Africa's Five Biggest Hurdles for Investors: PwC
International consultancy PwC says the five biggest obstacles for would-be investors in Africa's oil and gas sectors are regulatory uncertainty, corruption, high financing costs, foreign currency volatility and taxation. This update on last year's review shows some changes in ratings, although not at the top: the number 1 problem is uncertain regulations, for the fourth consecutive year.
Its report, Learning to Leapfrog: Africa oil and gas review, issued in South Africa on November 1, says that global companies spent less on exploration in 2016 than in 2015 with those already investing now cutting costs.
Corruption is now the second biggest hurdle, having been third last year. High financing costs is in third, up from eighth in 2016; while foreign currency volatility rose from 11th place last year to fourth. Taxation requirements dropped to fifth from second place in 2016, according to the report based on interviews PwC conducted with 79 officials working along the hydrocarbon value chain in 11 African countries.
In Nigeria, the Petroleum Industry Bill has been debated since 2008. It has faced opposition from various fronts, forcing the government to split it into four parts to increase its chances of its passage by parliament by the end of 2017.
In South Africa, “Upstream regulation remains uncertain, with separation of oil and gas from mining still not achieved in the Mineral and Petroleum Resources Development Act,” the report says, adding that some amendments made in August, might be unconstitutional.
Laws enacted in Tanzania to force petroleum contract renegotiation could undermine investor confidence if the government starts the process.
The report praises Mozambique for approving the New Gas and Petroleum Law 2014 in August of that year saying the piece of legislation reduces uncertainty. However, “issues remain for (potential) investors. These include the state’s ability to participate at any lifecycle phase (creating planning uncertainties), local participation requirements (preferred at up to 100% premium over internationally sourced goods and services) which will lead to higher costs and potential supplier risk, and requirements for resources to be used domestically (potentially challenging in early years of production given an immature market).”
The PwC report notes that despite the existence of anti-corruption programmes at government and corporate levels, their effectiveness is questionable as corruption remains rife.
Given the uncertainty, financial institutions are unwilling to offer affordable financial terms for loans earmarked for the continent’s gas and oil industry.
“As most respondents operate multinationally,” PwC notes in the report, “foreign currency volatility is a key issue. When compared to the US dollar, we can see volatility across most major currencies. However, we can also see that many currencies across the continent have devalued over the period, which is likely the more pressing issue.”
To survive the challenges, firms need to adapt to the dictates of a decarbonising market, restructure their portfolios and invest in modern technology to improve their operations and defences against cyber crime.