x Abu Dhabi, UAESunday 21 January 2018

East Africa's energy boom depends on Abu Dhabi's model

East Africa is uncorking a bonanza of oil and gas, and has an opportunity to learn, from Abu Dhabi, how to do this with the best results.

East Africa stands on the edge of one of the largest energy discoveries in modern times, but is ill-prepared to manage it. Unless it can avoid the "resource curse", the wealth could be a bane and not a blessing. This is where Abu Dhabi could help.

From Mozambique to the south and as far north as Somalia, stretching inland to the edges of Sudan's already prolific fields, lie billions of cubic metres of energy reserves. Explorations show that up to 65 billion barrels of oil and gas lie under the waters of the Indian Ocean.

Few regions need this unexpected bounty more. This stretch encompasses some of the poorest nations on earth. More than half of the people of Mozambique, for instance, live on less than a dollar a day, the median poverty line.

Unfortunately, none of the countries on the edge of this windfall have any experience in managing it. Tanzania for instance, which stands to earn $7 billion (Dh25.7 billion) a year from gas export earnings, is relying on energy policies it drew up to manage regulated gas imports in 1980. Kenya, whose newly discovered inland Turkana oil field will catapult it into the league of major exporters, also depends on antiquated rules drawn up decades ago.

Neither country, nor any of the others in the region, has drawn up rules that will govern investment, or specify how the new wealth will be managed.

This is not unlike the situation Abu Dhabi found itself confronted with when the economy opened up to oil producers in the 1960s. The UAE emerged from the shadow of British colonialism to find that it had to draw up an energy management framework from scratch.

At the same time, a lack of infrastructure means that as East African countries draw in vast revenues, their ability to manage and spend the money is very limited.

Uganda, which is close to bringing its vast Lake Albert Basin oil field to production, struggles to spend its meagre annual budget. It has plenty of worthy projects, such as a crying need for schools, roads and new hospitals. But without engineers, roads will not be built, and without managers, projects will not be carried to fruition.

Critically, these countries are aware that another precedent looms over them: the fate of West African oil producers hangs over the continent like a dark cloud. Nigeria's former military dictator Sani Abacha used billions of dollars in oil revenue as a personal fund for himself and his family; and Equatorial Guinea's people are among the world's poorest, as they suffer under a grubby regime that makes sure little of the country's energy wealth leaves their hands.

Nigeria, the eighth largest oil exporter, still has to import petrol because its refineries are old, poorly maintained and badly managed. The country has no local energy industry to speak of, in spite of oil being the country's major export industry since the 1960s. In addition, much of the country's oil producing Delta region is now an environmental disaster zone, where swamps lie thick with spilt crude.

Nigeria has become the byword for the "resource curse", the phenomenon by which a country's wealth becomes a burden, not a blessing, to its people. As a result, the current Nigerian government under Goodluck Jonathan has an uphill battle to reverse decades of bad management, at a time when the country's population grows ever more fed up and restive.

Hurdles are not only technical. Africa's newest country of South Sudan is on the edge of full-scale war with its old nemesis in the north. Boundary squabbles also threaten Kenya's offshore oil claims, which Somalia's nominal government says falls within its territory.

Across East Africa, however, the feeling is that this time, it must be different. Up and down the region officials are carefully weighing their options, and many are looking to the Gulf states, and Abu Dhabi in particular, as a model for how to proceed.

Uganda made proposals as soon as it opened a UAE embassy in late 2009 to learn from the experience of Abu Dhabi, says Semakulu Kiwanuka, the Ugandan ambassador to the UAE. Uganda is not only considering a wealth fund, similar to that of the Abu Dhabi Investment Authority, it also wants to emulate the success of the emirate's energy sector.

African intellectuals and leaders are acutely aware that the primary beneficiaries of their energy wealth will initially be the oil companies headquartered in London, Paris and Houston.

Abu Dhabi faced the same challenge during the infancy of its oil exploitation. Today, Adnoc oversees the production of more than two million barrels of oil a day, and is the basis of a growing petrochemical industry.

Abu Dhabi, without the baggage of a colonial power, is in a strong position to extend its diplomatic and economic influence throughout the region. African countries will need assistance in developing their resources, even as they remain wary of the intentions of their western and, increasingly, Asian suitors.

Already Mudabala has taken up the challenge through its purchase of an exploration block in Tanzania, where it hopes to find gas. More such deals are likely to follow. For Abu Dhabi, it would mark the expansion of its energy industry out of its home territory in the MENA region; and for Africa, a welcome new partner as it sets out on the path of energy development.


Gavin du Venage s a business journalist and commodities analyst based in South Africa