Image: African Business Magazine
Equatorial Guinea’s leading energy players united in a webinar on Thursday to address the impact of COVID-19 on the country’s oil and gas sector and delineate mitigation measures to sustain its pace of engagement with global investors.
With a sharp drop in the barrel price and 90% of its revenue derived from oil and gas exports, Equatorial Guinea is projected to be one of the hardest hit African economies by COVID-19. While no projects in the country have officially been postponed, companies across the continent in Ghana, Senegal, Mozambique, Uganda and Cameroon have encountered project delays, canceled contracts, postponements of final investment decisions and the implementation of ‘force majeure’ contract clauses due to the drop in exploration activity.
“When China was first hit, it started to affect oil prices and projects in the U.S., Canada, Europe and Africa started getting canceled,” said NJ Ayuk, Chairman of the African Energy Chamber. “In Canada, a barrel of oil was less than a pint of beer. In Equatorial Guinea, a lot of businesses are living on the brink due to the twin issues of COVID-19 and the oil price war. Before it gets better, it will get worse. More employers will terminate people, and more international service companies will reduce staff or move out of a country because of lack of activity.”
While Equatorial Guinea’s Ministry of Mines and Hydrocarbons made the decision last month to waive fees normally charged to service providers operating in-country, it has advanced a position of limiting government support that will be provided to companies enduring financial stress. The Ministry aims to curb the economic impact of COVID-19 and stimulate local job growth by continuing with its 2020 Year of Investment campaign, which centers on attracting foreign direct investment for the development of its downstream industry.
“The 2020 Year of Investment is focused on building refineries and processing capacity, which are the projects that create jobs,” said H.E. Gabriel Mbaga Obiang Lima, Minister of Mines and Hydrocarbons. “The role of the government is not to save everyone. Right now, companies are like someone who is depressed or sick. The first thing a company needs to do is recognize that it has a problem. Second, it needs to run a diagnostic and understand why it has the problem. In this case, the government is the doctor that provides the diagnostic.”
While support for small- and medium-sized enterprises and the need for local job creation was unanimously reflected as a priority, leaders from the African Energy Chamber called for bolder and more decisive government action that will enable service companies to continue operating in-country and relieve upstream operators and ongoing midstream infrastructure projects.
“If the government wants the industry to survive, it has to do something to keep jobs in the country,” said Ayuk. “While it does not have to waive payments from International Oil Companies (IOCs), it could look at deferring some social project obligations or trainings for 2020 that companies wouldn’t benefit from right now anyway. Even if it’s just symbolic, the government has to show an understanding that we are in this together. If the government does not show that, then it will have companies continue to fail on their own.”
“If the big majors don’t do well, we will never do well,” said Leoncio Amada, President of the African Energy Chamber, CEMAC Region. “Local companies need to be asking to IOCs, ‘What do you need from me as a local company? How can I serve you so that we both do well?’ You create jobs by creating strong, local companies.”
Following a National State of Alarm issued on March 22, Equatorial Guinea has mobilized economic and material resources by Presidential Decree to curb the spread of the virus, and implemented global health and safety initiatives, including the closure of borders and social distancing practices.
According to the Ministry of Finance, Economy and Planning, the government is partnering with the International Monetary Fund, World Bank, World Economic Forum and other development partners to strengthen diversification initiatives and resolve trade and fiscal imbalances, as well as defining minimum allocations for public health and safety in the state budget.
“Our 2020 fiscal budget secures a certain amount of funding for education and health,” said H.E. Cesar A. Mba Abogo, Minister of Finance, Economy and Planning. “Defining minimum allocations for the state budget has to be done. The pandemic is giving us the opportunity to rethink what we are doing when we dream about diversifying the economy. Everything we do does not make sense if the people are not at the center of it.”