Impact of AfCFTA on oil and gas industry

Improved efficiency and competition in the Africa markets will be significantly felt and boost development

| SHANTEL MUFANDAIDZA | Created by the African Continental Free Trade Agreement in 2018, the African Continental Free Trade Area (AfCFTA) came into effect on January 01, 2021. Since the World Trade Organisation creation, the AfCFTA is the largest free trade area globally, with 54 out of 55 nations of the African Union, many of which have already ratified the agreement.

Estimations forecast that this free trade area will positively impact Africa’s Gross Domestic Product (GDP), resulting in welfare gains for citizens, facilitate trade growth, and improve Africa’s trade deficit. While Africa has substantial natural resources, it has not received significant benefits from the extraction and export of such resources, particularly in oil & gas. Will AfCFTA have an impact on oil & gas industry exports?

Oil and gas and mineral resources account for more than 75% of Africa’s exports, and the continent’s potential for growth in oil & gas is significant. Estimations at the end of 2017 indicated that Africa has 487.7 tcf of proven gas reserves (7.1% of proven global reserves), while Africa’s proven oil reserves are in the region of 125 billion barrels of oil (bbl).

While this is the case, countries, unfortunately, do not benefit from their resources. For example, while Nigeria is a large exporter of crude oil, domestic benefits are minimal. The citizens still stay in questionable conditions plagued by limited electricity supply and unemployment. Further, the estimated average of 22 hours without electricity per month means lost sales revenues of up to 10% or more for a large proportion of Africa’s businesses.

Africa’s oil & gas resources can help accelerate growth on the continent if used strategically. With the AfCFTA in effect, intra-Africa trading will become much easier and benefit African countries more than it has in the past.

Trade barriers such as high import tariffs have left many African countries vulnerable to the international market, which resells our resources at higher prices. The AfCFTA will potentially curb this, as oil & gas producing countries will benefit from global markets and the domestic market.

Focusing more on growing intracontinental oil and gas trade will give countries autonomy to govern their international trade agreements, which have often left African countries on the losing end.

Analysis indicates that the AfCFTA will make room for the generation of GDPs that can positively impact African economies, create employment, and impact infrastructural development. While this is a necessary benefit that will positively impact Africa, it is already a continent plagued by corruption, which has resulted in the delayed development of essential infrastructure required to facilitate the ease of trade through the AfCFTA.

For example, Angola is the largest exporter of gas on the continent and stands to benefit much from the domestic supply of gas to neighboring countries. However, the rampant corruption in Angola has hurt the necessary infrastructure necessary for the country to supply its neighbours with gas.

The only way the AfCFTA would positively impact the oil and gas industry is by promoting significant investments in roads, ports, and other physical infrastructure. African governments must be serious about financing the regional infrastructure and investment needed to make AfCFTA a game-changer. They need to mobilise the continent’s financial resources without increasing the risk of debt distress. While there is no universal formula for industrialisation, African countries need to tailor-make their economic development strategy and industrial policy that fits their unique circumstances.