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As Stability Returns, Somalia Moves Toward Becoming Major Oil Producer

Plans will be announced in December when the new Petroleum Law, currently before the Senate, will have been passed into law.

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Somalia will launch its first-ever crude oil licensing round, with details about it to be announced in December, according to the country’s Minister of Oil.

Plans will be announced in December when the new Petroleum Law, currently before the Senate, will have been passed into law.

“We are presenting up to 15 blocks,” Abdirashid Mohamed Ahmed said, adding that the results from seismic research conducted at these blocks was promising, suggesting they could hold as much as 30 billion barrels of crude.

The minister spoke at Africa Oil Week in Cape Town where he announced first round of bidding on offshore acreage blocks, mainly in southern Somalia.

Abdirashid made a point of noting all 15 blocks were far from the maritime border with Kenya, which is currently the object of a dispute between the two east Africa neighbours.

Kenya and Somalia are engaged in a diplomatic row after Nairobi accused Mogadishu of auctioning part of its oil blocks in the Indian Ocean to international companies at a London event in February.

This prompted Nairobi to recall its ambassador in Mogadishu and ordered the Somali ambassador in Nairobi to leave.

Somalia denied Kenya’s accusation, saying it was presenting the results of seismic surveys and showcased possible locations in the country where oil reserves can be extracted in the future.

In 2014, Somalia sued Kenya at the International Court of Justice (ICJ), requesting the boundary be drawn to reflect a diagonal line in its favour.

The Somali government said it will tender several offshore oil and gas blocks later this year despite criticism from the opposition that the tender should wait until the country gets a law and regulations governing the use of the country’s natural resources.

The tender has been postponed for 2020, but the potential reserves it would open up access to have been increased substantially.

Somalia has attractive oil and gas prospects, survey results suggesting the Horn of Africa nation could be sitting on 100 billion barrels which could make it one of the world’s major oil producers.

After recent improvements in security that saw al-Shabab lose control of major towns and a decline in piracy off the coast of Somalia, the government saw an opportunity to start exploration activities.

Aviation

Silverstone Air Needs a Complete Overhaul to Stay Afloat

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By Mohamed Abdullahi

A slight plane mishap and social media ignites with commentators casting the all familiar harbinger that all is not well with Silverstone Air. If you have gone through the comments on social media, a trajectory of disgruntled or bankrolled individuals emerged. Let us have a look at the aviation industry.

The aviation industry plays a critical role in Kenya’s development agenda. The industry catalyzes other sectors such as tourism, manufacturing, horticulture and the hotel industries, which contribute billions of shillings to Kenya’s economy and also offers thousands of jobs.

In 2016, for example, the aviation industry contributed Ksh58.9 billion to the economy, which represents 1.1 per cent of GDP. In addition, more than 620,000 jobs were created directly and indirectly within the industry and other associated sectors. The industry is expected to achieve annual growth of five percent by 2030.

Air travel was considered a preserve for the rich but since the launch of the low-cost carriers (LCC) in the country, this notion has changed. Low cost carriers control an estimated 25 per cent of the global aviation market, according to the International Air Transport Association (IATA).

The rise of low cost carriers in Kenya has revolutionised travel, brought affordable air transport within economic reach of a large part of the Kenya population and the market for air travel has massively expanded. This is largely because these LCCs operate a model that features low fares and an online booking all which keep costs lower than the traditional airlines.

According to a World Bank Group book, “Ready for Takeoff?” the LCC model could help catalyse air transport in the world’s less developed countries especially in Sub-Saharan Africa.

Silverstone Air operates in a LCC industry that has grown over the last 10 yrs. The company has operated routes including Nairobi-Mombasa considered the industry’s gem thus jostling for space in a market dominated by large companies including Jambo jet and Fly 540.

So what kind of market structure is the company operating in? There is need for some economics 101 here.

The market model here is a perfectly competitive. This indicated by easy exit and entry of players, consumers have enough information, the products are near homogeneous , rational buyers and consumers considered to be price takers.

To put the many economics jargon to simple context, the market is open and has little regulation from the government, especially on marketing and prices.

However, general regulations including safety, standards and industry policies are regulated by the Kenya Civil Aviation Authority (KCAA).

The speed with which the mishap generated furore in social media with notable commentators calling for scrutiny into likely machinations and schemes in this highly fluid sector.

The company operates in a market initially dominated by large carriers notably Jambo Jet, Fly 540 and some routes KQ also jostles for space here. The Kisumu, Western and Coast destinations are prime and therefore cut throat competition for customers.

The large carriers aided by experience in the industry and financial muscle accords them a ‘heavy weight’ status in a ring where featherweight opponents also huddle for a space.

The heavyweights, in this case, large low cost carriers have used their comparative advantage to transform the market into ” a near monopoly status ” thus enjoying what economist call ‘abnormal profits ‘.

This abnormal profits even though plummets later, attracts featherweights such as Silverstone, Safarilink, Air kenya, among others into the ring that is the airline industry.

What happened then is a situation where the abnormal profits are devoured by many players each scrounging away a juicy morsel. The new entrants have ‘eaten into’ profits of the large carriers who begin feeling immediate short term effects in terms of reduced customers and zero profits in some of their routes.

