Investors Monthly: July 25 – August 28 2012

Drilling begins on Kenya’s first deepwater oil well next month with high levels of expectation: seismic data and oil slicks in the area indicate it could strike a resource as big as 700-million barrels, valued at twice Kenya’s annual GDP.

Bloomberg reports that the oil companies involved, led by US-based Apache Corporation and Tullow Oil of the UK, may follow up with another well, in the same Lamu basin, which could hold 500-million barrels. The basin is estimated to hold as much as 5-billion barrels.

This follows the discovery of oil on the Kenyan mainland by Tullow Oil in March. Tullow believes Kenya has the potential to exceed Uganda, whose oil resource is estimated at 2,5-billion barrels.

It will be a much-needed boon for Kenya, whose economy is only now beginning to rebound from a torrid 2011 in which soaring energy costs sent annual inflation sky-rocketing, hitting 19,7% in November from only 4,1% in 2010. The currency depreciated markedly and poor rainfalls affected food production.

This year food inflation in particular has been declining, and subdued domestic demand helped year-on-year headline inflation fall to 10,05% in June from 12,2% in May. This swayed the Central Bank of Kenya to cut the central bank rate by 150 basis points to 16,5% earlier this month, surprising the markets which had expected a cut of 100 basis points.

The World Bank last month revised its GDP growth forecast for the country to 5% for 2012 and 2013 from 4,4% last year, though it warned that growth would slow significantly should global financial and political risks materialise.There is some nervousness over Kenya’s scheduled elections next year, the first since the violence-marred 2007 polls.

Investors Monthly: June 27 – July 24 2012

Investor’s Monthly is a Free Insert in Business Day. It is published on the last Wednesday of every month.