At the just ended African Oil Governance Summit held in Accra and convened by the Africa Centre for Energy Policy (ACEP), participants urged African governments to as a matter of urgency introduce some mechanisms to address the effects of oil price shocks on the economies and development of African countries through diversification of their economies from overdependence on petroleum revenues. Participants believed this can be achieved by establishing sovereign wealth funds with proper governance structures. And by extension it will help these economies to save for the future. Appropriate fiscal rules to stabilize their local economies and creation of backward, forward and side linkages with the rest of the economy will be the sure bet to salvage most African economies which are heavily dependent on oil revenues.
Achieving these set goals and targets will need a drastic shift towards more involved local participation in the oil and gas sector. That calls for enforcing the appropriate local content legislations, revision of old local content legislations and oil revenue management.
Human capital development should be high on the agenda for economies heavily dependent on oil revenue. It aids in the fight against poverty and also reduces income inequality. Also, targeted investments in agriculture should be given top priority to facilitate poverty reduction among folks highly affected. Agriculture has been the hardest hit in terms of growth in the non-oil sector. Government should spend petroleum revenues efficiently and responsibly by ensuring that there is value for money for projects funded with petroleum revenues especially in the agriculture sector to stimulate the necessary growth.
PwC released it latest report for 2016- The Africa Oil & Gas Review 2016, on the oil and gas sector in Africa and captured that, “as an exploration destination, Africa should not be underestimated since almost half of the biggest oil and gas finds – nine of the top 20 in 2015 and 8 of the top 20 in 2016 so far – have been in Africa.” In this same report, the findings makes it clear that the world is transitioning to a low-carbon energy system and that will have a telling effect on the earnings by oil and gas companies around the world. This it said, calls for oil and gas companies to reinvent themselves to adapt to a persistent low price environment which we are experiencing now. By extension oil revenues to be earned by African economies would be the hardest hit and this call for a second look at governments to conduct a comprehensive evaluation of the current tax concession regime to determine its effectiveness as a tool for investment attraction.
The days of oil at $100 per barrel are long gone Africa governments should diversify their economies to be more innovative and absorb the shocks of these price drops.
Author: Paa Swanzy-Esuman || p.swanzy@ghanatalksbusiness.com
