Investors are responding to opportunities in Africa’s oil and gas sector with optimism and caution, influenced by a variety of geopolitical and economic challenges across the continent, says data and analytics company GlobalData International.

While investments in oil and gas projects are risky, the potential returns are often attractive enough to warrant investments in certain projects, and overcoming challenges and bottlenecks can “unleash” significant economic gains, says GlobalData senior oil and gas analyst Paul Hasselbrinck.

Oil and gas operations have played a significant role in driving economic growth across a variety of nations. They contribute to local economic development and enhance a country’s strategic position on the global stage, offering greater influence in trade discussions.

“The oil and gas industry has been experiencing heightened supply chain risks, security threats, theft and sabotage, and corruption in high-risk zones. Since mid-2024, several incidents have forced companies to shut down operations, and reconsider or outright cancel projects.”

Oil and gas companies account for these risks by demanding higher returns from investment in these areas, thereby potentially ruling out less profitable ventures, adds Hasselbrinck.

In most instances, governments, unable to effectively invest in the requisite defence and security, counter these risks by providing favourable contract terms, he says.

Government policies and regulatory frameworks significantly influence oil and gas investments in Africa, with regulatory delays, such as the time taken to obtain construction permits and register property, negatively impacting on the related business environment.

“These delays, coupled with poor physical infrastructure, can deter investment by increasing the time and cost required to start and maintain operations in the oil and gas sector,” he states.

Another factor to consider is that the fiscal and regulatory environment varies significantly across African nations, shaping the investment spaces of such jurisdictions.

Hasselbrinck adds that different investment models can be adopted in these instances, including production-sharing agreements, concession agreements, joint ventures and risk service contracts.

Fundamentally, he says, these models differ in the degree of government involvement through national oil companies and the effective fiscal burden placed on oil and gas operations.

However, economic externalities – such as the effects on the productivity of other sectors – of oil and gas operations outside of its supply chain, are limited.

As such, most benefits will be direct, either through jobs, investment brought into the country, and fiscal revenue for governments to then spend on infrastructure and social policy, among others.

In 2024, upstream oil and gas contributed an estimated $172-billion in taxes and royalties to African countries. The top countries receiving fiscal revenues from upstream are Algeria, Nigeria and Egypt through a combination of large production and moderately high fiscal burden on oil and gas operations, notes Hasselbrinck.

GlobalData forecasts that this year, total upstream investment in Africa is expected to reach $65-billion in established and emerging oil and gas markets, with beneficiaries such as Angola, Mozambique, Nigeria, Namibia, Tanzania and Senegal, leading the way.

Hasselbrinck says investment in regulatory agencies is important, as it prevents over-regulation, missing out on potential efficiency gains, identifying bottlenecks and preventing unnecessarily favourable fiscal terms.

Furthermore, he warns that poor governance can result in common challenges, where a country struggles economically despite possessing valuable natural resources – referred to as the “resource trap”.

This stems from issues such as corruption, inefficient spending, fluctuations in commodity prices, and the mismanagement of windfall revenues owing to inadequate planning, budgeting and overall weak financial oversight.

Hydrocarbons vs Renewables

The production of hydrocarbon resources and renewable energy development are not necessarily mutually exclusive, particularly in developing countries, where reducing poverty and ensuring energy accessibility are usually higher up on the priority list of government policy, explains Hasselbrinck.

To balance hydrocarbon development with sustainable energy transitions, countries can encourage the private sector to take leadership in the oil and gas space, and rather than use public investment, implement emissions standards and incentivise digital technologies, such as AI, as well as enforce environmental regulations and consultation processes with legal oversight.

“Hydrocarbons will continue to play a major role in Africa’s economic future, but they will not automatically drive development or create enough wealth to sustain modern economies,” he adds.

As such, governments must plan for climate and environmental trade-offs, recognise the risk of certain assets becoming stranded and prepare for potential scenarios in which a global energy transition phases out fossil fuel demand faster than anticipated.

Hasselbrinck elaborates that the oil and gas sector in Africa is also leveraging technologies and methodologies such as digital innovations, AI, robotics, predictive maintenance strategies, low carbon investments and hybrid work models, to enhance efficiency, safety and sustainability. Though, he says the continent is still playing catch-up in upstream technology adoption.

These technologies and techniques facilitate better data management, predictive maintenance and autonomous operations, enabling companies to optimise workflows and reduce operational costs.

He concludes that as Africa’s oil and gas sector evolves, these innovations will be critical for decarbonisation and in improving operational excellence in an increasingly competitive global energy landscape.