Uncovering the risks in Africa’s downstream oil sector

Uncovering key risks in Africa’s downstream oil sector

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Africa’s downstream oil sector is projected to grow to $120.8 billion by 2032; however, it faces significant challenges.

Such challenges include security issues, inadequate infrastructure, credit and compliance risks, regulatory uncertainty, and limited access to funding. Hence, thriving in this evolving ecosystem requires clear understanding of the risks involved.

This article explores:

Key risks in Africa’s downstream oil and gas sector
Country Hotspots to watch for
Mitigations Scenarios
Cedar Rose’s role in risk management

Key Risks in Africa’s Downstream Oil and Gas Sector

Africa’s downstream oil and gas sector faces several risks.
Here are 5 key risks facing the sector:

1. Infrastructure and Security Weaknesses

Many regions in Africa lack adequate infrastructure, face logistical bottlenecks, and rely on imports for refined products. For example, Eastern and Southern Africa only work with 3 functioning refineries. This creates single points of failures which can disrupt supply continuity.

Additionally, transportation networks are absent and insufficient ports and roads make distribution less effective. Criminal and terrorist attacks further rank high in Africa especially in Nigeria. Pipeline sabotage and oil theft continue to disrupt operations.

2. Credit Risks

Credit risk in Africa's downstream oil and gas business is a major issue for lenders and investors since counterparty defaults and delayed payments impact operations. Currency fluctuation, devaluation, regulatory changes, economic and political instability can also affect a company’s ability to repay debt. Intense market competition, infrastructure shortcomings, fraud, and environmental rules all increase risk.

3. Compliance Risks

Compliance has become more difficult since Africa’s oil sector faces complex fragmented regulations with differing policies on pricing, subsidies and local content by region. Many countries in Africa are on the Financial Action Task Force (FATF) “grey list” pointing to deficiencies in AML frameworks.

That’s why heightened scrutiny along with tighter enforcement of AML, anti-corruption, and environmental regulations is on the rise. Global law enforcement agencies are also still keeping a close eye on the sector due to its historical association with bribery and corruption.

4. Regulatory and Fiscal Uncertainty

Regulatory fragmentation is not the sole problem in Africa’s oil and gas sector. Regulations are both inconsistent and prone to sudden change. For example, introducing new licensing and local content requirements in South Africa caught many oil and gas operators by surprise. Similarly, in Nigeria, revisions to the Petroleum Industry Act and gasoline subsidy policies have had a significant impact on downstream operations and investment plans.

Fiscal uncertainty like sudden changes in subsidies and tax regimes can disrupt market stability and lead to operational delays. Governments may frequently adjust subsidy fuel prices to budget pressures or political considerations. Nigeria is a good example with its periodic removal and reinstatement of fuel subsidies creating major unpredictability for anyone involved in the sector.

5. Market Uncertainty and Funding Gaps

Volatile global oil prices directly affect Africa’s downstream oil sector. Price drops can shrink margins, and cause project delays or cancellations limiting their ability to fund essential services and new energy initiatives. This is compounded by a massive annual funding gap for vital infrastructure. At the same time, international investment is declining due to global shifts towards renewables and stricter ESG criteria, with some major oil companies even scaling back from the continent.

Moreover, local African operators struggle to access affordable capital. This is largely because domestic banks are often hesitant to finance large, long-term energy projects, and high interest rates make borrowing prohibitive. This combination of market instability, funding shortages, and limited access to finance collectively hinders the modernisation and growth of the sector, posing a significant threat to Africa's energy security and its capacity to meet rapidly rising energy demands.

Country Hotspots to Watch For

Across Africa, many countries present unique opportunities and challenges for Africa’s downstream oil and gas sector.

Nigeria and Mozambique face severe security issues, with Nigeria struggling with militant attacks and pipeline sabotage amidst aging infrastructure and high credit risk. Mozambique contends with ongoing terrorist activity, compounded by infrastructure vulnerabilities and funding shortfalls for its large-scale development projects.

Other nations like Egypt and Ghana need to build up their energy infrastructure and refine their regulatory frameworks. Egypt aims to become a regional gas hub, and Ghana needs to build its refining capacity and logistical networks to meet rising domestic demands. Similarly, developing vital infrastructure and regulatory frameworks is critical for Namibia. Likewise, the Ivory Coast's energy sector growth necessitates expanding infrastructure, adapting regulations, and securing funding to reach ambitious production targets.

Mitigation Scenarios

Each major risk can be addressed through practical strategies.

Addressing infrastructure and security challenges requires updating and upgrading their energy infrastructure, including pipelines, storage and transport systems. Promoting investments in Africa can also help fund this upgrade, so can leveraging domestic capital like pension funds. Threats like sabotage and unrest can also be lessened by making physical and online security stronger and getting more people involved in their communities.

Managing financial and credit risks requires comprehensive credit checks and continuous monitoring of counterparties’ financial health. Securing credit insurance further protects companies from losses due to delayed payment or counterparty defaults. Diversifying trading partners and requiring upfront payments, bank guarantees (like letters of credit), or having very clear payment terms also helps reduce exposure to counterparty risk. As for currency risks, hedging strategies, financial ways to lock in an exchange rate for a future payment, and innovative mechanisms like commodity baskets can help stabilise revenues.

Managing compliance risks requires a mix of strong internal controls, digital tools and transparent reporting. This means devising solid programs against corruption, bribery, and Anti-money laundering. Second making use of automation, AI, and blockchain can make compliance processes smoother. A good example is Nigeria’s Oil and Gas Industry Service Permit (OGISP) Portal. It helps prevent bribery by reducing direct human involvement in the oil and gas licensing process.

Regulatory harmony and standardisation help overcome fragmented regulations. Efforts like the African Regulatory Forum (AFRIPERF) align petroleum regulations, easing regional operations and attracting investment. Consulting industry and investors before regulatory or fiscal changes ensures alignment and prevents surprises. Balanced, stable fiscal policies that meet government and private sector needs are critical. Finally, adaptable legal systems support the energy transition, reduce stranded asset risks, and attract sustainable investment.

Addressing market uncertainty requires blended financing. This involves combining public and private capital to reduce risk and align commercial with development goals. Mobilising development finance institutions like the African Development Bank and the World Bank, is also essential. They provide concessional loans, guarantees, and technical support that signal credibility to investors.

Furthermore, strengthening intra-African trade through initiatives like the African Continental Free Trade Area and events like the African Energy Week promotes market integration and expands investment opportunities. Firms can manage project risks using tools like hedging, political risk insurance, and standby facilities. These help handle price volatility and protect against issues like expropriation or payment defaults. Finally, meeting environmental, social, and governance (ESG) standards is vital for attracting international investment and development finance.

Cedar Rose’s Role in Risk Management

At Cedar Rose, our solutions play a vital role in reducing risk for companies operating in Africa’s downstream oil and gas sector.

Through our CRiS Intelligence platform, companies gain access to a vast, continuously updated database of millions of companies and beneficial owners, enabling fresh investigations, on-demand due diligence, and stronger KYB/KYC processes. Our platform also simplifies risk assessment and monitoring, helping organisations stay compliant and forward-looking in volatile markets.

Enhancing this capability, our CR Comply tool provides live monitoring with intelligent risk flagging, enabling quicker and more precise AML decision-making.

Contact us to learn more.