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Lessons for resource-rich Africa

Updated: 2014-10-10 07:28
By Francis Ikome (China Daily Africa)

Lessons for resource-rich Africa

China and other nations are good models in developing resources and maximizing their energy strategies

Numerous developing countries in Africa are still searching for ways to maximize their potential oil and gas production - particularly those historically well endowed with natural resources.

With the backdrop of today's soaring energy demand and swiftly evolving energy supply, adequate management and strategic cooperation with prominent global stakeholders will remain crucial for Africa.

Supplying nearly one-tenth of the world's oil and 7 percent of its natural gas, Africa is critical to international energy security. But although hundreds of companies remain engaged in exploring and developing the continent's fossil fuels, recent discoveries in Ghana, Sierra Leone, Tanzania, Mozambique and other countries continue to require gargantuan long-term investments that have proved difficult to attract as a result of price uncertainties and unstable macroeconomic and political conditions.

Fortunately for Africa, though, a select handful of nations - principally China but also Azerbaijan and Brazil - offer the know-how they have used to secure the passage of their economies to a status worthy of emulation.

China remains well on track to becoming the largest economy in the world with annual GDP soon to surpass $10 trillion. As the country has developed its own enormous resources over the past two decades, its leadership has pursued substantial, pragmatic mechanisms to maximize its energy strategy and offers a number of lessons.

China satisfies more than half its oil demand through imports, but has executed tactics to soften potential supply shocks by forming domestic oil reserves. The country had millions of barrels of strategic reserve capacity at the end of last year, China National Petroleum Corporation, the nation's top energy producer, said in January. Although such reserves might only provisionally aid the colossal energy needs of a growing economy like China's, they offer a safety lever for the country's leaders allowing them to adjust economic strategies and maintain stability in turbulent times.

In Azerbaijan, a Western-leaning powerhouse wedged between Russia and Iran, the State Oil Company of the Azerbaijan Republic has pursued aggressive international cooperation to ensure economic development. A nation steeped in oil history, Azerbaijan rapidly switched from a war-torn country with a shattered economy to a model of economic stability. In large measure this transformation was brought about by the "Contract of the Century," an agreement signed in 1994 that formed a BP-SOCAR-led joint venture with a multi-stakeholder structure that has served as the underpinning of major energy projects.

The massive contract led to the construction and commissioning of the Baku-Tbilisi-Ceyhan and South Caucasus pipelines, which carried with it unprecedented revenues to Azerbaijan and provided a much-needed alternative energy source outside the volatile Middle East for Europe, Israel and the United States. In recent years, the proceeds from Azerbaijan's oil and gas sector have been used to modernize infrastructure nationwide and boost its non-oil sector, such as through the creation of a stellar tourism industry that has the growth potential to provide a well-rounded profile to the economy.

Notably, Brazil also offers valuable lessons for African nations abundant in natural resources. Although oil production in Brazil has recently dropped, the state-owned oil company Petrobras has long served as a proponent of investing in oil industry infrastructure and drilling technologies over decades. These efforts contributed to a rise in oil production to over 2.7 million barrels per day, and successfully laid the foundation for Brazil to enter a new era of economic modernization and finally to join the acclaimed G20.

As of today, unfortunately, few African countries have mirrored Brazil's approach of investing in industry technology, possibly as a result of non-efficient revenue management mechanisms.

Today, oil markets present complexities and challenges across the globe, not only in Africa. Surely, though, a good starting point for government and energy industry leaders in Africa's 19 oil-producing countries is to identify strategies leading to production and supply mechanisms that will maximize revenues and economic welfare. By some accounts, inefficiencies in Africa's oil sector have led to billions in lost revenue over the years through illegal trafficking, non-transparent management and misappropriation.

It's essential for African nations not to overlook the success of China, Azerbaijan and Brazil in establishing partnerships, creating sound macroeconomic identities and investing in technology. Indeed, despite the decades of oil production experience that some African countries have enjoyed, multi-stakeholder deals resulting in efficient oil supply mechanisms and transparent oil revenue disclosure systems remain a rarity.

China, Azerbaijan and Brazil should undoubtedly serve as fitting case studies for African countries seeking to craft proficient energy policies. Rigorous investments in supply infrastructure, mechanisms to absorb market shocks and international cooperation strategies should be clear priorities. As China, Brazil and the other global partners continue to put their best face forward in collaborating with Africa, African leaders should seek not capital alone, but also prudent guidance in their economic policy.

The author is the founder and president of the Cameroonian American Chamber of Commerce. He is also a managing partner of the Africa Investment Agency.

(China Daily Africa Weekly 10/10/2014 page13)

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