How Oil Rich African Nations Can Escape Nigeria’s Woes

With the current low investor’s appetite for oil and gas financing due to the energy transition, emerging African oil-producing nations have to embrace reforms and good governance to drive growth.

Underpinned by stiff competition for limited investments flowing into the hydrocarbons industry, African oil producers have to apply technology, revise policy and rethink economic principles to remain competitive. This proposes that they have to be transformational instead of being transactional in their investment mindsets, with clear intent to create national prosperity as opposed to making few people wealthy within a largely impoverished population. Renowned petroleum economist Professor Emeritus Wumi Iledare, who made the assertion while speaking on the topic: The Search for Petroleum Industry Reform in Africa: Lessons from Nigeria, at the 2nd Offshore Africa Energy Conference in Accra, urged resource-rich nations to think posterity instead of instant prosperity. Using Nigeria as a classical example, he highlighted the damage the deferral of reform and bad governance is capable of inflicting on a thriving oil and gas nation. According to him, the catalysts for growth in the industry remain among other things: sector legislation and regulations; local content and mid-stream infrastructure; transparency; and frameworks and fiscal terms. Iledare, who currently lectures at the Institute of Petroleum Studies, University of Cape Coast, Ghana shared the grace to grass story of the Nigerian oil industry to admonish other resource African nations to avoid bad governance, policy gaps, transactional mindset and deferment of reforms in the industry. The petroleum economist also urged Ghana to make necessary adjustment to its legal framework to revive the oil and gas sector. “Ghana’s industry has to be reformed. Legislation should be dynamic and not static. Between 2010 and 2023, we need to see sectoral reform,” he advised. Nigeria ranked among the top 20 oil producers in the world in 2021, with approximately 1.5-1.7 million barrels per day on average and 36 billion proven reserves of crude down from top 10 ranking in 2005, with production of about 2 million barrels per day on average and 35 billion liquids of petroleum reserves. “In 2005 it was the promise nation and most coveted petroleum development bride in the Gulf of Guinea,” he added. Prior to the coming of the Petroleum Industry Act (2021) the Nigerian oil and gas industry was stymied by declining production, declining reserves, leakages, infrastructure deficits, revenue shortfalls, price volatility, political and forex uncertainty, challenges attracting funding, uncertainty, unattractive commercial frameworks, uncompetitive fiscal terms. The protracted delay in passing the Petroleum Industry Act, which took over 21 years to happen, short-changed the nation, denying it critical investments, extra revenues to state and job creation, he said, adding, “The key to attracting investors is reform and good governance…..Oil countries should think about delayed revenue. If government takes too much it will disincentivize investors. This has nothing to do with sentiments; policies drive investments,” he stressed. The PIA offers renewed hope for the Nigerian oil industry, with the intent to restructure, rebrand and rekindle institutions through separation of roles-policy with commercial and regulatory functions well defined. The legislation engenders attractive, competitive and progressive fiscal and contract terms; valuecreation acreage; management administration removing discretionary award renounced and relinquishment terms articulated; host community inclusiveness and optimization of community development-benefit sharing with host communities; and to enforce transparency, accountability, stability and sustainability. The Nigerian legislation aims to enforce good governance, competitiveness, global best practice and ease of doing business, and eliminate uncertainty due to protracted non-overhaul of legal framework on governance and fiscal environment. While paying attention to national economic principles such as: early revenues for government; simplicity of administration, equity and fairness, competitiveness, best practice, sustainability and role clarity. Prof. Iledare believes the PIA will be the game-changer for Africa’s most populous nation if well implemented. “The consequences of the quadrilemma in the petroleum sector on energy availability, energy accessibility, and energy affordability are quite obvious in Nigeria of today but PIA implementation can make a big difference.”