Africa: energy hub in the making

Energy
| The European | 20th February 2019
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The African continent is rich in natural resources, but most of the people in the region are suffering from hunger and poverty. Africa has seen many disease outbreaks, including the life-threatening Ebola virus. Corruption is rife in the continent which makes it difficult to execute development projects.

Nigeria (situated in West Africa) is Africa’s most populous country. The country produces crude oil (between 1.5 and 2 million barrels per day) and is a member of OPEC (The Organisation of the Petroleum Exporting Countries). Public knowledge of the African energy sector is limited to Nigeria. Little is talked about the Horn of Africa, which promises massive potential in the energy sector.

The Horn of Africa is a peninsula in Northeast Africa. It has four countries; Djibouti, Eritrea, Ethiopia, and Somalia.

Ethiopia

Ethiopia has the fastest growing economy in Africa. The country’s 2017 GDP was US $80.87bn dollars (7.7% growth). The IMF World Economic Outlook report predicted 8.5% growth in the year 2018 (actual figure not yet confirmed).

Key information (about Ethiopia) extracted from the World Economic Outlook report

  • The country’s economic growth is largely driven by an increase in industrial activity
  • It is investing money on its infrastructure to improve the business environment
  • The Government of Ethiopia is promoting its manufacturing sector
  • Water storage (Dam) facilities are being built. The under-construction Grand Renaissance Dam will be the largest Dam on the African continent. This Dam will house two power stations with a combined output of 15,000 GWh per year
  • The country launched a light rail system in the year 2015. The project was designed and implemented by China but like its brethren in Africa, Ethiopia also could not pay back its loans. Last year it had to ask China to restructure the debt.

Ethiopia: Foreign exchange earnings

In the services sector, it is the national flag carrier, Ethiopian Airlines, which brings in foreign exchange. It serves over 100 international destinations. In its 2016/17 financial year, Ethiopian Airlines generated US $2.7bn in revenue (over 11 percent from the previous year).

Ethiopia’s export of coffee is worth around US $800m (coffee-dollars). The country is planning to triple its coffee production in the coming five years.

Ethiopia: Trade partner

No prizes for guessing! China is Ethiopia’s main trade partner. However, the country’s cheap labour has also attracted investments from western fashion brands like H&M, Guess, J.Crew and Naturalizer. These brands have opened manufacturing centres in the country.

China’s interest in Ethiopia is focused on;

  • Buying state-owned companies
  • Building the country’s infrastructure
  • Oil and Gas exploration

Poly-GCL

China’s state-owned Poly Group Corporation and Hong Kong-based private entity Golden Concord Group formed a joint venture named Poly-GCL. The company is exploring oil and gas reserves in Ethiopia and other countries in the region. It discovered (estimated) 6 to 8 Trillion Cubic Feet of gas in Ethiopia.

Latest Development

Reuters (17 February 2019) reports,

“Ethiopia and Djibouti have signed a deal to build a pipeline to transport Ethiopian gas to an export terminal in the Red Sea state”.

Poly-GCL had signed (one year ago) an MOU with Djibouti to invest $4 billion to build the natural gas pipeline, a liquefaction plant and an export terminal to be located in Damerjog (Djibouti).

China is conducting business with both the neighbouring countries.

Commenting on the strategic importance of this gas pipeline project, Djibouti’s Energy Minister Yonis Ali Guedi told Reuters,

“It is the most expensive project ever built in the Horn of Africa region. The two parties have reached an agreement in principle to allow them to benefit from the project in an equitable manner”.

Outlook

Oil and gas E&P companies are getting interested in Africa with each passing day. Tanzania has proven gas reserves of 57 trillion cubic feet. The country opened a new 167.82 MW natural gas power plant in April 2018 costing US $344m.

Mozambique is basking on 100 trillion cubic feet of proven gas reserves (yet to be developed).

From the point of view of oil and gas E&P companies doing business in Africa is a low-risk venture as compared to wild-cat exploration projects (Pakistan, Indonesia and Papua New Guinea). Also, Africa has cheap labour.

The proven energy reserves of the African continent can change the destiny of the region’s countries. Only two things can stop Africa’s prosperity; corruption and Chinese debt.

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