Why does Malawi continue oil exploration as global prices fall?

Lured by its potential profits, proponents of oil exploration in Malawi have been placing their hopes on the country becoming an oil-producing nation over the next few years. They argue that its production will bring much needed foreign exchange and economic prosperity to the country. However, oil prices are hitting record lows worldwide and are causing stock markets to plummet in the backdrop of Malawi’s ambitious dream. In spite of these developments, President Mutharika has lifted the ban on oil exploration this month and, exploration on Lake Malawi is set to commence, according to Malawi’s ministry of Natural Resources, Energy and Mines [1]. Simply stated, due to an unwavering vision for Malawi to start producing oil, it seems that the Malawi government may be placing all of its economic hopes in a market which is oversupplied, underperforming and has a bleak future [2].

Oil has not been as profitable as it was in the past due to changes in the global political economy. The profits that oil producing countries were once yielding have drastically decreased worldwide. Already, the world has witnessed oil producing countries such as the US lay off nearly 10,000 workers and British Petroleum let go of 4,000 employees. Angola and Nigeria, Africa’s largest oil producers, have also seen their oil profits decrease steadily. Additionally, the recent lifting of sanctions in Iran, who once had been unable to sell oil on the international market, will further impact this sector.

Iran has been cash strapped due to the international embargo placed on its trade years ago and has a plethora of oil to unleash on the global market [3]. It holds the fourth-largest oil reserves in the world and roughly 20 to 40 million barrels in storage. Therefore, the lifting of international sanctions means the likely influx of Iranian oil on the world market will cause oil prices to drastically drop and will lead to greater competition for market share and further uncertainty in this market. Other than Iran, there are a plethora of other factors - including viable alternatives and improvements in fuel technologies - that are leading current oil producing countries to diversify and financial lending institutions to predict an end of the era of oil.

Why then is Malawi moving forward with investing and competing in this saturated and volatile oil market? Perhaps the proponents of oil production - so focused on licensing woes, contracts profit sharing and ensuring that the exploration goes through in the wake of harsh public criticism against exploration - are failing to put into perspective the reality of trying to become an oil producing nation during one of the worst times for oil profits. At this juncture though, it seems like the government is still advancing full speed ahead so that the current players in the administration can profit off the proceeds and so that they gain political accolades or “bragging rights” for having been the administration that achieved the feat of turning Malawi in to an oil producing nation.

Oil exploration has been contentious in Malawi already and has been met with heavy public criticism. Malawi begun to issue licenses to foreign companies in 2011 and oil drilling is still in its exploratory stage due to several political obstacles that have prevented the current and previous governments from proceeding with this transition: some of the oil contracts which were signed by both Presidents Bingu Mutharika and Joyce Banda’s administrations were regarded with suspicion; the country has been in a border dispute with neighboring Tanzania over the lake’s boundaries; and the current legislation regards the country’s petroleum resources as being vested in the “Life President” on behalf of the population. Needless to say, oil is a political issue in Malawi and will continue to be so particularly since many of the aforementioned issue remain unresolved [4].

Additionally, critics of Malawi’s oil exploration argue about the health and environmental impacts [5]. Lake Malawi National Park, is a World Heritage site that detractors argue will be destroyed in the process as experienced in the Niger-Delta region. Others have noted that more money would only exacerbate existing economic problems such as the siphoning of public coffers that culminated in the “cash gate” scandal which haven’t been redressed. Lastly, there is the real fear that the money from this sector will simply not trickle down to the rest of the economy, resulting in the type of unequal and uneven development that we have seen in Angola.

Considering the aforementioned forebodings about oil exploration, it is clear that an analysis on oil drilling in Malawi in light of the current political economy within Malawi is warranted. Even more pertinent for the country is an analysis that takes into account the larger global trends in the oil sector, which should influence decision making within the country about proceeding with oil drilling.

Malawi’s economic planners need to make projections and plans based on shifts and trends in the global energy sector. Oil will not benefit the nation if the leadership continues to bulldoze its way through oil exploration in an industry that will not yield Malawi much profit now and possibly in the future [6]. There is sufficient time for proper reflection on the government’s part. One wonders whether the glamour and hypnosis of oil money has been so jarring that it has placed blinders on the government and other stakeholders who are advocating for oil drilling in spite of the economic environment. Frankly speaking, if they cannot provide an updated economic prognosis that predicts and outlines how and when profits will materialize in light of the global changes as well as internal politics, oil drilling will not bring much profit to the people of Malawi [7].

