By Ndaba

09-09-04

The African continent's trading framework is receiving development attention through organisations such as the New Partnership for Africa's Development (Nepad). However, the planning of energy infrastructure, power grids, petroleum and gas refining and distribution is still largely confined to the territory of the producing nation concerned. Africa could benefit enormously from regional energy integration.

While the African power sector is more advanced in terms of integration, little has been done to plan and integrate the whole oil, gas and power resulting in suboptimal outcomes. Natural gas, as an energy resource, is gaining attention and has tangible prospects for integration. Increasing awareness and understanding of the potential benefits of energy integration could play an essential role in economic growth and political stability, the pillars for sustainable growth on the continent.

One challenge facing Africa's energy sector is political volatility and instability. Conflict between neighbouring countries and internal strife create a volatile trade environment, destroy confidence and trust. Power, oil and gas, as well as political stability, are vital to Africa's economic development. The energy sector needs speed reform to realise sorely needed sustainable economic and social development.
Distribution of energy resources is uneven, with the majority of oil and gas reserves in northern and western Africa. Skewed distribution results in most African countries being net importers of oil and gas. This is where the value of an organisation like Nepad can be seen, to encourage good regional integration and governance on the continent.

African expertise in engineering, geology, biology, information technology and management is available, particularly the role South Africa's groups are starting to play in energy development and investment all over Africa. But on the project-management side, challenges are about obtaining project finance to fund the right projects.

Significant investments in the energy sector are funded by foreign sources, yet foreign direct investment has always been a particular challenge for Africa, given challenges such as risk, governance, economic returns and security. In the absence of fully fledged, functioning African market economies the more successful infrastructure energy projects are those supported, facilitated and guaranteed by governments in partnership with private investors.

Success of sustainable energy-sector development depends on the role of government, private-sector and international development agencies, energy-sector reform, public-private partnerships and a favourable investment climate.

The growth and prosperity of consuming countries depend on reliable and affordable supplies from African producers of oil and natural gas. However, with the rapid penetration of natural gas as well as the expansion of gas-pipeline networks, a global natural gas commodity market could soon be established, with prices partially decoupled from oil prices.

These challenges are being addressed through the advent of Nepad and the democratisation processes in various African countries. Foreign direct investment should increase commensurately as Nepad starts achieving its goals.

Africa should exploit its competitive advantages.

Ndaba is partner in Ernst & Young's energy, chemicals and utilities industry sector.

Source: Business Day