News of Saudi Arabia’s plans to build an oil refinery and a petrochemicals plant in South Africa as part of $10 billion investments in the country will probably send shivers down the spines of Nigeria’s economy managers. For many of these managers, the economy has taken a backseat, no thanks to distractions from next month’s general election to which they have exposed themselves.
When it comes to investment in Africa’s oil and gas sector, one would predict the frontrunner to be the continent’s biggest oil-producing country. Though Nigeria has the requisite production capacity, huge oil reserves and massive gas reserve, it is not, sadly, the first-choice country for investment. This is understandable as Nigeria is fast losing its competitiveness to other countries with lower oil productions but simpler oil and gas legislation and better business environment.
South Africa currently has six refineries. Two of these use synthetic fuels as feedstock and four others use crude oil, with Royal Dutch Shell, BP, Total and Sasol being the major operators. However, for about a decade, South Africa has been making plans to build an extra refinery but has been unable to agree on commercial terms with investors.
Khalid Al-Falih, Saudi energy minister, commenting after a meeting with South African Energy Minister Jeff Radebe few days ago in Pretoria, said the planned refinery would be run by state-owned energy firm Saudi Aramco using Saudi’s oil.
Ministers Radebe and Al-Falih have already signed a Memorandum of Understanding (MoU) to cooperate on oil and gas undertakings. Under the MoU, projects will be launched in South Africa, managed by Saudi Aramco and the South African National Oil. Radebe said the exact location of the refinery and petrochemicals plant would be finalised in the coming weeks.
“Saudi Aramco and South Africa’s Central Energy Fund are moving forward with the feasibility study and identifying the parameters of the project,” Al-Falih told reporters in Pretoria, South Africa’s administrative capital.
The announcement by Al-Falih comes as a much-needed vote of confidence in Africa’s most industrialised economy, where President Cyril Ramaphosa is trying to attract $100 billion of new investments to rekindle growth and help revive a struggling economy as he prepares for a parliamentary election this year.
The new refinery would reduce the need for refined product imports, and ensure energy security for South Africa and allow the country to supply crude oil and other petroleum products, which would serve as a boost for the Rand.
The Arabian nation is also expected to invest billions of dollars in South Africa’s renewable energy programme through Saudi power firm, Acwa Power, while talks are also underway to invest in South Africa’s state defence company, Denel.
While Ramaphosa seems to be toiling night and day to gain investors’ confidence as he currently is flying the country’s flag at World Economic Forum in Davos, the reverse is the case for his Nigerian counterpart who was conspicuously absent from the economic meeting in Davos, thanks to strenuous campaigns ahead of next month’s general elections.
Despite being an economy that relies majorly on proceeds from crude oil exports, successive governments in Nigeria have been unsuccessful in putting in place adequate structure that will ensure policy stability, attract foreign investors and continuity in the economy.
BusinessDay analysis revealed foreign investment inflow into the Nigerian petroleum industry between January and September 2018 declined sharply by 61.6 percent to $118.2 million, compared to $307.54 million recorded in the same period in 2017.
Data obtained from the National Bureau of Statistics (NBS) Third Quarter 2018 revealed that foreign capital inflow into the oil and gas industry in the nine-month period of 2018 accounted for 0.8 percent of total foreign investments into the Nigerian economy in the period under review.
“In Nigeria, there are uncertainties in business environment, the political environment is unstable, and oil and gas governance is amorphous. So what do you expect?” Wummi Iledare, professor of Petroleum Economics and director of energy at the Center for Energy Studies, University of Ibadan, said.
Iledare explained that if the Petroleum Industry Governance Bill (PIGB) had become an Act in 2018, outlook for 2019 would have been brighter despite the so-called PIGB weaknesses that are ameliorative.
“There’s so much uncertainty in terms of the rule of law. The engagement process is not clearly defined. No matter how holistic the geological basin is, government must make effort so that people come to look for it,” he said.
Iledare said Nigeria’s declining investment at a time when the price of oil is rebalancing passes very negative signal and warning that the worse could be ahead if urgent actions are not taken.
Charles Akinbobola, an energy consultant in a Lagos-based oil and gas firm, said the body language that comes out of Nigeria every four years before the election is scary.
“Nigeria lacks stability and investors want their money in a place where they are sure of their investment. They prefer to have 10 percent return on investment in a place where the situation is not volatile, than a place where they get 100 percent but is very volatile,” Akinbobola explained by phone.
Over the years, stakeholders have agreed that oil and gas sector can best be described as the goose in the Nigerian economy. If it is well nurtured and fruitful, the spin-offs can lead to a transformation of the economy.
Unfortunately, despite this key role that the sector is expected to play, it has over the years failed to meet the yearnings of many ordinary Nigerians in terms of engendering the pivotal economic transformation and development of the country.
DIPO OLADEHINDE
