Discoveries of East African oil and gas are well set to fundamentally transform the economies of the region as the fuel resources usher in new investment in road, rail, power and industrial infrastructure, according to Standard Bank. This however begs the argument that this could have happened earlier in our history – but to date has not transformed more than a fragment of African society.
To date, Uganda, Kenya, South Sudan, Ethiopia, Tanzania and Mozambique have emerged as key players as oil and gas exploration regions in the world over the last 10 years, says Mr Simon Ashby-Rudd, the London-based global head of oil and gas at Standard Bank, Africa’s biggest lender. These discoveries will establish the region as a major hydrocarbon province in the decades to come and drive wider economic growth throughout East Africa.
“Over and above the traditional oil and gas regions in Africa, notably West Africa, East Africa has essentially been a forgotten desert in terms of upstream oil and gas exploration over the last 40 years,” said Mr Ashby-Rudd.
Oil exploration in East Africa was sparked off by the discovery of between 1.5 and 2 billion barrels of commercially viable oil reserves in northern Uganda in the last decade with a total known oil reserves in the country estimated at 3.5 billion barrels.
The discovery of oil in Uganda coupled with the fact that exploration licences in East Africa were comparatively cheap due to the fact that the region was not regarded as an oil rich area, ushered in further exploration activity in other countries along the Rift Valley. As a result, further oil discoveries were made in southern Ethiopia and Kenya with additional gas finds in Tanzania and Mozambique.
This brings to light the exploration rate of oil being too cheap for foreign companies. Over the years as discovered and regularly highlighted by the Progress panel, most of profits from natural resources in Africa leave the continent. This also highlights the fact that economic growth remains “cheap talk” for the continent.
One of the biggest indicators that the region is likely to experience an oil- and gas-led boom in the next half decade is the fact that several projects in East Africa are likely to come on stream at similar times. We have yet to determine who the real custodians of profits will be and how these profits or gains will be injected into development nodes of economic revenue.
Plans are now underway to construct an oil pipeline linking Uganda’s oil fields to the coastal port of Lamu in Kenya. In February this year Uganda signed a memorandum of understanding (MOU) with oil companies operating in the country to facilitate the development of an oil refinery in the country as well as a pipeline that enables crude reserves to be exported. This brings to light the reality that PPP’s are not reality in creating jobs or a solid injection into local economic development growth.
“A pipeline would really kick-start economic growth in the region as it would usher in additional investments, the necessary infrastructure which in turn will enable further investment in industrial operations,” said Mr Ashby-Rudd. “Oil thus becomes the catalyst for an economic transformation across the region. An oil pipeline could become the backbone on which an entire infrastructure corridor could be constructed.”
In contrary to speculation that Africa’s resources will yield strong economic growth – we need to define the terms for such economic growth. Africa is a prime example of strong economic growth trends in terms of outputs with a growing poor-class – the largest of its kind.
Burgeoning economic growth in East Africa is also likely to result in increasing demand for fuel within that region, which imported a collective $10 billion of fuel and petroleum products in 2012.
Standard Bank expects total demand for petroleum products in East Africa to treble by 2030 with Kenya likely to remain the largest market in the region, which the bank estimates will record compound annual growth rates of between 5% and 7% over the next half decade.
We need to move away from terms of the rich countries and bring in spectacular reference to household income generation and growth. These indicators are long overdue in Africa and seems to the BRICS Development Bank will bring new solutions for the financial sector, away from the control of the IMF.