Oil and Gas Resources in Africa- A Curse or A Blessing?

The concept of African Oil and Curse Resources

imagesAfrica still remains one of the continents with huge oil reserves and potentials and yet the continent continue to remain a curse in the eyes of many as such oil, gas and other natural resources do not actually benefit them. Most countries with oil reserves in Africa and whose GDP is highly dependent on oil, gas and natural resources turn to face challenges like the Dutch disease, oil and gas volatility, political instability as well as economic instability who all sum up to make oil production in such countries a curse.

 

The Dutch Disease is considered by economist as a situation where there is an increase in the exploitation of natural resources with increase revenue in that sector and a decline in the manufacturing sector in a country. The effect of this is always the fact that there turn to be an increase in the revenues from natural resources which makes a nation’s currency to be stronger (which is very good in the short run) compared to other nations and demonstrated in exchange rates. The end result is that the nation’s other exports becomes more expensive for other nations to buy and import becomes cheaper thereby making the manufacturing sector less competitive. As such, the country will have more money in hand and less to spend on (which is sometimes the genesis of inflation). Such will always occur where the country lack good economic policy advisers and standardized long term development plans.

 

Oil and gas remains one of the highest resources whose prices are very volatile in the international market. This is caused by a number of factors including the forces of demand and supply, the speculative nature of investors, oil and financial companies, and the regulatory bodies such as OPEC. Major political events will have an impact on the volatility of oil prices too as major political incident in one part of the country that is a major supplier of oil and gas will turn to affect the entire market and its prices. The major effects of this oil price volatility is the fact that states find it difficult to better plan and manage their budget especially when such budget is highly dependent on oil revenue. The end result is that the oil production in that country will turn to be a curse instead of a blessing.

 

Political instability has affected every major oil-producing nation around the world with African countries suffering from such too. Corruption, premature power change, high levels of kidnap, vandalism and other criminal acts turn to be very high in such countries. The major cause of this is the fact that heads of states and governments turn to favour family members, friends and political acquaintances during their appointments, who most of the time are less qualified to head such positions but their interest is to privately run the oil sector and reserve the benefits to themselves. Greed makes transparency in the oil sector of many African countries to be very low. Most state corporations do not declare the net wealth of their annual oil production and when such is done, it is always inconsistent or incomplete. At times the local community that the oil is actually being exploited from and who face the highest consequences of oil exploration are neglected and the end results is that such dissatisfied individuals will always come out for street demonstration leading to continuous political instability in such countries.

Economic instability most at times is linked to the Dutch Disease as jobs in the oil and gas MAPAFRICA054illusSindustry are highly paid and most at times citizens of that country will turn to quit their jobs in other sectors to go for the highly paid oil jobs. This has a great effect on other sectors such as agriculture and other manufacturing industries. With the decline of other industries and the boom in the oil sector, the country turns to import more of their basic commodities that become costly on them and in the long run; this has an economic effect on them as they will become more of importers and consumers than producers and exporters. An economy that is highly dependent on import will never grow and such an economy will always be unstable since they are bound to pay any price that is demanded by their suppliers. Countries therefore need to see into it that less is imported and domestic production and consumption are highly encouraged.

For Africa to move out of the curse syndrome as a result of oil and gas production, there are key things that need to be addressed. African leaders need to learn to employ expert economic advisers and other related experts to man their economic, financial and other sectors who will be able to give the best directives and design schemes as well as frameworks that will ensure long term development goals. There need to be constant training in the sectors to ensure that the workers there meet the requirements of that industry. Most often the national oil regulatory board of the country will turn to employ the less qualified since they pay lesser than oil companies and most experts prefer the highly paid companies. The regulatory bodies and governments needs to consider this too and see how the salaries can be reasonable compared to that of what oil companies are offer.

 

African countries need to limit the number of wells and quantities of oil that they exploit at every given time. Oil and gas are natural resources and can get finish at one point in time due to excessive exploitation. Therefore, for countries to ensure a consistent supply of such oil and gas, they need to regulate the way the wells are being exploited. Most often oil companies will prefer to explore more wells at the same time as this is less costly for them and at the same time it is harmful to the country as their wells will be fully exploited within a short period. It is therefore the responsibility of the government and oil regulatory body of that country to ensure that the number of wells exploited at every given time is highly regulated.

 

nigeria-oilThere is the need for countries and governments to invest in other manufacturing industries especially agriculture. This is will prevent the country from importing a lot basic commodities which is very common with most African countries. If more is manufactured within the country, the country will be able to have such resources at a lesser price and will also be able to export to other countries; which in turn will increase their revenue. It is therefore the responsibility of the government to promote such activities by encouraging investors through loans, tax holidays/reduction and marketing.

 

All in all, oil and gas will always remain a curse resource unless oil producing countries begin to look at the oil sector the same way as other sectors within the country and give the same attention to all sectors. If truly we want oil and gas production within the country to be a blessing, the governments need to rework on the oil and gas regulatory bodies and policies within the country and ensure one key factor which is transparency in the sector to prevail.

Clifford Ndecham

2 thoughts on “Oil and Gas Resources in Africa- A Curse or A Blessing?

  1. I don’t share the thought that “Oil and gas” do not benefit African nations. It account for at least 10% of their GDP, which is huge. Oil is not everything. Development is not guaranteed only by a strong economy, other aspects such as political stability, proper management etc. are essential.

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