“If you want to go fast, go alone. If you want to go far, go together.”
This African proverb comes to mind when local partnerships within Africa’s oil and gas industry are announced. The news of Senegal’s collaboration with Nigeria to develop its oil and gas sector exemplifies the importance of that proverb.
While Africa has a generous reserve of natural resources, it is yet to fully realise the transformative power of a shared vision and collaborative partnerships. As much as foreign direct investment is needed to grow Africa’s oil, gas and renewables industry, its countries also have a part to play in this development.
Intra African Trade: The AFCFTA
Trade agreements are a cog in the global economic integration machine. In a regional trade agreement, countries (usually from that region) form an alliance to create an international community that facilitates the free movement of goods and services across their borders.
The goal of intraregional trade is to increase economic growth within the region and competitiveness in global trade. However, many have argued for the effectiveness of regional trade agreements within Africa’s energy sector due to challenges like high import tariffs, poor financial performance and government interference.
There is, however, a new beacon of hope in the form of the African Continental Free Trade Area (AFCFTA). Launched on the 1st of January 2021, the AFCFTA is projected to expand the African economy through intra-African trade. According to a report by the World Bank, the AFCFTA may be one of the best responses Africa has in growing and keeping the proceeds of oil and gas production.
The past few years have seen African countries create business partnerships with international oil companies (IOCs) to make massive oil and gas discoveries. So, the industry today still has a heavy foreign presence. The current situation employs an extract-and-export model that involves the export of the resource (crude oil) and import of refined products. With the AFCFTA, the objective is to provide opportunities for business growth and a more sustainable trade model where Africans can benefit from the production of their continent’s resources.
Rise by lifting each other
Evident in the rapid growth of local oil companies coming out of the continent. Intra-African trade has been on a slow rise. More than six decades later and a transition from concessions to its preferred production service contracts (read about energy contracts here), Nigeria has made mistakes and learnt several lessons.
The oil giant has gone from being a novice about the whole process to a point where a considerable fraction of the nation’s oil gets produced by indigenous companies. Regional energy giants Seplat Petroleum, Oando and Sahara Energy are fruits of this capacity building.
This wealth of experience makes intra-African collaboration easier, as they can transfer skills and technical expertise, keeping the wealth from production within Africa. It is what Senegal’s budding oil and gas sector stands to gain from its partnership with Nigeria. Their economic growth contributes to the larger goal of Africa’s energy development.
The relationship between Nigeria and next-door neighbour, Ghana, is also one to look at as “a lot of collaboration is going on” between Ghanaian service providers and Nigerian Service providers”.
A key driver of any form of trade community is the value exchange between the countries that are members. An example is a collaboration between South Africa and Mozambique. In an attempt to reduce its energy insufficiency and develop its gas industry, South Africa invested in natural gas projects in Mozambique’s flourishing gas industry.
Navigating new markets can be complicated, so it is vital to find suitable partners. Partnerships are based on several things. For example, technical or market knowledge, access to networks end even finances. Investing in partnerships and market knowledge expedites the development process.
The development of the Waltersmith 5,000-barrel-a-day refinery in Imo attracted the attention of spectators like Equatorial Guinea. That attention eventually led to a collaboration between both countries where the Nigerian petroleum industry will support the Central African country in replicating modular refineries to start producing its crude oil locally.
Developing the most important resource- people
Besides, securing partnerships with other African countries that have channelled experiences from working with IOCs into developing their industries will be easier than waiting on the IOCs to come to the rescue.
Even with local content clauses, IOCs can only do so much, meaning they would like to remain in the partnership as long as it is profitable to them and empowering host countries to a point where little to no reliance is needed, hurts them. Hence, it is left to Africa to look inward and create local partnerships that suit its unique conditions.
African governments are not excluded from these collaborations, they have a serious role to play. The energy industries of several African countries are maligned by corruption and dubious practices that stand to jeopardise the benefits of intra-African trade. Issues like deplorable infrastructure, unfavourable government policies, difficulty in doing business among others stifle the rewards of intra-African trade.
Africa’s impediment has always been its incapacity to exploit these resources for its domestic growth. However, the rise of local partnerships will encourage such development. The focus should be on collaborative efforts that will position the continent for global participation while providing access to power and improving quality of life.