African countries need to reinvent their oil-oriented economies as the barrel price fell below $50 in 2015, an all-time low since the 1990's.
The oil industry in 2015 found itself in the deepest crisis since 1990’s after the barrel price fell below $50. Industry experts blame it on the increase in domestic oil production in the United States, as well as the economic crisis in Europe, which led to decrease on the demand side.
The ongoing oil industry crisis severely impacts African counties. Hydrocarbons are the most important export commodity for the continent, contributing 57% to Africa’s export earnings. Especially dependent on oil and gas revenues are oil producing countries in North and West Africa. In these counties, falling oil prices caused a decrease in revenue and destabilized local economies. The biggest oil producer, Nigeria, had to impose foreign-exchange restrictions to stabilize local currency. Angola, second largest producer, devalued its currency twice since June 2015.
PricewaterhouseCoopers published its 2015 Oil&Gas Industry Review for Africa under the slogan “From fragile to agile”, thus providing some optimism in a miserable situation. African oil production has fallen in one year from 10 to 9 percent of the world’s total production volume. At least 100,000 workers have lost their jobs as a result of cost-cutting measures. Many exploration projects were put on hold.
According to the PWC review, a positive is that the slowdown in oil industry has also motivated many African governments to push for more favorable oil and gas legislation to attract investment into the sector. One recent example of this is Mozambique, which passed the LNG Decree Law to encourage foreign investment into liquefied natural gas (LNG) production in Rovuma Basin. In addition, other countries such as Kenya, South Africa and Tanzania have been reviewing legislation currently in place, in order to make it more investor-friendly.
In the past, governmental policies in Africa often restricted and even hampered growth of exploration companies, demanding unbearable royalties. African governments’ profit share from deep water oil projects off the continent ranged from 91 percent in Libya to about 60 percent in Gambia, according to information from Wood Mackenzie.
“Even without the oil price collapse, it was time for the industry and governments to take stock,” said Tony Hayward, a co-founder of Genel Energy, in his interview to Bloomberg at a conference in Cape Town this year. “I’m afraid the next six to 12 months will be very challenging to many industry participants and survival will become the name of the game.”