By Joshua B. Narh
While there have not been many discussions of what freer intra-Africa trade, particularly intra-regional trade in the Oil & Gas sector could mean for the African Continent, Africa’s Free Trade pact establishes a capacity to have a firm rooting that connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion.
This column estimates the gains from such an agreement, taking into account how oil & gas producing countries will benefit from the extraction and export of such resources, from the domestic market and growing intercontinental oil and gas trade market. It concludes that free trade would significantly improve Africa’s trade imbalance, with these advantages resulting from tariff and non-tariff obstacles being reduced.
Oil, gas, and natural resources make for more than 75% of Africa’s exports, and the continent’s oil and gas potential are substantial. As captured by the African Energy Chamber in its African Energy Outlook 2022, “Africa is estimated to have around 600 trillion cubic feet (fourth-largest gas reserves holder globally) of proven gas reserves,” Which can help satisfy the continent’s future energy demand and play a key part in the electrification of sub-Saharan regions, while our proven oil reserves are in the region of 125.8 billion barrels.
Africa, although contributing about 9.6% of world oil output, is home to vast undiscovered natural resource potential. While Nigeria, Angola, and Algeria are top producers of crude oil, domestic benefits are nothing to write home about. If properly managed, Africa’s oil and gas resources have the potential to assist drive the continent’s progress. High Trade tariffs and non-tariffs have left the continent susceptible to the international market.
The AfCFTA may help to reduce this since oil and gas producing countries will profit from both intercontinental and local markets. Concentrating more on increasing inter-continental oil and gas commerce will offer nations greater power in governing international trade accords, which have frequently left African countries on the losing end. Ultimately, the golden old age narrative of being disconnected from the global economy is going to change.
As Ngozi Okonjo-Iweala, WTO Director General, stated: “Trade is a force for good, and properly harnessed can help lift millions out of poverty and bring shared prosperity.” Without a question, the Single Market is the beginning point and soul of comprehensive African integration. The Common Market fostered European integration by removing trade obstacles, dissolving what were once state-protected monopolies, and, last but not least, widespread deregulation. As a result, it is the primary reason behind Europe’s current prosperity. According to studies, AfCFTA will pave the way for the generation of GDPs that will have a positive impact on African economies. Through policy reforms and infrastructure development, the region’s abundant world-class innovation and talent will be increasingly harnessed to create wealth and improve people’s economic well-being.
According to Tracking SDG 7: The Energy Progress Report released on 7th June, 2021 by the International Energy Agency (IEA) the International Renewable Energy Agency (IRENA), the UN Department of Economic and Social Affairs (UN DESA), the World Bank, and the World Health Organization (WHO), “during the last decade, a greater share of the global population gained access to electricity than ever before, but the number of people without electricity in Sub-Saharan Africa actually increased.” Africa has a huge energy deficit, which is disappointing for such a resource-rich region. The continent’s challenge is a failure to use these resources for local gain, and the AfCFTA is envisaged to help improve this situation. However, under current and planned policies and further affected by the COVID-19 crisis, an estimated 660 million people would still lack access in 2030, most of them in Sub-Saharan Africa.
To safeguard the expanding commerce and supply of oil and gas, governments must have a strong commitment to combat corruption and make a considerable commitment to improving their nations, which has so far been lacking from the discourse. If the continent shifts away from an extractive exporting structure based on oil and gas, it will be able to ensure more sustainable and inclusive commerce that is less reliant on commodity price fluctuations on the international market. Nigeria has already declared its ambition to become the continent’s largest oil refining hub, while Angola hopes to export gas to nearby countries. However, in industries like oil and gas, where corruption is widespread, politicians must take the lead in fostering more positive governance structures and infrastructure, as well as helping voters realize what is at stake if international economic integration falters. The current absence of constructive leadership may increase friction or even attempt to reverse the process. This could open the door to short-term solutions, leading to greater hurdles and a loss of the benefits of global economic integration, resulting in poorer African development and lower employment.
Protectionism and nationalism have been regarded as the greatest threats to economic integration. The tremendously diversified continent of Africa is not immune to global tendencies of nationalism and protectionism. As was exhibited in the European Union single market, where the implementation of general common market posed has a big challenge because of the economies of traditional protectionist countries like France. Which was determined to become competitive, as such placed itself in a position to win a larger share of international trade, which went against the grain and spirit of common economic policy. This global trend was recurrent in trade restrictions in East Africa and the economically harmful border closures in Nigeria. According to risk consultancy firm EXX Africa, those trends are “by far the greatest threat to AfCFTA implementation.” These apprehensions are not only limited to border closures.
“A shrinking global economy and growing support for nationalism has heightened pressure on governments over the past year to reallocate resources locally and bring supply chains closer to home. But obstacles – ranging from ubiquitous red tape and poor infrastructure to the entrenched protectionism of some of its members – must be overcome if the bloc is to reach its full potential,” said Silver Ojakol, Chief of Staff at the AfCFTA secretariat. The evolution of nationalist sentiment in several countries has led to what Besseling describes as, “a sense of protecting local businesses to the detriment of foreign investors, by imposing trade or export bans on certain products or commodities.” With this tendency, how can we entice considerable number of investors to undertake larger revenue initiatives in our oil and gas space on a regional scale rather than a national scale? How will economies of scale be accessible for regional power solutions, and how do we expect the power export industry to grow? These are alarming developments that will jeopardize the sustainable continuation of the Single Market. It is worth noting that one of the causes of protectionism is disparities in production conditions, which prevent member states from participating fully in the deregulation of trade.
In this respect, AfCFTA’s protocol should integrate the fifty-four-member states into Single Market, with efficient mechanisms for ensuring staged deregulation of trade and for correcting disparities, and deliberately retaining the protection of tariffs. This would urge a smoother path, opening up to its neighbours while modernizing at the same time. Without economic integration, there won’t be any future for AfCFTA.
In effect, there is a new wave of transformation on the continent, powered by economic integration that is going to advance Africa from a marginal to global player. Tariffs and non-tariff barriers will be reduced among member nations, and the agreement will encompass policy areas like trade facilitation and services, as well as regulatory measures. For myself, I want this to be a success for Africa’s oil and gas sector and African trade in general, and I want it to have a bearing on Africa’s long-term growth and economic development trajectory.
About the Author
Joshua B. Narh is a the head of Legal & Ethics for the Prof. P.L.O. Lumumba Foundation. He is a director at Wingfield Group, an investment management company with a diversified interest in energy and resources (Oil & Gas, Metals & Mining, Power & Utilities), as well as Global Renewables. With a background in corporate governance, leadership, and law, his career spans several industries, including manufacturing, finance, and energy.
He is an ardent advocate of policy reform in the African energy industry.