africa

Yale Center for the Study of Globalization
We use Tullow Oil, plc, one of the largest multinational corporations (MNCs) in the
oil industry, as an example to illustrate Africa’s growing share of global oil exploration
and production. 3 We start with Tullow’s expenditure on oil exploration and appraisal.
From 2008-09, the company’s expenditure in SSA increased by about 32 percent,
from £294 million to £387 million. By contrast, its expenditure declined by about
50 percent in Europe, 50 percent in South Asia, and 42 percent in South America.
Also, the expenditure in SSA accounted for about 84 percent of the company’s total
exploration expenditure in 2008, and 93 percent in 2009. Oil exploration is extremely
risky in that the outcome is uncertain. However, new discoveries in the region are
evidence that the explorations in Africa have been successful. For example, for
Ghana, Tullow reported a 100 percent success rate in oil explorations in 2008,
and an 88 percent success rate in 2009. On oil production, Tullow’s expenditure in
SSA increased from £92 million to £303 million in 2009, an increase of about 230
percent. This compares with a 25 percent decrease in production expenditure in
South Asia and a mere 3 percent increase in Europe. 4 Finally, the African expenditure
accounted for 70 percent of the company’s total production expenditure in
2008 and 88 percent in 2009.
It is important to note that exploration and production of oil results in foreign direct
investment (FDI) inflows only when the activities are funded by foreign firms, i.e.,
multinational corporations (MNCs). In Sub-Saharan Africa, unlike other regions,
MNCs dominate the oil industry. For example, in 2005, the share of oil production
by MNCs was about 19 percent for all developing countries, 18 percent in Latin
America, 11 percent in transition countries, and 57 percent in SSA. The share of
oil production by MNCs in SSA’s top four oil-exporting countries was 92 percent,
74 percent, 64 percent, and 47 percent in Equatorial Guinea, Angola, Sudan, and
Nigeria, respectively (UNCTAD, 2007). 5 Reasons for the dominance of multinational
corporations in Africa’s extractive industries are that mineral extraction is capital
intensive, requires sophisticated technology, has long gestation periods, and is
also risky (there is no guarantee that oil may be discovered after spending an
extensive amount of resources on exploration). As a consequence, the increased
exploration and production in the region has led to a substantial increase in FDI in
the extractive industry.
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