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Dec 05, 2008

Oil and gas should not be viewed as Africa’s curse, industry expert asserts

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Contrary to conventional wisdom, oil is not a curse for Africa. “Oil is a blessing for Africa,” argues Global Pacific & Partners chairperson and CEO, and oil industry specialist Dr Duncan Clarke.

“The reasons are that the oil industry has direct and indirect economic effects: it opens remote areas, and brings in foreign direct investment; it brings in technologies and companies; it creates employment; and it generates revenues for States.

It benefits countries’ balances of payments. It is the leading edge of investment into the continent. Oil is the locomotive pulling the continent forward – although it does occasionally stall. There has never been a proper analysis of the direct and indirect economic benefits oil and gas bring to Africa.”

He points out that, regarding crude oil, Africa is a continent of great promise and prospectivity. “The oil exploration industry has been active in Africa for over 100 years.”

Nor is it only foreign companies that are active in the African oil industry. “There are now 15 or so African countries which have indigenous independent oil companies,” he reports. “In fact, in Nigeria, the history of independent oil companies dates back 50 years. But the proliferation of such enterprises across the continent is new. It is a good sign. International companies need local partners.”

Then there are Africa’s State-owned oil companies. These, too, have proliferated in recent years. Twelve such companies have been created since the start of the twenty-first century, and today only 15 African countries do not have State-owned oil exploration and/or production companies. “The biggest African State-owned oil companies are in Algeria, Angola, Egypt, Libya and Nigeria,” says Clarke. “The rest, apart from South Africa’s PetroSA, are relatively small. In general, they are improving in quality and some are already world class.”

Of course, there are many non-African oil companies active across the continent. These include more than 50 major inde- pendents, about 25 “superindependents” and the top five “supermajors”, as well as a surprisingly large number of really big non-African State-owned companies. “In 2000, there were seven foreign State-owned oil companies in Africa,” he states.

“Today, 2008, there are about 30. Together, State-owned oil companies own 90% of the world’s oil reserves and represent a large and growing group. Non-African State-owned oil companies are much more dominant in African upstream exploration and production than are African State-owned companies outside their home bases.”

Oil exploration activities are running at high levels across the continent. Some 500 oil juniors are active in Africa, includ- ing local companies – Egyptians, Nigerians and South Africans, besides many others. Clarke estimates that this year will see 470 exploration wells drilled across the continent, in comparison with 170 in 2000 and an average of 280 from 1987 to 1997.

“There remains quite considerable unexploited potential in Africa,” he highlights. The continent now accounts for 13% of world oil output and 9% of global oil reserves – and the continent’s reserves are increasing. And there is also natural gas as well.

Some African countries have more gas than oil. Further, Africa is a much easier place to work than the far north (Siberia, Alaska, northern Canada) or the deep ocean. “Africa is now the world’s number one energy capital expenditure destination.”

All this is a blessing, because Africa is a continent of considerable underdevelopment and great poverty. Some 70% of Africans still live in subsistence economies, and about 50% live on less than a dollar a day. Africa accounts for only 4% of the world’s electricity, and 75% of this is found in just three countries – Egypt, Nigeria and South Africa.

It is forecast by the United Nations that Africa’s population will reach two-billion by 2050, of whom 50% will dwell in urban areas, and 70% of these urbanites will live in shanties. “Poverty in Africa needs to be solved by high, sustained, secular rates of economic growth,” highlights Clarke.

The oil and gas industry can play a key role in achieving this, although “oil alone cannot save Africa”. “This depends on government, sociopolitical and other factors.” Thus, in 1884, Africa was divided into some 10 000 political entities (polities); today, officially, it is composed of 54 states, but, he says, “I can identify about 70 polities” in contemporary Africa. For example, Somalia is officially one country but, in practice, is divided into three or four distinctive polities, including Puntland and Somaliland.

Development needs peace, but many African countries are under pressure, usually from domestic political crises, including separatist movements. “There has been a relationship between conflict and oil, but it is not a unicausal one, nor a necessary one,” he points out. “Some oil countries have no conflict, and some countries in conflict have no oil.” •

(Duncan Clarke is the author of The Battle for Barrels and Empires of Oil; his latest book, Crude Con-tinent: The Struggle for Africa’s Oil Prize, was published in October.)

Edited by: Martin Zhuwakinyu
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