Interview with Mr. Mahaman Laouan Gaya, Secretary General of the African Petroleum Producers’ Organization (APPO)


The African Continental Free Trade Area (AfCFTA) was launched in Niamey (Republic of Niger) on July 7th, 2019. What place can African oil have in this vast area?

Mahaman Laouan Gaya: The African Continental Free Trade Area (AfCFTA), a dream of the OAU Founding Fathers, aimed to organize a large African Union with an economic component in which there was talk of freedom of movement, exchange of goods, services, persons, and capital. A priori, we can only welcome this initiative whose objective is to create the largest common market in the world that will be able to better integrate the economies of African countries. But let’s face the reality, as far as the ”African oil component” is concerned. 

It is unanimously recognized that in the current state of things, international trade is done almost without Africa, since only participating 2%, and whose essence is the trade of African crude oil. World trade accounts for $ 63 trillion worth of traded goods, and oil accounts for more than 20%. So, when you take a quick look at the world’s oil geopolitics, we can see that the development of the shale oil industry in America is clearly indicating the decline in so-called conventional oil and gas reserves, the reserves of some major oil companies, producing countries (Russia, Middle East) are also increasingly depleted, which is not the case of Africa which started the exploitation of its oil in the 60s.

A third of the discoveries of hydrocarbons of the last twenty years in the world have been in Africa. This amply proves the continent’s strategic position as a new hot spot for global exploration and it consolidates its position as the world’s most attractive oil and gas frontier. Richly endowed with hydrocarbon resources and exponential demographics, Africa has everything to succeed. The oil reserves are there in abundance, and there is no doubt that the African hydrocarbon potential can compete tomorrow with that of any other region of the world. This very often leads me to say that if Africa were to be considered as a single producer, it is certain that our continent will challenge Saudi Arabia, Russia and the United States of America.

Today, Africa accounts for 13 to 14% of world production, almost as much for reserves (and many off-shore and on-shore areas of the continent are under-exploited or not yet explored), but the continent only accounts for 3 to 4% of world oil consumption, and here too, a good part of the petroleum products we consume is paradoxically imported from Europe (Europe which hardly produces more crude oil!). Intra-African trade in oil is virtually nil, except for a very small quantity of refined products, traded between neighboring countries. 

Africa’s hydrocarbon potential (oil, gas, coal) can largely meet the energy needs of the continent’s 1.2 billion people, and it is unfortunate that this reality has not attracted attention in elaboration of the texts of the AfCFTA. Moreover, the African Petroleum Producers’ Organization (APPO), is in the prospect of undertaking a study with the Association of African Refiners and Distributors (ARA) on the creation of an African physical market for crude oil and petroleum products; this project falls within the framework of the APPO’s 9th Program of Actions and I dare to hope that after the establishment of this physical market, we can migrate later to its financialization. It is possible to design a stock market in Africa, as is the case in some parts of the world and to quote a reference African crude oil. I remind you that crude oils from the Gulf of Guinea (especially Bonny Light) are of superior quality to Brent and WTI (the two references for crude oil on international markets).

As a matter of fact, I remind you also for the record that North Sea Brent no longer exists physically and the American WTI is the victim of its depletion with the massive arrival of shale oil in the United States; in other words, the quotation on the international oil market is done on virtual oil. So, you agree that with such a large oil potential, a market of more than a billion consumers and good governance, Africa can cope with the vagaries of hydrocarbon supplies and the “whims” of the international oil market. While the importance of oil in world geopolitics is well established, its role as a driver of intra-African cooperation remains to be implemented. Political will to build capacity for regional cooperation will, of course, enable African countries to play their game well. In short, this is a very good opportunity to investigate what I can call the ”AfCFTA, Oil Component” which can be an appendage of the African extractive raw materials market. I would also point out that, beyond oil, Africa holds three-quarters of the world’s raw materials reserves.

You mention there is a problem of coordination with the African Union.

Mahaman Laouan Gaya: I cannot give the exact reasons for this, but your question raises the eternal problem of governance of African integration institutions. Today, there are global issues that require a global response, a synergy of action, a pooling of efforts for more efficiency in the management of all sectors (especially that of energy) and to do this it is essential to avoid dispersion. 

Remember that in the wake of the creation of the Organization of African Unity (OAU), it was thought that to achieve a general integration of the continent, it is necessary to create regional organizations which must start by integrating the policies and economies of the States found in an area. Thus, Africa was divided into five geographical regions (the five Regional Economic Communities – RECs), followed by a proliferation of sub regional and regional sectoral organizations. With this multiplicity of organizations essentially pursuing the same goals and being made up of the same countries, the process of integration has been hampered by serious difficulties. This is the case of the energy sector, where we find at the continent level dozens of organizations with the same member countries, the same missions and objectives, without organic links between them, and who have unfortunately in the field no activities other than endless meetings and conferences. Elsewhere, for greater efficiency, western countries have created a single organization of the energy sector, the International Energy Agency (IEA) and Latin Americans, the Latin American Energy Development Organization (OLADE).

