By NJ Ayuk
Published December 4, 2020
African countries, through foreign investments and partnerships, are strategically harnessing their oil and gas resources to make sustainable improvements for their people, bolstering economic growth and addressing the need for widespread access to electricity.
African Energy Chamber, that I chair, has created a Regulatory Affairs Committee with the goal of making African countries more competitive for global investments. It’s why we developed common-sense guidelines for maintaining international oil company (IOC) production activity in Africa during the pandemic. It’s why, in August, we Co-hosted the “Germany-Africa Economic Relations: Making Deals Post COVID-19,” webinar with CNN’s Eleni Giokos to mobilize more German investment into the African energy sector. Investments are key to Africa’s economic growth. They can result in valuable technology transfers among countries. They help us battle energy poverty, and they result in projects that lead to local revenue, jobs, training opportunities, and entrepreneurship.
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We address the value of investment activity in our upcoming 2021 Africa Energy Outlook. “Investments are required to convert resources in the ground to revenue and value,” the report says. “The investments represent jobs and business for a plethora of oil field service providers and is therefore an important metric to the wider activity level around the oil and gas industry.”
While the report describes widespread declines in capital expenditures in the continent’s oil and gas industry, it notes that they are taking place, primarily, because of COVID-19. An investment rebound is possible after the pandemic, the report says, if oil prices exceed current expectations.
While there is little we can do to influence oil prices, there are tangible steps that African countries can, and should, be taking to increase the chances of much-needed investment dollars going into their energy projects. These include working toward increased government transparency, passing legislation that protects the sanctity of contracts, and implementing more competitive fiscal regimes. We need to be working on these measures now. This is how we will make a lasting difference in Africa. This is how we will empower people to develop the necessary skills to land well-paying jobs. This is how we will promote stability.
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One area where investors can have a tremendous impact is the battle against energy poverty. The need is acute. Currently, about 595 million people in sub-Saharan Africa, 55% of the region’s population, are without access to electricity. World Bank Vice President Rachel Kyte summed up the problem effectively when she said, access to energy is fundamental in the struggle against poverty. “It is energy that lights the lamp that lets you do your homework, that keeps the heat on in a hospital, that lights the small businesses where most people work,” she said. “Without energy, there is no economic growth, there is no dynamism, and there is no opportunity.”
Instead of flaring gas or exporting all of it, African countries should be using it to diversify their economies and establish new revenue streams, from petrochemical and fertilizer manufacturing to liquified natural gas (LNG) plants. Partnering with foreign investors, more African countries could build midstream and downstream infrastructure, from pipelines and ports to refineries. Each of those projects, in turn, would generate more revenue and open the door to even greater diversification efforts. Investors would have an important role in this process. Not only could they partner with countries on infrastructure development, but by investing in capacity building and local content, they could enable individuals and businesses to qualify for the job and contract opportunities that result. This will create monetization that truly benefits local economies.
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Not only does the continent need ongoing foreign investment, it also needs the technical knowledge and expertise that the international business community can provide. Knowledge transfers empower local companies – including oil and gas industry suppliers, service companies, and indigenous oil and gas companies – to cultivate the skills and technologies necessary to thrive in a continuously evolving industry.
What’s more, knowledge sharing plays a valuable role in eliminating the need for foreign assistance. We realize that, with the COVID-19 pandemic wreaking havoc upon African economies, there has been more talk of aid packages to meet basic needs. And while donations and aid are appreciated and valuable during crises like the one we’re experiencing now, they can do nothing but serve as a temporary emergency safety net. Rather than doing things “to help Africans,” I’d like to see more foreign governments and companies partner with African countries to make sustainable changes for the better. Equipping African countries to thrive is a highly effective way to do that. Knowledge transfers contribute to stronger economies, increased entrepreneurial activity, and job creation.
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So how do we foster more investment, both now and after the pandemic? As I’ve said, African countries must work to create an enabling environment.
To make doing business easy with their countries, government leaders should be looking at their tax frameworks so investors can be sure their hard work will yield fair dividends. They should be looking for ways to eliminate red tape, implement better fiscal regimes, and ensure transparency. And while countries should have local content policies in place to benefit individuals in businesses, they should put effort into creating policies that are fair, not burdensome, to IOCs. What’s more, governments must enact legislation that ensures the sanctity of contracts so investors know their agreements will be respected.
Along with these efforts, oil and gas project developers and owners have their own role to play in drawing investors. It has become increasingly important for oil and gas projects to adopt strong environmental, social, and governance (ESG) standards. While these will vary by project, examples could include carbon emissions reduction and operational energy efficiency in the area of environment. Social standards could include health and safety measures and relationships with local suppliers and service companies. Examples of governance policies could include leadership diversity and reporting transparency. Investors are considering ESG, and project developers must do the same.
Foreign investment opportunities will play an important role in supporting economic growth and eliminating energy poverty in Africa for years to come. That’s why the African Energy Chamber will continue to work to help African countries make themselves more attractive to investors and to make potential investors aware of the many opportunities Africa offers them. It’s worth a different kind of investment on our parts as Africans, investments in time and effort.
NJ Ayuk is Executive Chairman of African Energy Chamber