The Role of Local Content in Building Africa’s Oil, Gas and Renewables Energy Mix

Africa is at an energy cross-roads.

Africa is at an energy cross-roads. The continent’s best educated, most entrepreneurial and competitive generation is rising and taking on leadership positions that will propel African companies to become more competitive.

After such a long time dealing with the problems of the past, Africans can now look to the future. After all, when it comes to natural resources such as oil, gas, coal, diamonds, rare earths, wood and agricultural potential, combined with legacy-free technological development, there is no place like Africa. Over the last decade, most of the world’s biggest oil and gas discoveries have been on the African continent, and rapidly developing indigenous companies, along with ambitious local content policies, are ensuring resources serve Africans and African economies.

Oil and gas training programmes and university degrees that cater to the industry are now more common than ever. These programs are educating and giving opportunities for numerous Africans to find work in the energy industry and further, to start their own companies within the industry’s supply chain.

While the drive to strengthen the integration of the energy sector and other extractive industries with the rest of the economic system is far from complete, it has certainly been fundamental in developing Nigeria’s indigenous upstream sector or in building a truly native gas industry in Equatorial Guinea. In Nigeria for example, this critical mass of local talent has been instrumental in the establishment of regional energy giants like Seplat Petroleum, Sahara Energy, Atlas Petroleum International Limited and Shoreline Natural Resources, whose influence is felt more and more beyond Nigeria’s borders.

Local content clauses in contracts assure that the exploitation of local natural resources has a trickle-down effect on the local economy, through job-creation and training. Furthermore, most recent localization strategies for the oil and gas sector have been successful in developing truly native associated industries, particularly within the natural gas supply chain.

Intra-African trade in both natural gas and Liquefied Natural Gas (LNG) is also likely to rise significantly. Rapid urbanization and development across the continent are set to increase energy consumption by more than 50% before 2040. This will speed up wealth creation and capacity building across borders.

Following the oil price crash of 2014, many countries across Africa have sought to reposition themselves to attract investment into their energy sectors through the introduction of varying incentives. These incentives ranged from granting tax breaks to potential investors to reducing bureaucracy affecting the sector. On the other hand, the recent global climate change discourse, which has also intentionally sought to demonize and hinder investments into Africa’s oil and gas sector, poses a new challenge to its growth.

The issue of climate change has come to dominate the global energy debate. An energy transition is necessary to tackle the effects of CO2 emissions on a planetary scale. While Africa has contributed only a miniscule part of those emissions, it stands to suffer greatly from the effects of this change and must prepare for a progressive shift in its energy structure. In many ways, the channelling of natural gas for power generation and the upgrading of oil and gas infrastructure to improve efficiencies is already going a long way to reduce the industry’s carbon footprint. New renewable energy projects from Kenya to South Africa will also help balance out the continent’s energy matrix as it expands its electrification rates to reach every African in every corner of the continent.

Many international and foreign institutions have already started to share their expertise with African governments, and many foreign investors have begun developing their own projects in the mother-continent. Wind farms, solar parks, geothermal drilling and hydropower plants are taking advantage of each region’s available resources. Here too, these renewable resources must be used for the benefit of Africans, and they must be developed with the participation of Africans in a manner that is economically sustainable.

According to Verner Ayukegba, Senior Vice President with the African Energy Chamber and Director of Operations at DMWA Resources, a pan-African energy marketing & investment firm: “It is fundamental that these new technologies and sources of energy suit the communities which they are meant to serve. Climate concerns cannot side-line discussions over local content and localization strategies. They must go hand in hand, be one and the same, or else we may again find ourselves dependent on foreign knowledge to provide for our energy needs. Such dependence is unlikely to lead to the mass scale of development with the potential to lift large swaths of the population out of poverty.”

Education programs and employment clauses are a fundamental step of the energy transition and not a secondary aspect of it. Market-driven local content frameworks need to be designed for capacity building, employment generation and overall enforcing a value-adding multiplying effect in our economies.

Already, we see examples of gas-poor countries like South Africa investing in natural gas and LNG projects in gas rich Mozambique with the aim of reducing their growing energy deficit. As demand rises, exploration will accelerate and so will the use of the vast gas resources, including those that continue to be wasted through flaring. The African Continental Free Trade Zone is an ideal platform to promote the development of an intra-African natural gas trade that will promote widespread economic growth and access to power. Again, it is fundamental that these developments are pegged to well implemented and designed local content policies, so that Africans can truly benefit from the exploitation of their continent’s resources and be active participants in their energy transition.

The African Local Content Forum is returning to AOW 2020. For more on local content, look out for the launch of the new Africa Oil Week eBook, “Perspectives on local content development in Sub-Saharan Africa from across the oil and gas value chain”, this week.
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