We therefore need to have one single body for the whole continent, and this will work better. Recently in Malabo in Equatorial Guinea, the Council of Ministers of APPO Member Countries in a Resolution asked the APPO Secretariat, together with Algeria, to approach the African Union Commission for a merger of the APPO with the African Energy Commission (AFREC). I personally think that if this happens, we can federate all this plethora of organizations and make it more powerful, more operational and more efficient, grouping all subsectors of energy (hydrocarbons, renewable energies, electricity, nuclear energy, urban waste valorization, energy efficiency).

To complete your first question, since the entry into force of the AfCFTA is for the moment theoretical, because it takes more time and long rounds of negotiations, before the tariffs between all African countries can be eliminated, the political will could allow the recognition of the “Oil aspect” or better still the “Energy aspect” in this process.

III- However, the African Union has worked hard to coordinate African policies in the extractive and energy sectors!

Mahaman Laouan Gaya: It is undeniable the gigantic work that has been slaughtered for years by the authorities of African Union and those of the United Nations Economic Commission for Africa. But what has been the outcome of all these meetings, studies and multiple Declarations (which I will not fail to acknowledge the relevance)? I found in the archives of African Petroleum Producers’ Association (now APPO) the results of many meetings held for decades, on the coordination of African oil policies, with action plans intelligently developed but, nowhere have I found any start in the implementation these action plans. Recently in 2009, the African Union developed the African Mining Vision (AMV) which is a guiding framework that targets the strategic use by Africa of its mineral resources to ensure its inclusive, bottom-up development. This excellent policy framework aimed at transforming Africa’s extractive sector for sustainable development is fueled by inertia, a lack of readiness in implementation and a lack of awareness among all stakeholders. And yet, Africa’s development depends on the willingness of our countries to pool their respective capacities. It is not a question of renouncing their own interests, but of using regional and continental cooperation as a springboard for safer strategic, political, economic and energy independence. Provisions must be made to remedy this situation.

In the case of strategic resources such as petroleum, coordination and respect for our policies require political will, but above all great courage to escape the grip of international oil capitalism. The oil dynamism Africa knows today is a chance for power and undeniable development. But I remain hopeful that with the enthusiasm generated by the launching of the ”operational phase” of the AfCFTA (all the African countries were recently in Niamey in Republic of Niger), the political will of our leaders would prevail in the sense of a rationalization of our institutions of economic integration, a harmonization of all the sectoral policies, prerequisites to abound accordingly towards sectoral markets (finance, insurance, oil, electricity, air transport, etc.), regional markets (of the five RECs) and finally a single continental market. Energy cooperation and integration can play an important role in the future of african States and the place of oil in this cooperation must be greater; this, because of the highly strategic value of this resource and its ability to serve as seed money for the diversification of our economies.

IV- Your Excellency, as an expert in the oil sector, which governance of oil resources can lead to a sustainable development of Africa?

Mahaman Laouan Gaya: As I said earlier, Africa is by far the continent best endowed with natural renewable and non-renewable energy resources. However, it is generally accepted that our countries derive very little benefit from these resources, due to a lack of vision, inefficient internal governance and an international environment that produces and maintains often destructive economic and commercial practices. Yet, these resources that Africa possesses offer it a unique opportunity to promote its human and economic development. However, Africa suffers from the abundance paradox that abundance of natural resources does not translate into equivalent levels of prosperity, large-scale development and resource-based industrialization.

One of the main obstacles to African countries reaching this potential lies in poor governance. Poor governance is the lack of strong institutions and weak policies aimed at short-term gains, not long-term development goals. It is widely recognized that overall, the wealth of natural resources in general and oil has never benefited African populations in terms of inclusion and poverty reduction. So, in a sector as strategic as hydrocarbons, what must first be avoided is the visual piloting and the institution on all occasions of ad-hoc type committees to reflect on the conduct to follow and have a vision. The lack of a very clear vision of the oil economy means that in producing African countries, oil rent is much more perceived as an additional financial resource to the national budget, while links must be created between the oil sector and the rest of the economy to promote economic diversification and avoid harmful dependence and the ”Dutch disease”.

