Old issues deter new investment in African oil and gas
Africa’s proven oil and gas reserves account for 7.5% and 7.1% of global reserves, respectively. But the challenges for investors in Africa’s oil and gas sector are myriad
While the recovery in commodity prices has drawn some investors back to the continent, policy uncertainty, a lack of infrastructure and corruption remain a deterrent to investment in the oil and gas sector, according to a report by Deloitte.
Africa’s proven oil and gas reserves account for 7.5% and 7.1% of global reserves, respectively. But the challenges for investors in Africa’s oil and gas sector are myriad.
Because the capital investment often comes from abroad, regulatory uncertainty or overly complex regulation has deterred investment, Deloitte’s research however acknowledged the flux in the regulatory and policy environment is often motivated by national governments’ attempts to try to balance the economic value derived from the oil and gas industry with social needs — and so will remain a reality of doing business on the continent.
Another challenge is corruption, which continues to have a detrimental effect on investment in Africa. Not only does it make the process of building and investing in projects more troublesome and lengthy, it also poses a risk for international companies which are under closer scrutiny than ever before and are, increasingly, being held liable for corrupt practices, Deloitte said.
African nations will struggle to be cost competitive. Though the oil price has picked up during 2018, producers are still focusing their investment on projects with lower capital, operational and regulatory costs, lower risk and higher returns.
This affects projects in Africa particularly where infrastructure constraints (and political risks) are relatively high.
Andrew Lane, Deloitte’s Africa energy, resources and industrials leader, said though these risks are not new to the continent, they continue to hinder investment flows into Africa’s oil and gas sector.
However, the continent holds great opportunity, he said. “Consumer spending on the continent is increasingly rapidly, the standard of living is growing, and it has a relatively young population … and it’s under-penetrated in terms of energy.”
Lane said he saw the most potential in a place like Mozambique, which holds Sub-Saharan Africa’s largest gas resources and is considered to have a fairly attractive regulatory environment for investors.