KAMPALA, Uganda—President Obama's appeal for greater U.S. investment on the African continent was not major news in this booming East African capital where economic progress can be measured by glassy new office towers built for Chinese energy firms and the recent opening of Kampala's upscale Acacia Mall, where the main imprint of U.S. culture and business is a Kentucky Fried Chicken restaurant.
Uganda's national newspaper, New Vision, ran its coverage of the U.S.-Africa Leaders Summit deep inside yesterday's editions, alongside a photo of the American president whom many Africans view as their strongest ally—Bill Clinton. (The newspaper's website did publish the full text of Obama's remarks, along with photos of the current president.)
Indeed, despite the Obama administration's best effort to inject new muscle, and $14 billion of private investment, into U.S.-African business relationships, the reality is that the United States has fallen far behind Europe and Asia when it comes to meaningful foreign investment, even if Kentucky Fried Chicken has proved immensely popular with Kampala's mallgoers.
Nowhere is the evidence of that surge clearer than in the energy sector, where a handful of companies from the United Kingdom, France, China, Canada and the Middle East are licensed to tap much of East Africa's oil reserves and ship crude through a 800-mile pipeline to the Indian Ocean. Meanwhile, Russian and Korean firms are vying to build East Africa's newest oil refinery, a 60,000-barrel-per-day plant in northwestern Uganda.
Uganda and Kenya are the closest to tapping new oil and gas reserves in East Africa, and both enjoy relative political stability and investment potential, according to experts here. Their prospects for generating new oil wealth are stoking interest in neighboring countries, too, including Ethiopia, South Sudan and even the Democratic Republic of the Congo, where rebels have been fomenting instability in the very regions where oil is most abundant.
"Kenya is in the first stage of oil exploration and needs more funding at this stage," John Muchiri, an energy consultant based in Nairobi, told the Ankara, Turkey-based Anadolu news agency this week as roughly 40 African leaders gathered in Washington, D.C. The country made its first commercial oil discovery in 2012 and is aiming to begin first production by 2016.
Oil and gas discoveries
Kenya's Foreign Affairs Ministry spokesman Edwin Limo told the Turkish news wire that President Uhuru Kenyatta and Energy Cabinet Secretary Najib Balala were planning to hold side meetings "with a number of American energy companies who have shown their interest in investing in Kenya after the discovery of oil in our country."
In Uganda, which claims East Africa's largest reserves, oil and gas developers are expected to have invested as much as $3 billion in the country's emerging oil fields in the Albertine Rift, according to the Ministry of Energy and Mineral Development. But none of that money is coming from U.S. firms.
Raising billions of dollars in foreign investment for African energy projects has also been hampered by long-standing concern about political corruption, insecurity and even violence. Companies operating in West and North African countries, whose oil and gas programs have been in place much longer than those of East Africa, have been subject to a variety of problems, including vandalism, kidnappings and even acts of terrorism.
But opportunity looms here, as experts say tens of billions of additional dollars may be needed if Africa is to fully tap its petroleum potential. The World Bank has estimated the continent's energy and transportation needs over the coming years will require an additional $50 billion of investment annually.
As it stands, "energy poverty" remains a massive problem for sub-Saharan Africa, with an estimated 600 million people lacking electricity, according to the International Energy Agency. Insufficient refining capacity, particularly in East Africa, has also contributed to rising fuel prices at the pump and taken a toll on the region's road infrastructure, where fuel-laden tanker trucks cross thousands of miles to deliver gasoline to stations in the interior from import terminals in Kenya and Tanzania.
A December 2013 brief from the Brookings Institution estimated that sub-Saharan Africa boasts over 132 trillion barrels of proven oil reserves—more than 8 percent of the world's supply. "Yet, by exporting most of this oil to refine it elsewhere, including for eventual domestic consumption, the continent has long missed out on a huge opportunity for economic transformation," Brookings said.
Lavish financing from China
For now, most of East Africa's leaders appear to be focused on trying to tap a seemingly bottomless well of Chinese direct aid and loans for everything from energy projects to road building to technology improvements.
For example, last September, Chinese National Offshore Oil Corp. secured a $2 billion government contract to develop the Kingfisher oil field in northwest Uganda, estimated to hold 635 million barrels of oil, about 200 million of which is considered recoverable.
Where oil is not East Africa's top energy priority, hydropower has drawn considerable interest, especially in the Nile Basin. And renewables, including solar and biomass, have proved to be viable sources of power generation in rural areas where village entrepreneurs charge cellphones from roadside photovoltaic stands and firms like Kakira Sugar Ltd. of Uganda are burning sugar cane husks to produce electricity for both internal use and to sell to the national grid.
Uganda is also in the midst of a major hydropower expansion, with a series of dams being constructed on the White Nile, which originates from Lake Victoria in the country's south-central region. One recent major U.S. investment in a Ugandan energy project was the construction of the 250-megawatt Bujagali hydropower plant, completed in 2012 at a cost of $900 million. That project was a joint venture between the Aga Khan Fund for Economic Development and Sithe Global Power LLC, the U.S.-based energy development arm of Blackstone Capital (ClimateWire, Oct. 19, 2012).
New York-based Blackstone, in conjunction with the Dangote Group of Nigeria, announced at the U.S.-Africa Leaders Summit that it would jointly invest up to $5 billion over the next five years in energy projects across sub-Saharan Africa with a particular emphasis on power generation, transmission and pipelines.
Meanwhile, Africa's largest hydropower project, the Grand Ethiopian Renaissance Dam (formerly the Grand Millennium Dam) on the Ethiopia-Sudan border, is set to begin producing first power on the Blue Nile before the end of the decade. That project, with a nearly $5 billion price tag, is being financed entirely by the Ethiopian government with help from several Chinese state banks.
Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500