Russia’s war on Ukraine could boost the economies of Africa’s oil and gas producing countries, but only if they tackle endemic corruption in their state-owned resource companies, stop outdated ideological opposition to private sector investment not connected to ruling parties and equitably distribute the income of resources to local communities to prevent sabotage by those feeling excluded.
African oil and gas producers have struggled with guaranteeing security of supply of their outputs, which makes them unreliable and undermines their ability to take advantage of Western countries and emerging markets seeking alternative sources of supply after global sanctions on Russia, the world’s third largest oil producer and the largest gas supplier.
The Russian invasion of Ukraine and the economic sanctions unleashed by Western countries have left many countries that had depended on Russian oil and gas scrambling to find alternative suppliers.
African oil and natural gas producers such as Angola, Nigeria, Libya, Algeria and Egypt could play a critical role in replacing Russian oil and gas.
However, African oil and gas producers will have to overcome their continual supply disruptions, operational inefficiencies and lack of infrastructure, new investment and capital. They will also have to tackle endemic corruption in their resource state-owned companies, which is undermining production, scaring off investors and causing public resentment.
The loss-making Sonangol, the country’s state-owned oil and gas entity, has contributed to Angola having Africa’s largest debt crisis.
Foreign investors have also been reluctant in the past few years to invest in new African oil and gas infrastructure, as the focus was, before the Russia-Ukraine war, moving away from fossil fuels to clean energy. However, now more investment is likely to occur in oil and gas around the world because of global energy shortages.
Nigeria is the leading crude oil producer in Africa and the world’s sixth largest LNG exporter. Nigeria’s oil and gas industries are fully owned by the state. Its oil and gas supply often experiences disruptions because of sabotage, pipeline vandalism and lack of security. Armed groups, thieves and community groups have attacked oil and gas infrastructure in Nigeria’s Niger Delta area, undermining security of supply.
Because of systemic corruption in the Nigerian state-owned oil and gas industry, many communities have been excluded from the benefits — and have often actively sabotaged production. Investments in many of Nigeria’s oil and gas projects have stalled, as global investors in the recent past switched to cleaner energy investments.
The country’s state-owned oil company, the Nigerian National Petroleum Company (NNPC), has struggled with corruption, mismanagement and inefficiencies. It clearly lacks skills, capital and know-how. The Nigerian oil and gas industries desperately need private sector capacity and expertise.
Angola is Africa’s second largest oil exporter. Its oil production has declined almost 30% over the past six years to a 17-year low because of operational problems at its oilfields, governance problems at the cash-strapped state-owned oil company Sonangol and lack of upstream investment. The nation has also seen a decline in gas production for similar reasons. Its oilfields are ageing, and new exploration has been slow, making it unable to replace declining oilfields with new ones.
The loss-making Sonangol has contributed to Angola having Africa’s largest debt crisis. Its poor governance, corruption and inefficiency have crippled the economy and led to mass protests by ordinary citizens against the ruling MPLA government, which have been brutally crushed.
Both Algeria’s crude oil and liquefied natural gas exports declined by 30% in 2020, making the country’s oil output the lowest since 2017 and gas output the lowest since 2002.
The decline in Algeria’s crude oil production was because of mismanagement and lack of investment, combined with Covid-19, low economic growth and more local use of energy because of a rapid population increase. Algerian state-owned company Sonatrach has been riddled with mismanagement, corruption and inefficiencies. On current trends, Algeria may not be an oil exporter within a decade.
Algeria is the 10th largest gas producer globally and is one of the top five liquefied natural gas exporters to Europe. It has a direct gas network line to Europe.
The Algerian government is reluctant to allow foreign investment in the energy sector, fearing the country will lose sovereignty over the main income generator. However, it is crucial that it let go of its ideological fixation with having state control of the sector, relax its opposition to foreign investment and genuinely tackle corruption.
Egypt has been seeking to turn itself into a regional centre for oil and gas trade. The Egyptian General Petroleum Corporation is the state-owned company responsible for oil and the Egyptian Natural Gas Holding Company the state-owned company that controls gas projects. Both state companies have been accused of corruption, inefficiency and patronage appointments — and of striking poor deals with foreign companies.
The country has seen recent successful gas discoveries and attracted huge foreign investments, including from British Petroleum, which in 2020 put US$35bn into Egypt’s natural gas infrastructure, making it one of the largest foreign investors in the country.
Egypt needs more favourable contracts in oil and gas deals. Bad contracts, corruption and underpricing have undermined income, the environment and fair labour practices. The government of Egyptian President Abdel Fattah al-Sisi is systemically corrupt, authoritarian and incompetent. Human rights bodies have called on foreign investors to demand upholding human rights, good governance and accountability as a condition for new investments.
Whether Africa or Europe or America, we are looking for markets.
— Tanzanian President Samia Suluhu Hassan
The Russian-Ukraine war is also an opportunity for Egypt to diversify its gas markets beyond China. Egypt is not linked to the European gas pipeline network. It is crucial that it links up to take advantage of Europe’s need to diversify its gas intake.
Tanzania, which has the sixth largest gas reserves in Africa, is also strategising how to secure new markets. The Tanzania Petroleum Development Corporation (TPDC) is the state-owned company that manages the country’s oil and gas. Former Tanzanian minister of energy and minerals Sospeter Muhongo alleged that staff of TPDC were incompetent, made corrupt deals and were “thieves”. Local content provisions have frequently been abused through contracts with businesses owned or linked to prominent ruling party leaders and families.
Tanzanian President Samia Suluhu Hassan said the Russian invasion of Ukraine brought an opportunity for the country’s gas exports. “Whether Africa or Europe or America, we are looking for markets,” said Hassan.
Many African oil and gas producers are unstable politically and cannot deliver secure oil and gas to markets.
Mozambique, for example, has the third largest natural gas reserves in Africa. Corruption, failure to deliver public services and excluding local communities that do not support the Frelimo ruling party from the benefits of oil, gas and mining investment have led to widespread opposition against the government, which Islamic insurgents in turn have exploited to launch attacks in the northern Cabo Delgado region, close to the Total-led liquefaction plant being build.
In April 2021, Total declared “force majeure” on its gas projects and suspended continued operations after Islamic militants attacked Palma, a port town in Cabo Delgado.
The Empresa Nacional de Hidrocarbonetos (ENH) is the Mozambican state-owned company overseeing the petroleum operations. Many leaders connected to Frelimo act as power brokers for investors to get mining, oil and gas licences and contractors in return for facilitation fees. Foreign businesses are often required to partner with businesses owned by senior Frelimo leaders if they want to be able to secure mining, oil and gas licences, government concessions and contracts.
If African countries wants to take advantage of the oil and gas shortages resulting from the Russian war against Ukraine, they need to secure stable supply, invest in infrastructure and secure new markets. Corruption, mismanagement and ideology-based decision-making significantly increase inefficiencies and the cost of business, thus driving away investors.
Prerequisites for investment are better governance of countries and state-owned companies, merit-based appointments in these organisations, tackling corruption and bringing in the private sector as an investor.
William Gumede is associate professor, School of Governance, University of the Witwatersrand and author of SA in Brics (Tafelberg).
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