Currently, there are no plans for the oil to be used within the country, stored in reserves, nor build a refinery for processing - gas prices are not likely to become more affordable for Malawian consumers and businesses. Oil is being looked at as a cash crop for export. This means that there is a strong possibility that Malawi will become a cash-strapped oil producing country and will sell its oil at cheap prices to stakeholders who may just keep it in reserves for if and when the market improves while a few politicians at the top get relatively minor kickbacks for their role in these deals. The little profit it will bring will likely remain in the hands of a small elite and the foreign investors. Yet, the government promotes oil exploration as the game changer in Malawi’s development goals.

Malawi needs to be strategic about the use of the country’s resources if it wants to be a new player in the game. A better vision and plan for oil drilling are needed if it wants to avoid oil being another resource “curse”. Hopefully, those who seem bent on transforming the nation into an oil producer at all costs start to consider oil exploration using a more insightful global perspective.

* Sitinga Kachipande is a blogger and PhD student in Sociology at Virginia Tech with a concentration in African Studies and Global Political Economy. She holds a MA in Pan African Studies and an MBA. Her research interests include tourism, development, women’s studies, identity and representation. Follow her on Twitter: @MsTingaK

REFERENCES

[1] Matonga, Golden (2016),“Mutharika Lifts Ban on Oil exploration”, The Nation, 11 February, http://mwnation.com/mutharika-lifts-ban-on-oil-exploration/ , accessed 12 February 2016.

Kumwenda, Tiwonge (2015), “Oil, Gas Exloration Set to Start in Lake Malawi”, Nyasatimes, 15 December, http://www.nyasatimes.com/2015/12/15/oil-gas-exploration-set-to-start-in-lake-malawi-official/, accessed 12 February 2016

[2] Goldthau and Sovacool (2016), “Why We Need to Rethink the Financial Future of Oil”, The Conversation, 19 Jan , https://theconversation.com/why-we-need-to-rethink-the-financial-future-of-oil-53352 , accessed 12 February, 2016

[3] Neuhauser, Alan (2015), “Crude Estimate: How Ending Iran Sanctions May Impact Oil Markets”, US News, 13 July, http://www.usnews.com/news/articles/2015/07/13/crude-estimate-how-ending-iran-sanctions-may-impact-oil-markets, accessed 12 February 2016

[4] Chimwala, Marcel, “Politics of Oil”. Mining and Trade Review, Issue Number 30, 15 Oct, https://mininginmalawi.files.wordpress.com/2015/10/mining-review-october-2015-edition-electronic-copy.pdf accessed 12 February 2016
Etter -Phoya, Rachel (2015), “One Year Since Malawi’s Government Started Reviewing Oil Exploration Licences and Agreements”, Mining in Malawi, 15 November, http://mininginmalawi.com/2016/01/08/event-public-talk-by-godfrey-mfiti-is-oil-drilling-in-lake-malawi-sustainable-development-12-january-2016-blantyre/, accessed February 12, 2015
Nyaka, Owen (2015), “Malawi Government Erred in on the Oil and Gas Exploration Deal”, Africa Times, 6 November 2015, http://africatimes.com/2015/11/06/malawi-government-erred-on-the-oil-and-gas-exploration-deal/, accessed February 12, 2015

[5] Etter-Phoya, Rachel (2016), “Public Talk by Godfrey Mfiti “Is Oil Drilling in Lake Malawi Sustainable Development?”, Mining in Malawi,12 January, http://mininginmalawi.com/2016/01/08/event-public-talk-by-godfrey-mfiti-is-oil-drilling-in-lake-malawi-sustainable-development-12-january-2016-blantyre/, accessed 12 February 2016
[6] Sambalikagwa, Lindiwe (2015) ‘Mixed reactions on Lake Malawi oil drilling plans’, Malawi 24, 18 December, http://malawi24.com/2015/12/18/mixed-reactions-on-lake-malawi-oil-drilling-plans/, accessed 12 February 2016
[7] Mfiti, Godfrey (2015), “The Politics of oil in Malawi”, The Nation, 5 June, http://mwnation.com/politics-of-oil-in-malawi/, accessed 12 February 2016

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