10th Africa Oil & Gas Trade and Finance Conference

Algiers, 2-5 April 2006

Conclusion

The 10th Africa Oil & Gas Trade and Finance Conference took place against a background of hope for the future. Stability has returned to many countries, and across the continent growth rates have reached levels much above those of the recent past. These developments are partly driven by the high prices for oil (Africa's principal export) as well as many of its other commodities. The more stable environment has attracted many new exploratory activities, which have been so successful that Africa's share in new discoveries is considerably above its share in current world production; in the near future, Africa can expect to have several new oil exporters. The interest of the financial Community in Africa is growing, and for projects which are structured right, the terms at which finance is available are becoming steadily better. At the same time, the international community has committed itself to Supporting growth and sustainable development in Africa, as visible, for example, in the start of a widespread debt relief programme.

High oil prices provide a window of opportunity only for some countries, though. Others are large importers of oil and oil products, and as was discussed in the conference are having difficulty in bearing the burden of a strongly increasing import bill. Furthermore, oil exporters and importers alike are faced with a difficult choice when it comes to deciding whether to pass oil high international prices to consumers. On the one hand, can consumers support higher prices - and can governments afford the political repercussions of oil or transport price increases? On the other hand, can Africa afford to give incorrect price signals to its consumers, at great cost to governments (money that could have been used for investments or other more targeted consumer Subsidies), price signals that will encourage over-consumption of a rapidly depleting resource?

African Countries also have to make choices on how to use their oil. Will it be used to generate export revenue, or as a fuel for countries' or indeed the continent's energy sector development? Using gas resources to generate power will be crucial for the continent, and the conference heard about successful, replicable schemes in this regard. Developing more such schemes is essential, and to make them bankable, a public-private partnership approach will often provide the key to success. Indeed, while some countries, including the host country of this conference, have been highly successful in spreading electricity to large parts of their populations, in most of Africa the vast majority of the population still has no access to modern forms of energy. And if no major new efforts are made, their number will only increase in the years to come. Instead of using commercial energy, these populations largely depend on firewood, to the detriment of their environment and adding to global climate concerns.

Governments have to solve energy problems at the local level, but they cannot be solved at the local level alone. More regional and pan-African cooperation, and indeed, South-South cooperation, is necessary, in terms of large investments in infrastructure - several of which were discussed in the conference -, harmonization of national legal and regulatory systems both upstream and downstream, common service provisions in areas such as combating marine pollution, and technical cooperation. Several African Countries have considerable expertise in certain energy domains, embodied at times in training institutes, and countries should be encouraged to make more use of such expertise as exists on the continent. The large oil exporting countries often have the capacity to show solidarity with others - and such solidarity may well have better effect when used for productive engagements rather than for cash hand-outs or the provision of cheap oil.

There are already considerable oil and gas production activities in the continent, and it is important to exploit existing reserves with the greatest efficiency possible: African producers should strive for technological excellence. The conference heard of several innovative technologies in this regard. Also, the revenue from these activities should be well managed - in this respect, the conference heard about some of the latest techniques for managing risk, including price risk.

The conference heard much about the need to improve the development Multiplier of the hydrocarbons sector, the effect that the sector has on the economy as a whole. Stimulating local content, as a way to better integrate hydrocarbons exploitation into the economy as a whole and use it as a stepping stone to wider industrial development, is of prime importance in this respect. But developing local content, while dependent of the government opening up room for local small and medium enterprises in upstream and downstream oil activities, as well as oilfield services, does not dependent on making room alone. Governments also have to create an environment where private enterprise can thrive. Entrepreneurship is still weakly developed in the region, and those entrepreneurs who do emerge often find themselves stifled by an environment of excessive bureaucracy and financial institutions that are unwilling to give them credit. The conference heard about innovative financing schemes in a few countries that would help overcome such financing constraints, in particular reserve-based lending and special schemes for local oilfield services providers, and also heard about the greater interest of the capital market in providing equity investments into local enterprises - but the legal and regulatory environment has to be supportive.

Developing local content is a key element in ensuring that hydrocarbons reserves do not just serve the current generation, but also future ones. African leaders have a duty to ensure that by the time that their hydrocarbon reserves have dwindled, or they are no longer available for export because local need has grown strongly, other export sectors have developed in their place. This requires considerable investments in infrastructure, and African oil exporters should not shy away from using their currently high revenues to support such infrastructure developments (responding to calls for isolating revenues into savings account for future generations may not be the best use of money in an environment with massive infrastructure needs). The conference heard some ideas in this regard, including the possibility to set up specialized, professionally managed investment funds to dissociate investment decisions from political pressures.

The current high hopes for the African continent are not misplaced. But to realize this hope will not only require vision from Africa's leader, but also the will and capacity to implement and an attention to detail. This conference has addressed both levels - the forest as well as the trees - and will hopefully contribute to improving the contribution that the hydrocarbons and energy sectors make to development and poverty alleviation. The conference expresses its thanks to the Government and people of Algeria for their warm welcome to its delegates and its gracious organization of the event, and UNCTAD for the initiative of organizing this series of conferences. This first 10-years jubileum will hopefully only be the first of a long series - the time to retirement is still far away.

Thus read in Algiers on the 5th of April of the year 2006.