CHALLENGES IN SAHARA
Significantly lower crude oil prices have reduced foreign companies' interest in developing oil and gas resources in sub-Saharan Africa nations, speakers at a Woodrow Wilson Center for International Studies seminar agreed. Lower prices also could give governments some time to develop better frameworks so economic and social benefits reach their countries' general populations, they added.
"Africa is resource-rich. Fiscal and financial transparency is the link to development that can help a country escape the resource curse," observed Charles McPherson, a former senior advisor at the World Bank and International Monetary Fund who now is an international consultant on petroleum and minerals policies and taxation.
McPherson said many African nations already participate in the Extractive Industries Transparency Initiative (EITI), and several more are candidate countries. "But the difference between outputs and outcomes could be troublesome," he said. "Numbers can be nice, but if there are no schools and garbage still lies in the road, outcomes aren't good."
Governments will need to improve resource licensing processes and terms, ensure that contracts are fully open, develop effective sovereign growth funds that are not politically influenced, and attack corruption in their national oil companies (NOCs), McPherson said. "Watch the [NOCs]," he said. "There's little transparency there. They're the real Achilles heel in all this."
Indigenous independents emerge
Phillip van Niekerk, managing director of Calabar Consulting and former editor of South Africa's Mail & Guardian newspaper, said the crude price plunge could be a wake-up call to resource-rich African nations that expected a sudden bonanza while providing some economic relief to energy-consuming countries. "If anything, this reality check has been positive in that sense because it's forcing countries to focus on other sectors," he said.
"One of the biggest structural changes to the African economy has been the emergence of small Nigerian producers who are rounding up capital and starting to challenge the Chinese as the biggest onshore players there," van Niekerk said. "Majors like Shell and ConocoPhillips are moving offshore. Some indigenous companies, unfortunately, bought their assets when prices were high. There could be a lot of changes and mergers, particularly with companies which aggressively got into exploration."
Sub-Saharan Africa's energy outlook is still good, maintained David L. Goldwyn, president of Goldwyn Global Strategies LLC and former international energy security coordinator at the US Department of State. Financial transparency is generally improving, but social and economic benefits still need to reach more people, he said.
"The question now is whether what we've learned will make life different so Africa's new energy producing countries can do better," Goldwyn said. He said countries there face three main problems:
- Lower crude prices mean African nations are chasing fewer foreign energy dollars. "They have to have competitive rates of return and overcome challenges of security because they're being compared to the Gulf of Mexico and other areas," he said.
- African independents clearly have emerged onshore to produce hydrocarbons foreign multinationals have missed. "The problem is that these new companies are shorter-term investors," he said.
- How companies share value in companies where they invest increasingly matters. "They need to do things early on such as building out telecom and providing some natural gas for local use," he said. "That means they need to spend early when they're not making that much. Bigger companies were starting to do this a year ago. It's not happening as much now."
More African countries need to create sustainable bargains by not making projects uneconomic in their early phases or foreign companies will walk away, he warned.
Governments should build better processes with the necessary regulators and systems before major revenue begins to flow, make transparency a priority with help from outside investors and governments, and consider frameworks for when discoveries come to fruition so structures can be built for smaller associated investments such as fertilizer plants from gas development, Goldwyn said.
"Resource-rich countries can do more than simply defer projects when prices fall," he said. "They can adapt, such as Mexico which is continuing its reforms. It's important to not abandon this early capacity-building because prices are low."
Open contracts are essential
McPherson said he considers it essential for more African countries to continue working to make contracts open. "This reduces corruption risk and shows whether countries are paying what they should," he said. Countries such as Ghana and Liberia have committed to this, while Mozambique now has started to publish contracts, making the direction of movement positive, he added.
Van Niekerk said, "Oil is not solved government-to-government because it's a fungible commodity. There's no indication that Nigerian oil isn't finding a market. But America's not buying Nigerian oil frees it to develop a more honest relationship with the government there."
Goldwyn said US interests in Nigeria go beyond hydrocarbons. "The fact we don't import as much oil gives us a freer hand. It also opens the door to other players, although the transition to domestic players onshore gives us less traction," van Niekerk said.
But the country has to import petroleum products despite its being one of the world's biggest producers, speakers said. "Nigeria's refineries are a major disgrace," McPherson said. "Big men have been given the incentive to make sure they don't work because they hold product import contracts."
A fourth speaker, Michele M. Rivard, the US African Development Foundation's chief of staff, who spoke largely about electricity, said, "We see risks and opportunities. In Kenya in Turkana, there are a half million people where there hasn't been a lot of development. Now, there's a lot of gold and oil. Will the people there be able to benefit?"
The populace can benefit from business capacity, particularly the basic small business building blocks that need to feed into networks using technologies to benefit local residents, Rivard said. But access to capital is a challenge, she said. "Within the commercial banks, there's not an appetite for this kind of risk."
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AN - China National Offshore Oil Corp. (CNOOC) is willing to invest $3 billion in its existing oil and gas operation in Nigeria, the Nigerian National Petroleum Corporation (NNPC) said on Sunday following a meeting with the Chinese in Abuja.
REUTERS - Production at Libya’s giant Sharara oil field was expected to fall by at least 160,000 barrels per day (bpd) on Saturday after two staff were abducted in an attack by an unknown group, the National Oil Corporation (NOC) said.
IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.