Several East African nations have expressed reluctance to sustain their oil trade partnerships with Kenya, potentially spelling economic repercussions for the country. Uganda has already taken decisive action, opting to halt its importation of fuel from Kenya. The primary catalyst for this decision is a contentious government-to-government deal between Kenya and Gulf countries, contributing to a notable surge in fuel prices.
The ripple effect is palpable as Rwanda, Burundi, the Democratic Republic of Congo, and South Sudan ,landlocked nations heavily reliant on Kenya for petroleum imports due to a lack of a seaport are contemplating reevaluating their oil business engagements with Kenya. Core grievances revolve around dissatisfaction with Kenya’s government-to-government oil agreement and the imposition of higher taxes on fuel, aggravating the cost of imported fuel across the East African Community (EAC).
The fiscal impact extends beyond national borders, as heightened taxes and levies introduced through the Finance Act of 2023 contribute to an overall spike in fuel prices throughout EAC countries that rely on Kenya as their primary entry point for petroleum products. A CEO of a Kenyan oil firm, in conversation with the BBC, forewarns of substantial consequences for Kenya, emphasizing the region’s strategic realignment of infrastructure projects to reduce dependence on Kenya, with potential dire consequences for the country in the long term.
Tanzania and Sudan emerge as potential beneficiaries should landlocked East African countries opt to redirect their petroleum product imports away from the Port of Mombasa. Uganda has already signaled a proactive shift, expressing intentions to diversify its sources by utilizing Tanzania for reserve fuel stocks. Despite Sudan’s current entanglement in conflict affecting regional trade, its possession of five major ports positions it as a credible alternative to the Port of Mombasa.
The economic repercussions for Kenya are underscored by Uganda’s historical reliance on importing a staggering 90 percent of its fuel from Kenya, with only a meager 10 percent sourced from Tanzania. This shift signifies the magnitude of potential losses for Kenya, attributed not only to the controversial oil deal but also to an unfavorable business climate that may prompt other East African nations to reassess their dependency on Kenya.
Further complicating matters, an estimated 40 percent of Kenya’s total fuel imports are directed to the Democratic Republic of Congo and South Sudan, primarily facilitated through Uganda. Should Uganda solidify its deal with Tanzania, Kenya faces the grim prospect of losing a minimum of Ksh15 billion in revenue.
In essence, the unfolding developments in East Africa pose a substantial threat to Kenya’s standing as a pivotal player in the regional oil trade. The shifting dynamics underscore the urgency for Kenya to recalibrate its diplomatic and economic strategies, navigating potential losses and fostering collaborative solutions within the East African region.
