US advisory group warns African economies on over-reliance on oil and gas

A US-based risk advisory group has warned that foreign direct investment into energy sectors of marginal African oil producers will decline as the US and China ramp up shale oil production.

DaMina Advisors says acceleration in hydraulic fracturing and horizontal drilling technologies has catalysed domestic shale oil boom in the US, “altering the future landscape of global energy”. The US is poised for energy self-sufficiency in six years.

China is also boosting its domestic shale oil and offshore developments in disputed islands. Further, the world’s second largest economy is seeking to secure “a more proximate stable oil source” through a pipeline from neighbouring Russia.

“… marginal African energy producers, who are also heavily dependent on oil export revenues to fund national budgets and maintain social cohesion, face a growing threat to state stability as both the US and China curb African oil imports,” the firm warns.

Its analysis shows that US oil imports from key African exporter — Nigeria, Angola and Algeria — have declined by a cumulative 180 per cent over 10 years.

“Unless marginal African energy producers such as Chad, Cameroon, Gabon, Ghana, Cote d’Ivoire, Uganda, Kenya, the Congo’s and Equatorial Guinea dramatically alter their energy sector fiscal and regulatory regimes to increase attractiveness to investors, the region will see a drastic shortfall in FDI in coming years,” DaMina warns.

It says the asymmetry of a heavy state reliance on oil and gas exports revenues, plus a declining global export market due to rising US energy self-sufficiency and declining Chinese demand for African oil, will leave many key African economies facing major fiscal imbalances which will ultimately threaten state stability.

It points to other key threats such as high taxes, rising political risk, surging royalties, new foreign exchange controls, harsh local content laws and unstable regulatory regimes.
“Resource-rich countries are also at the mercies of world prices for their products. For every boom there is a burst,” the IMF warned recently.

Source: The Star