Rethinking Dependency on Oil in Kenya’s Private Sector

The production and consumption of oil as the most reliant source of energy has been a bittersweet experience globally. Dating its history from the 1840s, human beings have warranted the use of oil energy as efficient, inexpensive and easy to transport. Oil first made its appearance as a naturally-occurring product in the form of bitumen, sipping from the core of the earth, in parts of China and Iraq. Its uses were cited useful in the transport industry for runways and road coverage, insulation of transport means, further ushering in the revolution of the industry. Thereafter, crude oil fields were mined into, to further utilize the reserves and pools from rock oil. In Pennsylvania, oil was extracted and burned as fuel or processed into chemicals while in Russia, kerosene and fuel oils were produced in large quantities and this coincided with the increase in automobile production and assembly. In addition, countries in South America and East Asia prioritized oil exploration and struck luck in mid 1990s, thereby contributing immensely to global supply. Collectively, these economies and other countries witnessed economic boom, with businesses taking advantage of significant reduction in the cost of production and increasing consumption levels. In the service industry, firms began tolerating the idea of transferring highly skilled staff to different areas and regions, triggering movements in the labor market.

Oil dependency both globally and locally is best understood when two crucial economic actors are examined. These actors are public and private sectors. The interrelationship between these two actors plays a critical role in the demand and supply dynamics of fossil fuel in the country. Private sector actors are considered the bedrock of economic growth in most developing countries. These institutions are considered paramount as they enable developing countries tackle perennial issues such as distribution and accessibility of basic needs, unemployment, research and development and innovation and technology advancement. To tackle these challenges, the private sector needs several complimentary instruments such as appropriate policies, sustainable business environment and most importantly stable energy sources. In totality, these instruments contribute to the cost of doing business which is a critical metric in attracting local and foreign investment.

Global oil prices are highly sensitive to geopolitics. When the United States and other nuclear producing countries reached an agreement with Iran in 2015 – 2016, Iran scaled up its oil production and this resulted in a sharp decline in global prices. However, when Donald Trump took office as the 45th president of the United States in 2017, he revoked the deal and placed sanctions on Iran thereby curtailing supply and pushing oil prices upwards. The Organization of the Petroleum Exporting Countries (OPEC) has been labelled a cartel more than once for advocating for higher oil prices through chocking supply. In 1973, the Organization of Arab Petroleum Exporting Countries declared an oil embargo to several countries in Europe, the Americas and South Africa which pushed oil prices to an all-time high by 300%. Currently, the Russia – Ukraine war has disrupted oil supply in mainland Europe, and this has resulted in increase in oil prices globally triggering inflation and expenditure cuts for many private sector institutions. Since most developing countries are net importers of oil and oil is a major economic driver in most nations, economic captivity becomes a heightened risk mainly brought about by lack of control in global oil prices. This dependency phenomenon has triggered discussions on exploring new sources of energy within the private sector.

Outwardly, Kenya’s demand for petroleum products was on an upward trajectory between 2016 and 2019, according to the KNBS 2021 Economic Survey. The total demand for petroleum products averaged 5.1 million tonnes, representing approximately 1% year-to-year increase, particularly in light diesel and motor gasoline, which constitute roughly 41% and 25% of total petroleum demand, respectively. Light diesel oil is predominantly used in the manufacturing sector to power engines which ultimately drive production lines whereas motor gasoline is used to power automobiles hence facilitating movement of goods and labor. The unsustainability scopes of operation in Kenya’s private sector becomes discernibly paramount, in light of these fluctuations.

Best Practices

Holding other factors constant, petroleum prices in fact leads to a deteriorating business environment and this unfortunately creates winners and losers in a liberal economy. In light of this risk, the KNBS Economic Survey was key in identifying sectors that recorded growth patterns amidst these crises. The chemical products sub-sector registered a positive movement, due to increased production of alternative sources of energy such as biogas, solar, hydrogen and other rare gases, leading to an increased production of paints, vanishes and soaps. Justifiably then, the adoption of solar, wind and biogas energy sources are seen as possible avenues of generating sustainable, environmentally friendly and cost-effective energy supplies that could replace oil.

In a macro level, governments could introduce annual license fees to private sector institutions that are capable of generating their own energy sources and this could substitute income generated from oil while reducing its expenditure bill on petroleum imports. Ideally, the incoming government should also recognize this pursuit and support the private industry’s venture, since it will be a mutually beneficial synergy to the public sector as well. For instance, while Kenya Power’s electricity costs stand to decline, the government stands to benefit from proceeds of licensing of other power producers and additional, potential players in the Securities market. Moreover, the parliament can integrate and champion for laws that provide regulation on how new sources of energy eg. Nuclear and hydrogen can be exploited, eventually transforming Kenya into a multi-faceted economy, driven by supplementary sources of energy, borrowing the concept from corporations such as Airbus and Deutsche Post DHL which are exploring the possibility of using hydrogen as an aviation fuel as they plan to cut back on the unreliable, unpredictable and costly fossil fuel.

When it comes to rethinking global independence on oil in Kenya’s private sector, management teams, shareholders and even the government hold sufficient potential to materialize on the idea of pursuing alternative energy sources and restructure business models, to reinforce the shift of new energy that has notable impact of revolutionizing the traditional way of conducting business in Kenya. These avenues ultimately will diminish the use of oil as the major energy source driving businesses in Kenya thus leading to restructuring of business operations and creation of new approaches of business innovations that support business sustainability management practices. 

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