West Africa’s thriving economies: part 1

This is an abridged version of the full article from Ng Weng Hoong, published in the November 2013 issue of World Pipelines, available for subscribers to download now.

It is now Africa’s turn to say it has some of the world’s fastest growing economies. Most of the growth will take place in the continent’s central-western region with sizeable oil and gas reserves that have started to attract the attention of international investors.

The African Development Bank is projecting West Africa’s economies to grow by a collective 6.7% this year and 7.4% in 2014, led by the more politically stable small hydrocarbon-rich states of Angola, Ghana and Ivory Coast, which are positioned to experience annual growth rates above 8%.

The region continues to be saddled with the challenges of political instability, corruption, poverty, lawlessness and lack of infrastructure. Many hope the recent burst of economic life, in large part owed to the booming oil and gas industry, will provide the spark for the troubled region’s permanent lift-off.

Nigeria

China ensured that the recent four-day visit to Beijing by Nigeria’s President Goodluck Jonathan received maximum media coverage, with both President Xi Jinping and Premier Le Keqiang taking turns to host the high level political and business delegation.

President Jonathan left China with US$ 3 billion worth of deals, including a US$ 1.1 billion low interest loan to pay for infrastructure projects.

Trade between the two countries is predicted to continue growing after reaching a record US$ 12 billion last year. The Nigerian Central Bank plans to invest in China’s interbank bond market. This builds on its groundbreaking decision in 2011 to add the Chinese currency to its foreign currency reserves.

Further declines in oil production and reserves

President Jonathan is hoping to diversify Nigeria’s oil exports to Asia if the country loses hold of its traditional market in the US. Oil remains the lifeblood of the Nigerian economy, contributing approximately 80% of government revenue.

ExxonMobil and Shell, who are among the country’s largest investors, have warned that Nigeria’s oil industry will not grow fast enough to meet Asia’s rising demand.

Nigeria’s oil production and reserves could plunge if the government insists on raising taxes while failing to address the growing threats posed to the industry by theft, corruption and terrorism.

Speaking on behalf of the Western majors, Mark Ward, Head of ExxonMobil’s Nigerian unit, told lawmakers that the Petroleum Industry Bill would threaten new investments and existing projects on account of the proposed higher tax rates and tougher fiscal terms.

The unfavourable terms, which could come into effect if the bill is passed next year, could slash Nigeria’s production by more than 500 000 bpd a decade from now.

According to the Nigerian Extractive Industries Transparency Initiative (NEITI), the country lost nearly US$ 11 billion of oil revenue between 2009 - 2011 to theft and sabotage of pipelines and storage terminals.

Due to its high dependence on oil and gas for revenues, the Nigerian economy will become more vulnerable as a result of the nation’s rising domestic demand.

According to Business Monitor International (BMI), Nigeria’s oil consumption will rise by an annual average of 6.29% rate, at the same time that production is expected to decline after reaching a record high of 2.7 million bpd in July 2012.

Nigeria’s natural gas demand is expected to grow by 8.6% from 5.22 billion m3 in 2011 to 13.2 billion m3 in 2012.

Further fuelling the confrontation between the government and the majors, local media has reported that Chevron and Shell will follow UK’s BG in pulling out of the Olokola LNG project, leaving main shareholder NNPC owning the majority stake.

To read the second part, click here.

Written by Ng Weng Hoong

Read the article online at: https://www.worldpipelines.com/business-news/27122013/west_africas_thriving_economies_part_1/