federalism-of-oil-exploration-in-kenyaTensions between Kenyan local authorities and its central government over oil and mining exploration taxes could lead to instability for potential investors in Kenyan mining and oil futures – and for the Kenyan government itself. Several counties along Kenya’s coast are proposing exploration taxes to generate revenue for infrastructure projects, improved services, and job creation. A bill has been presented for vote next week that would increase charges for land use and new permits to companies operating in these areas. If the legislation is passed by the local assemblies, it will challenge the central government’s authority – and make exploration in Kenya less economically appealing, which is a concern.

Kenya’s minister of mining, Najib Balala, said “taxation of the mining sector was a function of the central government” and “mining is a function of the national government and the constitution is very clear on this.” In response to the local legislation, Balala has introduced a new mining bill in the national parliament, which would increase royalties for the state. If the central government prevails, local counties would not receive direct benefits from oil or mineral sales, which could lead to increased animosity by local counties and their constituents against companies operating in these counties.

History has demonstrated, when a local community is negatively impacted or does not receive benefits from extraction of natural resources, protests, litigation, and violence often follow. Investors interested in Kenya’s natural resources should be aware of potential community-bases risks and plan accordingly.