The nature of competition in this industry attracts all groups such as bloggers, commentators, saboteurs and generally hostile rubble rousers who would set off a fire alarm where a small glittering spark is located.

For Silverstone, there is need to;

●Institute internal investigation on recent cases of mechanical and structural mishaps
●invest more in crisis communication to counter narratives likely peddled by competitors.
●Ensure to invest in capacity-building for management to deal with industry dynamics and volatility.
●The airline should strive towards achieving international standards on safety and professionalism

For the regulator KCAA, there is need for impartial investigation on the series of mishaps and near misses for a company that has relatively new fleets in the industry.

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Business and Finance

How Uber and Taxify Push Kenyan Drivers to Poverty

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Nairobi, East Africa’s largest city and financial hub, is famous for its nightmare traffic, chaotic public transport system, and badly maintained roads. Getting to work in Nairobi is a daily ordeal.

Nairobi’s middle class have abandoned the chaotic public transport for uber-like transportation. Thousands of Uber and Taxify (now Bolt) drivers have been moving Nairobi residents to their destinations for years. In recent months, drivers have been protesting against poor working conditions and poor pay. However, no one is coming to their aid. The government is not listening, and seems it does not care. During one recent protest at Uhuru Park in central Nairobi, drivers were dispersed, 80 of them arrested, and their cars confiscated.

“Those drivers had to pay 50,000 shillings to get their cars back,” Mike Mwangi says.

One reason drivers took an industrial action was to force negotiations with Uber and   Taxify, Kenya’s two biggest ride-hailing firms because of low pay rate. When Uber and Taxify first launched in Kenya, they paid their drivers generously; some were making as much as 100,000 shillings, a fortune to many. However, in the past one or two years, pay has been cut drastically, and rising of fuel prices have made things worse.

“It is because of our government we are suffering,” says Mwangi, who has been driving for both Uber and Taxify in the last two years. He says his earnings have fallen by a half and after paying for fuel and other expenses. He says he gets around 80 shillings in a trip that his client paid 500 shillings.

For example, one of President Uhuru Kenyatta’s sons has invested in ride-hailing apps. He owns fleet of cars operating under Uber and Taxify. Uber loans these cars to drivers at around 1.2m shillings while they may have been purchased at around half a million shillings. Businessman Chris Kirubi, former Nairobi government among others political and business leaders also have unspecified number of cars in the ride-hailing business.

While politicians and other businesspeople continue to make money out of these apps, drivers remain trapped in loans. They cannot stop driving even if they want to because they have to repay their loans.

Rates per kilometres have dropped from 65 shillings to 37 and now stand at 27. Mwangi says the government does not want to regulate the ride-hailing companies and force a higher minimum wage. He says some government officials invested in these companies, and others have their cars driven in these platforms.

Drivers are bearing the brunt of price cuts. Mwangi says he is stuck in traffic for more than two hours, wasting fuel and time, and he does not get extra money for that.

“We cannot afford to eat at proper restaurants; we eat at kipandes. We take a chapatti and a cup of tea or a few slices of bread. That is what we can afford,” David Onyango, who drives for Taxify, says. Kipandes are informal restaurants mainly operated by women on the roadsides.

“That’s how we survive, but people see us in these cars thinking we are doing fine. These apps benefit the riders.”

The Kenyan drivers lack strong unions to fight for their rights.

Driving for Uber in other parts of the world is not as in Kenya. While Kenyan drivers suffer, their counterparts in the developed world earn decently.

For example, the typical American Uber driver earns $16 (1,000 shillings) an hour ($10 dollars after expenses), higher than the federal minimum wage. In London, Uber drivers earn $14 dollars per hour.

A recent survey also shows Uber drivers reporting higher level of life satisfaction than other workers do.

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Business and Finance

World Bank endorses Somalia’s steady economic recovery

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The World Bank has backed Somalia’s economy to grow above expectations for the next three-to-five years, if the country can sustain its current economic reform momentum.

The Horn of Africa country has been in turmoil since 1991, when clan warlords overthrew President Siad Barre and then turned on each other. Over the past decade it has been hit by famine and sporadic terror attacks by al Qaeda-linked militant group al Shabaab.

Several indicators over the last 12 months have demonstrated that Somalia is well on its way to recovery from the years of turmoil and economic distress.

Somalia on the rise
Tax collection by the government increased by 29% last year, as the economy recovered from a drought the previous year and the government changes its tax policies, the World Bank said.

The Washington based lender, in September last year, approved the first loanto Somalia in 30 years, $80 million to fund public finance reforms.

In May this year, the International Monetary Fund said Somalia’s economy was on the right track but warned that it was still vulnerable to fragile security, climate change and poverty.

In November last year, continent aviation powerhouse, Ethiopian Airlines made its first landing in the Somali capital Mogadishu after 40 years absence.

“Our flights will quickly grow to multiple daily flights given the huge volume of traffic between the two sisterly countries and the significant traffic between Somalia and the rest of the world,” Tewolde GebreMariam, Ethiopian Airlines’ chief executive, said in a statement.

Source: Africanews

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