil and Gas Journal

Crude Pipeline Alternatives -East Africa
Source: Oil and Gas Journal

In the absence of robust upstream activity, EAC member states have focused on investing in efficient ports, expanded and connected road networks, modernizing the railways, and opening up previously disconnected rural and remote areas. It would make sense given the hefty financial burden of taking up these ambitious projects to work together. However, there is every indication that cooperation eludes us. Please download the full report here: East Africa Regional Cooperation in Oil & Gas: Possible Reality?

David Okwara

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