Crowd-funding viable option for new oil sector projects – experts

To curb a situation where the African extractive sector is at the mercy of foreign investors, experts say governments should rethink established funding mechanism and include other novel sources like crowd funding to finance new projects.

“In our part of the world, we may not have the ability to access the kind of funds at the disposal of international oil companies but in other countries people put money together in crowd funding programmes to finance projects in the mining sector. It is done in Vancouver, governments of African countries should be thinking along this line,” Benjamin Aryee, advisor, ministry of Lands and Natural Resources, Ghana, said at this year’s African Regional Extractive Industries Knowledge (REIK) Hub; the Summer school organised by the Natural Resource Governance Institute (NRGI) in partnership with German International Development Cooperation (GIZ) in Accra, Ghana on August 27.

Aryee said the Chinese and Indians pull resources to invest in important sectors of their countries and even sub-national governments guarantee investment for its people. He said governments can start small but need to rethink funding mechanisms.

The cost of developing these oil fields has been a major impediment to African government’s ability to take control of their natural resources. Experts say it takes sometimes up to $100milion to develop a new field and multinational oil companies with access to cheap international funds have been known to dictate terms.

Crowdfunding was once merely a tool to raise charity funds online but with its successful deployment in the real estate sector, the platform has grown so huge that it is now used to fund different projects from political campaigns to start-ups.

Reseach shows that crowd funding is now making inroads into the oil and gas sector as there are currently two crowdfunding platforms CrudeFunders and EnergyFunders in the United States, which are presenting opportunities for the investors.

CrudeFunders, developed by three Texas-based lawyers is aimed at transforming the traditional oil and gas investment into a more transparent Crowdfunding method using new technology aided by the passage of The Jumpstart Our Business Startups (JOBS Act) in 2012.

CrudeFunders offers investors an opportunity to invest in oil and gas projects with a minimum of $1000 as well as provide an effective platform for companies to raise project funds. They started with success after raising funds for the rework of an oil well in Ozona, Texas, for which they raised $950,000 from a collaborative effort of 30 investors and now they have raised investments for projects worth over $2million.

EnergyFunders says it offers financial technology platform dedicated to disrupting the way people from all over the world invest directly into energy investments.

“With the massive changes in regulations, EnergyFunders is at a crossroads between securities laws, equity crowdfunding, and technology. EnergyFunders provides investors with access to projects that were traditionally reserved to the wealthy or those with inside information. Its mission is to allow these everyday investors access to various types of energy investments.”

Experts say Nigeria and other African countries should start rethinking the process of funding and developing their critical sectors.

Chuks Nwani, a Nigerian energy lawyer agrees that funding mechanisms including crowd funding should be considered.

“Crowd funding makes wealth generated from the business circulate locally and create riches for the country,” said Nwani.

“However, until we start having minimal government interference with pricing mechanism no one will be willing to risks its hard earned money,” Nwani said. This is the exact situation that crowdfunding is designed to establish.

Nwani further said that Nigeria should not also consider other sources. “We have over 9 trillion pension fund available for infrastructure investment that has low risk profile but till today 25 percent of the fund is being deployed to buy government treasury bill which is more secure.”

Juliet Twumasi- Anokye, an energy lawyer, specialist in regulation and principal consultant at Anpjul Afriye &Co, based in Ghanaalso said at the Summer School that African governments can only grow their oil and gas sectors by first developing a national vision through critical engagement process with the people to agree on what oil incomes should be used for before even embarking on new developments.

Aryee said countries can realise the most benefit by adding value to their oil resources which will help them meet the needs of their people. “There are more than 3,000 products that can be produced by the extractives hence the focus of African governments should be research and development to get more value from their extractive sectors.”

ISAAC ANYAOGU