Much of the recent economic growth enjoyed by large parts of the African continent has been a direct result of the positive momentum achieved in oil and gas production. The fact that this momentum has been driven by existing producers like Nigeria, Angola, Algeria as well as investment in new producing countries like Ghana, Mozambique, Tanzania, Uganda and Kenya, augurs very well for the future of oil and gas in Africa and for the potential for economic growth overall on the continent.
Although Africa has, over the last decade, controlled less than 8% of the proven oil and gas reserves globally independent oil companies have opened up new oil basins in Ghana, the West Africa Atlantic margin, Uganda, Kenya and the Rovuma basin between Mozambique and Tanzania. As a result of being able to access these additional reserves, Africa delivered over 10% of global oil production and 6% of global gas production in 2013, with exports of both commodities in that year valued at a very significant US$264bn.
Of course, the relevance of this recent increase in oil and gas production goes far beyond the export income it generates. For many of Africa’s key producing countries, such as Angola and Gabon, oil and gas production represents more than 40% of total gross domestic products, making this sector a vital foundation on which the economic, infrastructure and social fabric of these countries is built.
The challenge, however, is that an oil and gas production windfall does not automatically translate into sustainable socio-economic benefits or growth for Africa. The onus is now on the producing countries to ensure that they find ways of overcoming the many challenges that still stand in the way of rising production figures delivering sustainable development for all. These challenges include, but are certainly not limited to, the restricted broad-based employment opportunities that oil and gas production offer, the highly capital intensive nature of oil and gas developments, and the difficulties so often experienced in terms of ensuring that the focus is not so absolutely on the extraction and production activities but rather delivering benefits to related industries and the wider economy.
Successfully addressing these challenges is obviously not an easy undertaking. It requires a highly collaborative approach by the public and private sector stakeholders in the continent’s oil and gas industries, as well as a commitment by these stakeholders to finding real ways of delivering sustainable benefits to Africa and all its people.
While governments of most African countries have stringent local content requirements in place, adhering to these in a skills-intensive industry like oil and gas production is often problematic. The irony is that most global organisations operating in Africa would prefer to be able to employ local people in key positions as this is far less costly than having to import the necessary skills. However, developing the necessary local skills requires a long-term approach, and needs to be driven via effective collaboration in terms of focused education and training programmes between government and business.
The oil and gas industry also has the potential to indirectly create unskilled employment opportunities, but these typically require investment into the development of supporting industries, as it’s there that most of the unskilled jobs become available. This again requires a collaborative approach in which governments need to be willing to incentivise and financially support the development of these support businesses by global oil and gas companies, particularly in the early, cost-intensive stages before they become self-sufficient and profitable.
Transparency is another key requirement for the sustainable widespread delivery of the socio-economic benefits of oil and gas production activities in Africa. The establishment of the international, multi-stakeholder Extractive Industries Transparency Initiative (EITI) in 2002 was undoubtedly a step in the right direction in this regard. However, while the EITI – which provides a clear set of transparency compliance requirements for governments and corporations in extractive industries – has helped to encourage some of the oil and gas businesses operating in Africa to raise their levels of activity and revenue disclosure, unless these requirements are uniformly applied and policed, preferably by African governments themselves, sub-optimal financial transparency will continue to hamstring the funding and delivery of social benefits and services to all stakeholders.
While these are significant challenges, they can most certainly be overcome through a combination of real commitment by all parties, sensible regulation and appropriate partnerships between the oil companies and African governments. Although the road to helping unlock Africa’s full social and economic development potential may be a long one, it’s a journey that every stakeholder in the continent’s oil and gas industry must commit to making; not just because it is their moral responsibility, but also because it is absolutely imperative for the sustainability of the oil and gas industry as a whole in Africa and, consequently, the long-term viability of their business interests on the continent.
David Pilling is head of oil & gas finance for Nedbank Capital