Energy Crisis

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This synopsis briefly explains the challenges faced by African countries with emerging oil and gas industries in bringing widespread economic advancement to their countries. Although, on the surface, the challenges appear straightforward, in essence they often prove to be very taxing and intractable. They are closely interrelated and, regrettably, have lingering consequences, which have come to be known as the 'resource curse'. At core the task facing these countries is how to ensure that the investment and rewards that ensue from oil and gas exploitation do not turn into this curse, working as a destructive force dividing civil society and government, spawning malpractices and benefiting only a chosen elite. Managing expectations

When a country discovers oil, the first challenge it faces is the need to manage the expectations of its citizens. Many people in the country will at once form the impression that they will become rich, especially the politicians in the capital and the populations living around the drilling sites. To counter this misapprehension, the government of the day should make sure that all relevant information, such as exploration costs, the volume and quality of the discovered reserves, and the payment agreements, is made public. The government should publish what percentage of the profits from the sale of oil will go into the national budget, what percentage will be set aside for development programmes and what will go into a sovereign wealth fund. Currently much of this information is never made available, resulting in mistrust between civil society and the government. Moreover, many developing countries fail to tell their citizens that oil revenues are a time-limited phenomenon and the country must take advantage of the years of income from hydrocarbon exploitation to expand its agriculture and industry. It must be made clear that the resource is finite and so are the streams of revenue that result from it. Any long-term added value that it might have will derive from the prudent investment and use of those income streams. Often the citizens expect or are promised subsidized gasoline and no one bothers to point out that this is a benefit that mainly profits the better-off members of society. Oil and gas resources and the revenues they produce do increase the wealth of a nation. Such revenue, however, is finite and short-lived and its effects quickly lost if the money is not invested in the development of profitable public infrastructure. Moreover, developing the extractive infrastructure of a country is essential if its natural resources are to be properly harvested. The Oil and Gas in Africa report, a 2009 joint study by the African Development Bank and the African Union, observes that many African nations are experiencing the paradox of having significant oil wealth and yet continue to languish in widespread poverty. As the authors point out, African citizens expect to see the oil and gas revenues invested in important areas such as human capital and infrastructure advancement, yet this is often not the reality of resource exploitation. By way of illustration, the report cites an estimated 2.5 billion cubic feet of Nigerian gas that is burnt off every day because of a lack of suitable infrastructure: a waste of energy and a loss of revenue. Capacity-building

The second challenge is the local capacity to manage an oil and gas industry. Unsurprisingly, in many emerging oil and gas producers this capacity is limited. The technical term for this property is ‘absorptive capacity’ – a useful concept even if no exact measurement can be made. The competition for lucrative new jobs causes much anxiety and animosity between foreign expatriates and local professionals. To begin to address such conflicts, after definitive confirmation of the potential of a drilling site, African governments should start training the staff that they will need to exploit the discovery. Although it may be difficult to be...
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