25 April 2018

Ethiopia: Natural Gas Exploitation Vital for Economic Growth, Diversification

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(File photo).

Ethiopia has recently announced that it envisages one-billion-USD revenue from export of natural gas discovered in the Ogaden Basin in the first year of operation. What does this mean economically?

The 7-8 trillion cubic feet natural gas discovered by the Chinese firm Poly-GCL is economically feasible, according to Ministry of Mines, Natural Gas and Petroleum.

Speaking to The Ethiopian Herald, Assistant Professor of Development Economics Dr. Teshome Adugna says that the gas will contribute remarkably to the foreign currency earnings of the country and export revenue will grow by over 16 percent. The industry will also bring new dynamism to the agriculture-dependent export sector.

Dr. Teshome states that the phenomenon signaling the country's move from exporting agricultural commodities that are less in demand to the more desirable inputs for world market.

Sharing the above rationale, Addis Ababa University Economics Department Head Dr. Atlaw Alemu notes that the gas industry is among the key components in lessening Ethiopia's dependence on the volatile commodity exports.

Jimma University Economics Associate Professor Dr. Wondaferahu Mulugeta says that the gas sector ensures sustainable, long-term economic growth, and plays a key role in improving the current low contribution of natural resources to the national economy.

World Bank indicates that Ethiopia envisions increasing its 1.5 percent share of natural resources to the GDP to 10 percent by 2025.

The gas discovery plays significant role in boosting the government's revenue and supporting the ongoing economic and social development projects, he adds.

As to Dr. Teshome, the successes many African countries like Botswana, Ghana, Senegal and Uganda witnessed after discovering gas showcase that Ethiopia could bring a substantial change economically.

He says: "Ethiopia has witnessed rapid economic progress in the past ten and plus years in the pace not common for a non-oil exporting economy, and the new impetus helps the country to shorten its journey to middle -income economy."

Dr. Atlaw states that Ethiopia will be able to increase its hard currency reserves from the current high gas price and supplement the foreign currency loss incurred due to the irregular performance of commodity exports.

The gas sector expands non-oil driven economic growth and improves the current unsatisfactory linkage of the mineral sector with the rest the economy, he adds.__

For Dr. Wondaferahu, the gas industry offers multifaceted benefits to the locality by equipping the inhabitants with skill, specialized infrastructure and advanced research and development facilities.

He notes that the gas discovery is a tool to boosting industry's share in the national economy and plays a significant role in improving the livelihood of citizens.

The Associate Professor stresses that exploitation of the natural gas also plays a key role in deterring the widespread illegal migration through providing massive jobs for the youth in the gas industry.

"The incumbent needs to give due attention to increasing the participation of the community in the gas exploration activities and nurturing sense of ownership to ensure the sustainability of the project," Dr. Wondaferahu recommends.

Despite the huge potential the gas industry could play in speeding and diversifying Ethiopia's economy, it is largely untapped due to various reasons. In this regard, financial and technological shortcomings are mentioned to be the major factors for the insufficient performance of the sector.

Dr. Teshome says that the participation of domestic companies in large-scale gas projects is low due to financial constraints encountered in the capital-intensive exploration phase.

Furthermore, the companies face difficulty in securing loan from international lending institutions for gas exploration projects; and lack of comprehensive study in Ethiopia's gas potentials impede effective exploration activities, he notes.

By the same token, Dr. Atlaw points out the absence of gas refinery facilities forces the country to incur additional foreign currency to import liquefied gas.

Commending the government's commitment in the construction of the Grand Ethiopian Renaissance Dam, he states that the government and the private sector must extend their commitment to the gas industry to enable the country benefit from the potential at the desired level.

Dr. Atlaw says: "The current administration needs to create an inviting environment to the private sector so that it could engage in the exploration of gas and other natural resources with the view to keeping the momentum in bringing economic diversification."

Dr. Teshome also urges the government to play leading role in providing attractive incentives for international gas corporates and enable them to make a meaningful involvement in gas explorations.

He further calls on domestic companies to seek joint ventures with international firms with the desired technology, capital and expertise to enhance their capacity in the exploration activities.

The scholars highlight that exploitation of the natural gas will bring sufficient finance to transform the agricultural sector and expand agro-industry thereby enhancing structural transformation and import substitution capacity.

Ethiopia can change the traditional economy and make its vision of becoming a middle-income economy a reality through employing innovative approaches to the natural gas and other natural resources development, they contend.

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