RCEM: Views on Energy News

Over the past few years, a number of countries across Africa have made significant discoveries of oil and gas reserves. Ghana, for instance, discovered about 3 billion barrels of oil equivalent and its Jubilee field is now producing 105,000 barrels per day. Along the east coast of Africa, Mozambique, Tanzania and Kenya are also making significant discoveries. Gas discoveries in Mozambique and Tanzania have reached over 100 trillion cubic feet, comparable to any of the biggest global gas discoveries.

What does this mean for the governments and people of these countries? As one would expect, some key areas to be addressed are investment in health, education, infrastructure, and power supply. But also in tandem, they must invest in other non-petroleum related industries in order to avoid the pitfalls of 'Dutch Disease' and ensure the sustainable long-term development of their economies. This is an objective that has eluded a vast number of petro-states, both old and new. An example of a country that has successfully achieved this is Norway but clearly Ghana, Mozambique, Tanzania and other African countries are very different from Norway. So what should they do?

Arguments put forward are that new producing countries need to start with a petroleum policy, which can then be translated into legislation and only then should contracts be negotiated and agreed. Ghana, for example, has the petroleum revenue management act, which stipulates that 30 per cent of all oil & gas receipts should go into a separate future-generation funds. Mozambique has developed separate institutions including a regulator, a ministry, and a national oil company ENH. Tanzania is still at an early stage in the process as it has just proposed new legislation for the sector.

Other challenges faced by these countries include developing the capacity of their people to take part and benefit from their oil industry. This need for local capacity development should however be balanced with any drive towards tough local content laws as this could stifle the growth of the industry. It should be done cautiously over time and not over night. Another subtle but nonetheless important challenge facing the governments of these countries is the management of expectations. Oil revenues cannot be seen as the panacea to all the countries' problems due to its capital rather than labour-intensive nature.

Therefore, in order to reduce and ultimately eradicate poverty, these countries need to identify certain key industries that they have a competitive and comparative advantage to invest their oil revenues. These industries could be linked to the oil industry, but ideally should be as diversified from it as possible. This will expand the countries' economic profile and make it less susceptible to commodity price shocks, but also importantly inclusive in terms of employment of the wider population. If this is achieved, then it can be said that these countries would have utilised their oil revenues well and have successfully diversified their economies away from over dependence on hydrocarbons.

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