The Dangote-fronted refinery in Lamu, Kenya, is expected to reverse the declining fortunes of the local manufacturing sector. The sector has been on a decline for over a decade, with its contribution to the Gross Domestic Product (GDP) standing at 7.1 per cent last year, down from about 12 per cent a decade ago. The refinery will produce petroleum products and materials used in the manufacture of plastics and rubbers. According to David Ndii, President Ruto's economic advisor, the project could contribute as much as five per cent to the GDP.
The refinery's impact on the manufacturing sector is expected to be significant, with projections showing that it could increase the sector's contribution to GDP to 12 per cent. Ndii stated that the refinery alone will contribute three per cent of GDP, increasing the sector's contribution to GDP to 10 per cent. The petrochemical industry's multiplier effect is expected to add another two percentage points, further boosting the sector's contribution to GDP.
The construction phase of the project is expected to create about 60,000 jobs, with the people engaged in the project earning a combined Sh2 billion a month. A substantial chunk of this amount will be spent in the Lamu economy, which is largely driven by tourism and fishing. The recent launch of the Lamu port has resulted in transport and storage emerging as key economic sectors.
The refinery is expected to have a significant impact on Lamu County's economy, moving it from being among the poorest counties in the country to being among the counties with the biggest GDPs. Ndii stated that the county's economy, currently valued at Sh50 billion a year, will move to fifth position by the time the refinery is finished. With the multiplier effect, Lamu is expected to become the fourth largest county economy in the country in less than a decade.
Despite concerns that the refinery will import most of the oil it will refine, Ndii argued that the project is economically viable and offers significant benefits, including lower prices at the pump and foreign exchange. The refinery will largely be financed by the Dangote Group, which will have a 70 per cent stake, while the balance is expected to be held by the governments in the region.
Kenya is expected to have a 10 per cent stake in the project and will invest Sh64.7 billion in the refinery. Ndii touted the investment as an instance of getting African solutions to challenges that the continent faces, adding that it is unlikely that the project would have moved ahead with funding from lenders and companies from developed countries.
The investment in the refinery is about $16 billion, with Ndii stating that it makes economic sense even if crude is brought from the rest of the world and added value for the regional market. The project is expected to reduce the region's reliance on imported refined petroleum products, which currently costs about $10 billion annually.
Key points
- The refinery is expected to increase the manufacturing sector's contribution to GDP to 12 per cent.
- The project will create about 60,000 jobs during the construction phase.
- The refinery will largely be financed by the Dangote Group, which will have a 70 per cent stake.
