Are those low oil prices the best chance Africa had in a long time?

We are halfway through 2016 and Africa looks set for despair and gloom. Faltering oil prices have brought misery to many African countries that have grown dependent on the oil income and yet, there is a strong silver lining as the easy clippings from oil and gas gave all African nations the wrong sort of incentives for years. Time for a turnaround.

When an energy man thinks of Sub-Saharan Africa, two big and a couple of lesser countries come to mind. Nigeria and Angola are the heavyweights as they account for the lion’s share of the region’s oil and gas basket.

Africa is also the least developed continent on earth’s surface and oil revenue has fed some economic miracles springing up from Angola in the deep south to Ghana in the West. But even countries such as the Republic of Congo or Equatorial Guinea have seen their share of wealth as the glitzy new office towers in Brazzaville and Malabo can attest.

At the same time, it looked as if the non-oil countries were the losers in this gamble for riches. The most powerful economy on the continent, South Africa, was still very big but it was stuck in malaise and could not seem to compete with the Nigerian and Angolan juggernauts.

However, the popping of the oil price bubble bequeathed us with a very different picture where South Africa is still stuck in a malaise (for very different reasons than energy) but the oil producing countries rapid rise to stardom has ground to a screeching halt. Nigeria is at pain to cough up the cash to pay its civil servants and Angola chokes on its own super-rapid development.

Lower oil prices make less money come in and free up a lot of product that cannot easily be sold anymore. Export of hydrocarbons does not look like a good idea anymore and investment in that kind of projects falters.

How bad is it?

The low prices bring untold opportunities. They sure were hard to see in all the glare of dizzyingly high prices for what the continent could scrape out of the soil but they were always there. And now, with all the easy money from oil and its brethren gone, the continent might also find more peace as many armed conflicts will also starve to death for their funds kept the war machines well oiled.

Africa is – by all accounts and purposes – a market and as any market, it craves energy. You say, clean energy or even plentiful energy is only for the rich? Tell that to a peasant who burns cow dung for lack of something cleaner and that has already lost some kids to the toxic fumes it produces. He will sure go the extra mile for some gas bottle which will not make his family sick or kill it – if only someone takes the effort of getting them to him.

And this kind of business development effort is never taken as long as sellers just have the pain of selecting the buyer that will make them feel the plushest. Now, sellers of energy have their lives cut rougher, and they will go after any market that presents itself to them, no matter what the effort which raises hopes that eventually the markets of the black continent will be unlocked. Plenty of product with nowhere to go and sellers in horrible pains will bring about that.

But there is more. Failing oil states remind the people of those states and others – that it’s not oil and gas that brings lasting wealth and peace but rather humans, working hard to make it work. Many countries the world over learn this vital lesson now but nowhere is it more important than in Africa which has auto-stymied itself for ages. People must come to the realization that they must lift themselves out of their messes and as the oil price does not deliver anymore, there is more of a chance that this might actually happen.

Sure, non-oil countries will lead the pack. They have never been coddled, to begin with, and must see the oil price drop as some sort of divine justice.

But Africa is some sort of a collection of unconnected islands of consumption. There is no overarching system in place that allows transporting Natural Gas or other energy stuff around. Everything goes by road trailer which makes the various communities on the continental mass look and behave like islands – for energy developers at least. Except that – marine islands can be reached by seagoing vessels and can hence benefit from the more cost effective marine logistics. On the other side, it’s also harder to send single trucks there in order to kick things off on the super small scale.

As there is no connected market but rather a juxtaposition of different markets and sub-markets down to single communities, there also is no market oversight and liberalization could never hold sway over there.

But this lack of coordination and infrastructure also holds a very potent promise. As the current reality clearly leaves many people wanting and makes them crave for something cleaner, more stable, more reliable. It’s not hard to innovate as there is no entrenched, written-off solution that exists. There is no unfair competitor as the only one you have is not working anyhow so which is why everyone wants change. Entrepreneurs can go fully blue sky as there is no standard, no entrenched solution, no bellwether or default situation.

With the high oil price bubble gone, people on the dark continent must wake up to their realities, and they will. Wishful thinking does not go very far there as the economic situations in many countries are at the breaking point and there is no oil money masking this anymore. Potent seed for some change and for the entrepreneurs of the continent.

Africa hoo…

2 replies
  1. Paul Jackson
    Paul Jackson says:

    Herr Huber:

    Africa needs to feed and clothe its people; and development of water resources are paramount. Reliance on oil revenue is a gamble at best. These are difficult times, creating food security should be a priority, and moving ahead with infrastructure development should be done while energy is cheap.

    • Rudolf Huber
      Rudolf Huber says:

      Mr. Jackson – that’s hard to disagree with. Food and shelter should be paramount everywhere. Sadly, they aren’t. Countries like Nigeria don’t primarily have a food problem. Nigerians generally don’t starve. But they have endemic power problems and solving them would be more important than revenue from another barrel of exported oil. A country should always care for the wellbeing of its own population first. But again, you are so very right, food and shelter come a long way before lights staying on.

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