Nigeria may have an oil production of 2 million barrels per day (bpd) and 192 trillion standard cubic feet of gas reserves, the largest in Africa, but new money is seeing Egypt as the most attractive destination for investment on the continent.
After the Arab Spring of 2011 and the overthrowing of then-President Hosni Mubarak, which unsettled investors and reduced Foreign Direct Investment (FDI), Egypt’s oil and gas sector is reaping from brilliant investment incentives, better foreign exchange environment, improving inflationary regime and an impressive contract cycle that ensures that projects get from drawing board to launch in a short time.
This is unlike Nigeria where years of failed policies and a succession of arrogant senior government officials have led to unmitigated fall in investment into its once-alluring energy sector.
According to reports, Egypt is finalising details of a new type of oil and gas contract that will attract more foreign investment than the $10 billion in actual and not pledged investment already coming into its energy industry in 2019.
Tarek El-Molla, Egypt’s petroleum and mineral resources minister, said in an interview with CNBC that the new contract with IOCs will provide investors with incentives to explore for fossil fuels in undeveloped areas.
“We’re improving the cost-recovery process to be faster, less bureaucratic and more efficient,” El-Molla said. “The government will launch a new bid round in the Red Sea this quarter.”
Officials told Bloomberg that the new oil and gas contract would allow investors to control their share of production rather than sell to the government at preset prices. The officials, who asked not to be identified because the discussions were private, said terms could be tweaked depending on the investment.
Egypt’s existing Production-Sharing Agreements (PSA) give investors about a third of a project’s output to help cover exploration and production costs while the rest is split with the government, which has the right to buy the producer’s entire share at the preset price.
The most populous Arab nation wants to become a gas re-exporting hub on the doorstep of Europe, and the contract overhaul is part of a broader plan to liberalise its energy industry.
While its gas exports seems to be rising, Egypt still has to import much of the oil products it needs for heating, transportation and power generation as the country is investing $9 billion to expand refining capacity and plans to stop fuel imports in about four years.
“Companies will choose to make investments in countries with three conditions: stability, a big market and a future. Egypt has these,” El-Molla said, which is why he is not worried about foreign investment into the country’s oil and gas sector.
El-Molla said Egypt had signed over 12 exploration and production agreements with international oil companies (IOCs) in 2018 as the likes of Total SA Chief Executive Officer Patrick Pouyanne and BP Plc’s Bob Dudley joined CEOs of other oil majors at an energy conference in Cairo on Monday.
Unlike Nigeria, Egypt is dismantling notable barriers to investment while also adopting a flexible pricing system to encourage investment and boost supply and allowing it to move from a fixed price to market price. Nigeria, however, is moving in the opposite direction, seeking virtually all the time to take more out of an existing cake instead of growing a bigger cake.
With few days to the general elections, Nigeria may have to wait for any Egypt-type oil and gas reforms, analysts say. There are little expectations that an unsustainable N145 per litre retail petrol price would make way until after the elections.
“We have noticed that a number of foreign investments are going into the oil and gas sector,” Ayodele Akinwunmi, head of Research, FSDH Merchant Bank, told BusinessDay.
“However, in the last few years especially from the upstream, a number of them are saying they are confused about the unclear policies in that area which they need to have to enable them invest,” he said.
Akinwunmi further said some of the bills on the oil and gas sector such as the Petroleum Industry Governance Bill (PIGB) were yet to be passed, constraining FDI.
Gbolahan Ologunro, research analyst at Lagos-based CSL Stockbrokers, said the monumental growth recorded by Egypt is a reflection of investor confidence in its economy given that the economy is well industrialised coupled with its favourable operating environment.
“The paucity of FDI into Africa’s largest economy despite its huge endowment of natural resources, dynamic and youthful population continues to reflect the dearth of critical infrastructural facilities that will make the business environment conducive for businesses to thrive as well as the absence of key reforms in vital sectors of the economy,” Ologunro said.
For Johnson Chukwu, CEO, Cowry Asset Management Limited, the direction and the uncertain risks of the elections seem to have worsened with the concerns and confidence of investors and created concerns about the possible outcome of the election.
“The economy has been growing at a very sluggish rate since we came out of recession. And the growth of an economy is what drives FDI. Investors are looking for an economy where they will optimise their return and the lowest possible risk,” Chukwu said.
FDI into Africa’s biggest economy declined 36 percent from $3.5 billion in 2017 to $2.2 billion in 2018, according to a report from United Nations Conference on Trade and Development (UNCTAD), making it the lowest foreign inflows that Africa’s largest economy has recorded in last 13 years when the Geneva-based permanent intergovernmental body started tracking FDI data across the globe.
DIPO OLADEHINDE
