Kenya: Lamu - Back To The Future - African Business Magazine
Kenya: Lamu – Back To The Future

Kenya: Lamu – Back To The Future

Lamu, on Kenya’s northern coastline, is now a tourist idyll and a UNESCO World Heritage Site, but five centuries ago, it was a crucial international commercial hub before it gradually lost its status. All this could be about to change as the island shakes off the dust of history and prepares to resume its old role once again.

Kenya’s current economic set-up, Lamu is more of an idyllic tourist getaway island, well known for its status as a World Heritage site, thanks for its preservation of Swahili history over the centuries. Small wonder that, when a French tourist was abducted in 2011 and a British honeymooner killed, the island experienced a tourist slump for a while.

With a history dating to the 8th century and globally acknowledged as East Africa’s Islamic capital, complete with Islamic festivals such as the Maulidi (celebrating the Prophet’s birthday) observed every year, Lamu boasts a rich intercultural diversity in its history. The Omani Arabs, Portuguese, Germans and British have all flown their flags here at one time in history.

While they symbolised political domination, they essentially denoted economic control. In the 1500s, Lamu was a flourishing seaport connecting maritime trade routes of the Middle East, India and the Far East. Barter trade in timber, turtle shells, rhino horns, slaves and ivory in exchange for clothes and spices prospered due to the friendly northeasterly monsoon (kaskazi) and southeasterly monsoon (kusi) winds. It now seems that the events of five centuries ago are about to be replayed.

Lamu, 724 km from the capital Nairobi, on Kenya’s northern coastline, has been a tourist haven, thanks to its rich heritage and azure blue waters with long stretches of sandy beaches in Shela and Manda Island: lately it is taking on a new sheen.

“Somehow we all knew there was something special about Lamu in terms of natural resources and maritime species. We just didn’t know what it was. With the current excitement of a new port and interest amongst major oil companies in our island, I guess now we all know,” says Jaffar Shemanga, who has lived all his life on this island.

The excitement that is sweeping across Lamu is informed by events that may see Lamu re-emerge as a centre of commerce yet again. The $25bn Lamu Port-Southern Sudan-Ethiopia Transport (Lapsset) Corridor, capped by renewed interest by multinational oil giants in prospecting for oil in the Lamu basin and the steep rise in real estate value in the entire Lamu archipelago, are all contributing to creating a phoenix-like revival, turning Lamu into a regional economic hub. Palatial, high-end beach houses are springing up in Shela beach and Manda Island.

Asking prices for houses in the fashionable villages of Shela, Manda, Ras Kitau and Kipungani range from €100,000 to €500,000. Most are owned by wealthy Europeans, who keep them as holiday homes. Princess Caroline of Monaco and Prince Ernst of Hanover own several. Lamu’s quiet and unencumbered lifestyle of sailing dhows and donkeys for travel attracts both glitterati and backpackers.

Oil majors move in

Away from real estate is the quest for oil. So far, Kenya has no known oil reserves, but the interest generated by global petroleum multinationals is what is exciting Shemanga and other islanders.

French oil giant Total has already indicated that it will be acquiring a 30% stake in five oil exploration blocks in the Lamu basin through its local subsidiary Total E&P Kenya BV. The five are Blocks L5, L7, L11a, L11b and L12. Currently these blocks are operated by Anadarko Kenya Company, Cove Energy and Dynamic Global Advisors. In the new arrangement, Cove and Dynamic Global will each contribute a 5% stake and Anadarko will cede a 20% stake to Total E&P Kenya BV. In return for the 30% stake, the oil multinational will finance future prospecting and exploration works on the five blocks. On top of these, Total will buy Dynamic Global’s remaining 15% stake in the blocks. On completion, Cove will retain a 10% stake in the blocks, Total will control 40% and Anadarko, who will remain as the blocks’ operator, will have a 50% stake. In this new-found partnership Total and its partners will explore more than 30,500 sq km in water depths of between 100 metres and 3,000 metres.

Discoveries of oil in Uganda and gas in Tanzania and Mozambique seem to have had an impact in Kenya and motivated international prospectors.

“Recent discoveries in offshore Mozambique and Tanzania offer a very promising outlook for these Kenyan permits,” Marc Blaizot, Total’s senior vice-president in charge of exploration, says. “This transaction is part of a bold exploration strategy that consists in acquiring large stakes in high potential frontier plays.”

By the middle of this year, the Australian firm Pancontinental Oil & Gas will be completing 2D and 3D marine seismic surveys in Block L10a and L10b in the Lamu basin. Another heavy hitter in the oil business targeting Kenya is the UK-listed oil firm Tullow, which bought a 50% stake in Centric Energy’s Block 10BA in northwestern Kenya in February 2011. Tullow Kenya BV paid $9.3m, increasing its prospecting blocks to five in Kenya alone. Tullow which has already started drilling and conducting seismic tests has another 50% stake in Blocks 10BB and 10A in a deal with the Canadian firm Africa Oil. The combined Blocks of 10BA, 10BB, 10A, 12A and 13T measuring 67,000 sq km are all under Tullow.

Tullow and Total are not the only oil companies interested in Kenya’s oil. Brazil’s Petrobras is also among the top oil firms set to benefit when the Kenya government opens its next round of prospecting licences awards in the first quarter of 2012.    

According to the commissioner of petroleum, Martin Heya, in 2012 the Kenya Ministry of Energy will reallocate blocks that have been relinquished by previous prospectors.

“We are working with the Survey of Kenya to speed up the process of reallocating blocks that have been relinquished by previous prospectors,” Heya says. “We are creating new blocks for big oil firms with the financial muscle and technical capability to prospect.”

A key factor in the rising real estate costs and quest for oil is the much-talked-about Lapsset. Lapsset is a flagship project in the Kenya Vision 2030 programme and the key government development initiative aimed at transforming Kenya into an industrialised nation by 2030. Visualised in the Lapsset designs that are already in the public domain is a 32-berth modern port at Lamu, an oil refinery and an oil pipeline.

Progress with rights

“We are happy our island is experiencing economic revival and we would wish that both the government and the private sector players consider our lifestyles even as they implement all these development projects,” says Lamu resident, retired teacher Ali Baddi. “The race for profits should not mean suffocation of indigenous rights and voices. Progress can be achieved and minority rights upheld at the same time,” he suggests.

Other development projects in Lapsset include a standard-gauge railway line to Juba in Southern Sudan with a branch line to Ethiopia, a superhighway connecting to Ethiopia and South Sudan and the construction of an international airport in Lamu. According to Peter Oremo, the Lamu Port project manager, by the year 2030 the volume of traffic using the Lamu Port is projected to reach 24m tonnes annually. Using a three-phase construction model, dredging, the construction of the first three berths, administration blocks, storage yard and warehouses are expected to be completed by 2015 at a cost of $664m. Presently, Lamu’s population stands at 100,000, according to Oremo. This figure is expected to reach 250,000 in 2020 and 500,000 in the year 2030. To secure the gains of Lamu and curtail terrorism and piracy threats, the Kenya government, with the support of the US and EU, now maintains a naval base on the island complete with 24-hour patrol boats.

These governmental projections, backed by action on the ground and the interplay of private sector to direct investments to the island, are no doubt restocking the embers of the commercial fire that first gave Lamu its cosmopolitan economic status. Several factors have come together to restore the five-centuries-old port city into an international economic capital.

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Written by African Business Magazine

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