• Saturday, April 20, 2024
businessday logo


Investors see green light in smaller African countries as oil investment dries up in Nigeria

oil investment

When it comes to investment in the oil and gas sector, Africa’s biggest oil-producing country is losing a decisive battle to smaller oil-producing countries. The latest is Equatorial Guinea, which is expecting at least $1.4 billion from foreign investments.

Equatorial Guinea’s bumper harvest of Foreign Direct Investment (FDI) is coming at a time Nigeria is stuck in the wilderness, with aggregate FDI for 2019 estimated to fall further to less than $1 billion.

In Africa, a host of new finds from Equatorial Guinea to Mozambique, Senegal, Mauritania, Tanzania and Uganda are looking very attractive for foreign direct investors who are willing to explore new frontiers in oil business.

Equatorial Guinea is expecting $1.4 billion to be invested in the country in 2020 fiscal year, with a mix of exploration and appraisal drilling. The country has also renewed ExxonMobil’s licence in the offshore, even while the US super major is said to be in talks for a sale of its assets.

“We expect 2020 to be the biggest year of investment in Equatorial Guinea’s hydrocarbons industry in years,” Gabriel Obiang, the country’s minister of mines and hydrocarbons, said in a statement on the website of the Johannesburg-based African Energy Chamber.

New investments in the sector are expected to help Equatorial Guinea’s economic recovery from the collapse of oil prices in 2014.

Tanzania has the fastest-growing economy among its oil and gas-producing peers in the region and the second-largest natural gas resources. While production is low, the discovery of new offshore fields has the potential to transform the economy. Its closer location to Asian markets gives Tanzania a geographical edge over peers, which makes it favourable for foreign investments.

Senegal, for instance, has seen investment from oil exploration companies such as United Kingdom’s Cairn Energy and Texas’ Kosmos Energy, who discovered some of the largest offshore gas deposits between Senegal and neighbouring Mauritania’s territorial waters.

Senegal has seen predominantly natural gas discoveries offshore in recent years, most of which are shared with neighbouring Mauritania.

“Energy companies would be able to evaluate the blocks’ potential between the end of January and end of July 2020,” said Mahamadou Makhtar Cisse, Senegal’s oil and energy minister. Abdirashid Ahmed, Somalia’s minister of petroleum and mineral resources, also said his country was on a path to transform its petroleum industry and attract the attention of new investors.

Senegal has seen significant progress in recent years, including the passing of the petroleum law earlier this year – key features of which were a commitment to transparency and revenue-sharing, the minister said.

Mozambique holds the largest gas resources in the region and, therefore, has the largest untapped potential. Despite its domestic and governance challenges, investors are still comfortable doing business as the country has seen the largest flow of FDI over the past eight years among its peers, a development that will play a key role in attracting more investors in 2020.

Since many of these new finds are in Africa’s fast-growing emerging and frontier markets, the continent’s rapidly growing consumer and infrastructural opportunities add “to the rationale for locating new oil and gas developments on the continent”, said Dele Kuti, global head of oil and gas for South Africa’s Standard Bank Group.

“It makes economic sense for oil majors and leading independents, comprised of a group of the world’s largest oil companies, to pursue opportunities across the oil and gas value within the African economies in which these resources are found,” Kuti said.

For a frontier market with the population of Nigeria, oil majors not looking its direction should be a big worry for government as it has dire implications for social welfare and economic growth.

Foreign investment into Nigeria’s oil and gas is still at its lowest as inflow hit a low of $38.66 million in third-quarter 2019, which is a sharp decline compared to $171.63 million recorded in Q3 2016.

In the first three quarters of 2019, capital importation into Nigeria’s oil and gas sector has a combined total of $85.93 million, with many stakeholders speculating that full 2019 inflow might be unable to reach 2016 peak of $720.15 million which went lower to $331.36 million in 2017, while 2014 and 2015 figures stood at $208.18 million and $29.76 million, respectively.

What this means is that despite obvious opportunities in the oil and gas sector, FDI is not rushing into Nigeria as the government continues to maintain a stranglehold on sectors that can attract foreign investment at the detriment of the economy and the people.

Some stakeholders say Nigeria could unlock a flood of capital into its oil and gas sector if it loosened up on its other assets in the manner it did with gas company, Nigeria Liquefied Natural Gas (NLNG).

Other stakeholders reckoned that Nigeria’s treatment of some of its largest foreign direct investors, from the oil companies who are being accused of owing billions of dollars in back taxes to phone giant MTN which has been at the receiving end of a number of hefty fines, is surely not the best way to sell the country to potential investors.

Slow reforms in the power sector, absence of full deregulation in the petroleum sector value-chain, the multiplicity of exchange rates, among other factors are key downside risks that constrain investments and long-term growth, according to global consulting firm, PricewaterhouseCoopers (PwC).

Also, analysts have consistently blamed the decline in investment on uncertainty in the industry, following delayed assent to the Petroleum Industry Governance Bill (PIGB) and non-passage of the remaining variants of the Petroleum Industry Bill (PIB).

The government’s many failings with attracting foreign direct investment, most especially in the oil and gas sector, have meant Nigerians have grown poorer as economic growth is slower than population growth.