By: DW

Nigerian billionaire and business tycoon Aliko Dangote last week confirmed the final location of his new oil refinery in East Africa: Lamu Island off the Kenyan coast.

The facility is set to change not only Kenya but the entire region, with a projected refinery output of 700,000 barrels per day. Once operational, the facility is expected to become Africa's second-largest refinery.

Oge Onubogu, a director and senior fellow at the Center for Strategic and International Studies in Washington, DC, told DW that "people on the ground [think] it's wonderful that this investment is coming into Kenya; just the potential about the jobs that could be created, not only for local Kenyan economies but more broadly for the region."

"It's a massive project, but one that is needed in many ways on the continent and in the East Africa region," she said.

Dangote Industries Limited has not yet announced the projected cost of the ambitious undertaking. However, according to Bloomberg, building the proposed refinery could run up a bill of up to $17 billion (€15 billion), making it one of the largest privately funded industrial projects in the region to date.

But what is in it for Dangote?

Negotiations still ongoing

Leo Kemboi, an economist at the Institute of Economic Affairs Kenya, highlights that little is known about the details of the agreement between the Kenyan government and Dangote.

"We've not had pronouncements by the government of Kenya on what specific guarantees would be given, but since we've seen the many meetings between [Kenyan President William] Ruto and Dangote, we know that certainly there are negotiations that are still ongoing," he told DW.

"That confirms that there are specific incentives that are up for discussion."

Dangote Industries intends to fund the project through a mix of internally generated revenue, bond issuances and proceeds from the planned initial public offering (IPO) of Dangote Petroleum Refinery, according to Reuters. However, Nigeria's Securities and Exchange Commission stated that it has neither received nor approved an IPO application, raising questions about the extent to which the financing process of the facility can be considered a done deal.

According to media reports, Dangote has said that any East African refinery project would require anti-dumping protections to prevent cheaper imported fuels from undercutting local refining operations. That is a prospect that Kemboi worries could backfire. 

"If too many [tax] incentives are given to Dangote, it will not be acceptable to any Kenyan, which has happened with many other investments [before]," he said.

"It's a Kenyan thing. We revolt, or we rebel, when people feel that either you are cheating, or you're cornering the market — anything that looks suspicious in Kenya is always something that will fail in the end."

Fossil fuels versus green energy

Geotechnical investigations are already well underway on Lamu Island despite such reservations, with media reports confirming that engineering and design work has also begun, and that construction is expected to take between three and five years, according to Reuters.

Africa's fuel crisis: Is Dangote the answer?

However, there are concerns about the impact that the massive project will have on Lamu, a UNESCO-protected World Heritage Site. Squaring the potential ecological impact of the refinery with environmental concerns seems to be a tightrope that authorities will have to walk in the coming years.

Kemboi believes that Kenya is well on its way to embracing greener and more sustainable technologies. He highlights that renewable power is indeed gaining traction, highlighting that "[i]f you look at Kenya's energy mix, 35% … is electricity, and over 90% of that electricity is green energy — the majority of which is produced from geothermal or hydro [resources]."

Onubogu is more hesitant, stressing that "[a]s they conduct the different feasibility studies, as they work to bring this refinery online, I hope that these considerations will feature in their conversations, based on lessons learned from elsewhere on the continent."

"In Nigeria, in the Niger Delta, years of exploration has actually resulted in damage to the environment. I think it will be some time before we see a total transformation from fossil fuels to other forms of energy," she explained.

African supply chains for African demand

"Obviously, there are people who will have environmental concerns, but on the economic side — given the size of the East African oil market — it's a good thing for the economy of the EAC (East African Community)," says Kemboi, who believes that Kenya is chiefly looking at the pragmatics of the investment coming in, at least for the time being.

However, there's more at stake than just the benefits for Kenya and its neighbors. Once completed, the refinery is expected to supply refined petroleum products not only to Kenya but well beyond the region, helping reduce East Africa's dependence on imported fuels amid intensifying geopolitical tensions.

According to Onubogu, it's high time that "African governments … think constructively and proactively about how to protect themselves from these types of shocks that very well may still occur in the future."

"A lot of African countries — or really the continent in general — has realized that things that happen on a global scale also impact the continent, like the war with Iran and the closure of the Strait of Hormuz, and how that impacted oil prices," Onubogu told DW.

The role of Ruto's reelection campaign

The project is perhaps also of personal importance to President Ruto, whose reelection campaign next year is expected to focus on what he can deliver to improve the East African nation's economy following several years of discontent, especially among Kenya's youth, over a lack of job opportunities.

According to Kemboi, there might even be political motives behind the project, saying that this is a "substantial investment that would change the coastal counties [in the region], which would be considered among the swing counties in the contest next year."

Onubogu, however, thinks that "it's still too early to think that this will sway the positions that people have."

"[Ruto's] popularity isn't necessarily what it was several years ago, when he first ran for office. His supporters love him; those who do not support some of the policies he has put in place, oppose him vehemently," she explained.

For Onubogu, the bottom line of the endeavor is primarily "seen as a win" — not only for Kenya, but for the region at large, not just in terms of economics.

"It's wonderful to see African-led investment happening on the continent, and one that is forward-looking due to the potential of what this could create not only for jobs but also for regional integration."