Africa: Oil and gas opportunities abound for Africa amid Russia-Ukraine crisis
Most African economies have been on the precipice for two years.
First in the face of the unprecedented storm stirred up by the Covid-19 pandemic which caused the worst recession in more than half a century. And just as the recovery was finally on the ground and an economic rebound loomed on the horizon, the crisis in Russia and Ukraine disrupted global supply chains, leading to the worst inflation on record.
As the war has raged for six months, countries across the continent have remained resilient, still struggling to rebuild and improve their economies. So far, Russia has unilaterally declared its annexation of the four Ukrainian oblasts of Lugansk, Donetsk, Zaporizhzhia and Kherson. The four annexed regions represent approximately 15% of Ukrainian territory. Earlier, President Vladimir Putin announced that he was ordering a partial military mobilization and threatening nuclear strikes against Ukraine. There doesn’t seem to be an end in sight for a ceasefire, as President Putin is steadfast in his vision of restoring Moscow’s Soviet-era status as a superpower.
Most African countries have so far largely refused to condemn Russia’s invasion of Ukraine. The UN General Assembly passed a resolution, declaring a strong stance against Russia’s invasion of Ukraine in early March. Among the 54 African member states, nine countries did not vote, 26 chose to remain neutral, 16 chose to abstain and Eritrea voted against the resolution. Amid the crisis, the geopolitical struggle for power and influence in Africa between the global superpowers, in this case the United States, China and Russia, has been rapidly evolving.
The United States has been constantly rejuvenating its diplomatic relations in Africa to counter a Russian charm offensive. In light of this, US Secretary of State Antony Blinken recently concluded his second African tour in August, where he visited South Africa, DRC and Rwanda. He made his first trip late last year and visited Kenya, Nigeria and Senegal. This second trip was preceded by a diplomatic visit to Egypt, DRC, Uganda and Ethiopia by Russian Foreign Minister Sergei Lavrov. Additionally, the United States Ambassador to the UN, Linda Thomas-Greenfield, also visited Africa on another diplomatic tour, where she visited Ghana and Uganda. Similarly, US aid chief Samantha Power recently traveled to Kenya and Somalia, where she noted that rising malnutrition in the region was exacerbated by Ukraine’s invasion by Russia.
Moreover, the United States has sought to counter China’s massive influence on the continent. This was highlighted during the G-7 summit, where US President Joe Biden launched his Build Back Better World or B3W plan, as an alternative to China’s Belt and Road Initiative (BRI). B3W is part of a joint effort between the G-7 partners, to deliver quality and sustainable infrastructure. The goal of the initiative is to create “a values-driven, high-level and transparent infrastructure partnership” to help fund projects in developing countries. In response to the recent Western charm offensive, China removed tariffs on 98% of goods imported from nine of Africa’s least developed countries (LDCs), additionally making extensive trips to the continent to bolster relationships.
At the same time, Moscow has endeavored to strengthen its ties with Africa, to build its reputation as “defender of Africa”. According to Irina Filatova of the Moscow Higher School of Economics, Russia aims to establish itself on the continent as a security broker, in order to “confront the collective West” and project the image of a “defender of Africa” ; a goal shared with the West but which the latter has failed to achieve. Russia has been an ally of several African nations, which have been particularly affected by the insurgencies. Insecurity in most parts of the continent, especially in ‘resource-rich’ countries such as DRC, Nigeria, Libya and Mozambique, has seen countries import arms from Russia, to thwart still-emerging insurgencies .
Additionally, in some countries, Russia has sent its own forces to help suppress rebel militias. In reiteration, Niger, Mali, Burkina Faso, Chad and Mauritania have all requested Moscow’s help to help fight al-Qaeda. Similarly, Moscow has also sold nuclear power plants and other related technologies to developing countries such as Ethiopia, Egypt, Zambia and Nigeria. According to the Stockholm International Peace Research Institute (SIPRI) Annual Report 2020; arms exports to Africa accounted for 18% of all Russian exports between 2016 and 2020.
Africa had strong historical relations with the former Soviet Union in the 1950s, which backed several liberation and independence movements, offering global support; financially, militarily and diplomatically, against the European colonial masters. African countries have the upper hand in benefiting from each of these powers, towards achieving their respective national development goals.
Africa’s economic prospects after the Russian-Ukrainian crisis
The Russian-Ukrainian conflict presents a myriad of economic opportunities for Africa. Reminiscent of the colonial era, there seems to be a new rush in demand for Africa’s oil and gas resources; pertinently by EU countries, seeking to wean themselves off Russian energy.
The EU has set out an ambitious path to reduce energy dependence on Russia, in response to the energy disruptions caused by the ongoing conflict. The ‘REPowerEU plan’ aims to save energy, produce clean energy and diversify energy supplies. African oil and natural gas producing countries such as Mozambique, Nigeria, Libya, Egypt, Cameroon, DRC, Angola, Namibia, Algeria, Ghana, Gabon, Mozambique , Equatorial Guinea among others; have an invaluable window of opportunity to contribute significantly to the global energy landscape.
In response to the EU’s partial embargo on Russian oil, these countries need to create a favorable business environment and capitalize on the opportunities offered by the bloc’s diversification of natural gas sources outside of Russia, and fill the gap. The crisis has given Africa a golden chance to capitalize on its strengths in its energy transition.
Can these countries rise to the challenge of meeting their domestic needs while exporting surplus gas products to Europe? Africa’s geographical proximity to Europe is an advantage that can help increase exports to the latter. The recently signed Memorandum of Understanding between Afreximbank and the African Petroleum Producers Organization (APPO) for the establishment of an African Energy Transition Bank, to finance oil and gas projects on the continent, will support and increase opportunities for financing and investment for the African oil and gas industry.
The crisis has thrown the energy market into chaos, sending fossil fuel prices skyrocketing. This has given rise to global demand for thermal coal, especially in the Asian and European markets; most countries in both regions being dependent on Russia, the country being the world’s third-largest supplier of thermal coal used primarily for power generation. Coal-fired power plants scheduled for closure in Europe have been reopened to fill the gap in mitigating fuel and power generation costs; as an alternative gas, is unquestionably more expensive. With energy security under threat, climate policies and commitments have taken a back seat. The EU recently declared that natural gas is now eligible for green investments.
The African coal market is expected to double its revenues over the next year. The current energy deficit has created a window of opportunity for African coal-producing countries. According to a Reuters report, South Africa’s coal exports increased 11-fold in the months following the war. Botswana also forecast growth in its coal market. Massive demand far exceeds available supply, causing thermal coal prices to soar to record highs. African countries with coal resources have doubled their profit margins, with the surge in demand from European buyers. Italy, France, Portugal and Spain sourced gas from Nigeria, while Germany sought Senegal for gas supplies.
Revenues from increased energy exports to Europe and other markets could be reinvested to boost agricultural productivity in Africa to alleviate dependence on wheat products from Russia and Ukraine. In addition, the surplus could boost the continent’s manufacturing sector, including fertilizers to promote agricultural productivity that fuels most economies in Africa.
The economic prospects to be reaped from all these world powers combined are unimaginable and could be the continent’s springboard to massive development. The wide range of their respective aid to the continent, from infrastructure development, technology, power generation, internet connectivity to agriculture and a plethora of other sectors. For example, from China’s BRI and US B3W, Africa’s infrastructure could be massively transformed. In the same breath of Russia, Africa could benefit from nuclear technologies, weaponry and conflict management by sending troops on the ground to thwart rebel groups as we saw in Bangui.
Africa must play its cards right in order to boost economic productivity, increase export earnings and support long-term socio-economic development.