Indeed, the oil economy must be treated in relation to the national economy with long-term strategic planning; otherwise the oil sector must be an enclave of the national economic system. With this logic in mind, the oil and gas sector could make a positive contribution to inclusive economic growth and sustainable development provided that effective governance mechanisms are put in place, capacities to manage and control strengthened, and linkages between them, resources and other vital sectors of the national and local economy are clearly established. Also, in the current context of development of the oil and gas sector, African oil legislation must allow our countries to make the most of the economic benefits and opportunities that any efficient extractive economy must offer.

Oil codes need to consider the challenges and complex issues of revenue transparency, contracts and beneficial ownership, tax optimization through illicit financial flows, corruption, environmental and social accountability, content training and job creation. If a country is to make a profit from its new extractive resources, it is imperative to put in place regulatory and non-regulatory mechanisms that balance the interests of foreign investors with those of the national economy.

Government, civil society, the private sector and citizens must act together to collectively strengthen the appropriate regulatory and regulatory mechanisms to ensure good governance, before the start of any commercial oil production. On the other hand, it should be kept in mind that many producing countries have a very concentrated fiscal policy on oil revenues. As a result, diversification of economies reduces vulnerability, supports long-term growth and strengthens resilience to external shocks. Ultimately, Africa, extremely rich in extractive resources, must profoundly diversify its economy, but also have a vision on its development and the evolution of commodity markets in which it holds (thank God!), most of the global potential. So, to make the most of our energy and oil resources, we must first settle this prerequisite. APPO is integrating all these issues as part of its ongoing institutional reform and we need to stimulate constructive reflection and debate. On the other hand, since oil is a non-renewable resource, and more and more difficult to find, other sources of energy must be explored. It is obvious that beyond the fossil fuel sources, our countries must integrate in a significant way in their energy mix renewable energies particularly abundant in Africa.

The problems that plague the economic and social development of our countries are nothing other than the result of poor governance of the energy sector (oil resources in particular) and the failure to consider the issue of sustainable development in their economic policy. In recent decades, Africa has been at the heart of all kinds of debates, both on the misery in which its populations are vegetated and on its immense potential and its incomparable natural wealth that could bring in more than $ 30 billion in revenue per year over the next twenty years. As I said earlier, it is recognized by all that the African subsoil is full of abundant fossil energy resources (oil, gas, coal, uranium,) and those of renewable origins (hydro, solar, wind, biomass, geothermal). In addition, Africa is today inhabited by nearly one billion inhabitants, 60% of whom are young, while Europe, America and Asia are becoming increasingly ”aging”.

If with all these riches Africa cannot take off, I am not sure that the oil resources are the only ones responsible for them or that in the current socio-economic situation they can meet the challenges of underdevelopment. The causes of Africa’s lag are more elsewhere than in oil. Certainly, the existence of extractive resources never fails to raise controversy and the use of negative clichés for Africa. 

You hear here and there (and very often rightly), superlatives such as “paradox of abundance”, “curse of natural resources”, “geological scandal”, etc. Let’s acknowledge that we have somewhere flanked to be treated in this way! While the prospect of huge revenues from our natural resources may seem intoxicating, it also raises the issue of governance in this sector, a crucial element in the fact that almost all our countries, even with abundant extractive and energy resources, have not yet borrowed, far from it, the road of development. 

Never has the primary sector and human resources been considered in Africa as the fundamental levers for true sustainable development. This is precisely why those who call our situation “the paradox of abundance” are not entirely wrong. However, a macroeconomic approach has shown that the recent decline in oil prices has had recessive effects in almost all African net hydrocarbon exporting countries (falling currencies, sharp drop in tax revenues, slowing investment and diversification, re-debt, adjustment of the budget to a price twice as high) and more modest expansionary effects in other net importing countries. Only a few countries have seized the opportunity to support their growth in a slightly more diversified economy; if not for the most part they have not been able to stand out from the heavy dependence of the oil rent; which made them suffer the sad fate of “Dutch Disease”. 

Added to all this, the lack of basic infrastructure, the shortage of skilled labor, bad governance, chronic and endemic corruption. We face the greatest danger; that of non-development, not to say ”refusal of development”. If the African producing countries have suffered and are still suffering from the recent drop in oil prices (the threat of a relapse is not definitively ruled out), it is because they have always lived an unhealthy dependence vis-à-vis oil production and their savings still too little or no diversified.

Yet, often referred to as a solution to increase their resilience, the diversification of the economy and sources of budget revenue is struggling to be implemented. However, all the political speeches of recent years revolve around the diversification of economies. With the current gradual rise in oil prices, we are very likely to see another postponement of the much-touted economic diversification policy (until the next crisis, of course!) The occasion of the next election campaigns. History repeats itself and will continue to be repeated; but man, never draws lessons from difficult moments. As Seneca said, “Life is not waiting for the storm to pass but learning how to dance in the rain.”