DAKAR, March 12 (Reuters) - The Gulf of Guinea, a stretch of West Africa's coast spanning more than a dozen countries, is a growing source of oil, cocoa and metals for world markets.
But rising rates of piracy, drug smuggling and political uncertainty in an area ravaged by civil wars and coups have made it a challenging area for investors.
The Gulf of Guinea runs from Guinea on Africa's northwestern tip to Angola in the south and includes Nigeria, Ghana, Ivory Coast, Democratic Republic of Congo and Gabon.
Gulf of Guinea nations produce more than 3 million barrels of oil per day - about 4 percent of total global output - mostly for European and American markets, the bulk coming from OPEC member Nigeria (2.2 million bpd).
Smaller producers are Equatorial Guinea (200,000 bpd), Congo Republic (340,000 bpd), Gabon (230,000 bpd), Ghana (80,000 bpd), Cameroon (59,000 bpd) and Ivory Coast (40,000 bpd).
Ghana began producing oil in December 2010 and is expected to raise output to 120,000 bpd sometime this year and 250,000 bpd after three years. Sierra Leone and Liberia hope offshore drilling will produce oil for them too.
Washington estimates the Gulf of Guinea will supply about a quarter of U.S. oil by 2015 and has sent military trainers to the region to help local navies secure shipping as piracy is increasingly becoming a concern.
What to watch:
- Drilling results: Energy companies African Petroleum Corp and Anadarko said in February they had struck oil off Liberia and Sierra Leone that had the potential to be commercially viable, raising hopes for an energy bonanza in the war-scarred states.
The results of other exploration efforts by Tullow and Anadarko off Ghana, Sierra Leone and Liberia, and Bowleven , Kosmos Energy and Victoria Oil and Gas in Cameroon will help define the region's potential.
- Security: The security of operations and shipping is a key risk, with piracy on the rise in the area. The United Nations has said there was an increase in West African piracy in 2011, mostly off Nigeria but also off neighbouring Benin, raising concerns for shipping.
- Fuel Subsidies: Following pressure from the International Monetary Fund, several countries in the Gulf of Guinea have moved to cut state fuel subsidies. The resulting increase in prices of fuel products has led to protests in some countries such as Nigeria, and there are concerns the increases could push up prices of basic commodities - which in turn could spark large-scale protests as seen in 2008.
- Oil Sands: Italian oil major Eni has said it will launch a pilot of its oil sands project in the Republic of Congo this year. The company signed a $3 billion deal to develop the project in 2008, giving it access to estimated reserves of between 500 million and 2.5 billion barrels.
- Oil leases: Gabon decided to invite direct bids for investments in remaining oil blocks rather than auction them and is preparing new legislation for the sector. French oil major Total revived its exploration efforts by buying stakes in three onshore licenses
More than three-quarters of the world's cocoa comes from Gulf of Guinea nations, most of that from No. 1 global producer Ivory Coast, the rest from Ghana, Nigeria, Cameroon and others.
Cocoa output from the four producers hit new records in the 2010-11 season of more than 3.2 million tonnes due to ideal weather and improved husbandry techniques, contributing to a slide in global futures prices.
What to watch:
- 2011/2012 harvest: Dry and windy weather in parts of the region, particularly Ivory Coast, has dampened forecasts for this season's crop. Ivorian port arrivals are already lagging last year, and output is also lagging in Cameroon . Improved official purchase figures from Ghana are unlikely to compensate for the losses elsewhere in the region .
- Ivorian cocoa reform: Ivory Coast changed regulations in its cocoa industry in January in an effort to guarantee farmers a price floor for their cocoa , but the reform lacks enthusiastic support from top exporters. If the reform effort ultimately fails, it would jeopardize Ivorian efforts to improve farmer incentives, husbandry and reinvestment in plantations that have been long neglected.
While a successful bid to reform the cocoa industry would be seen as broadly positive - potentially breathing new life into neglected plantations - there is the risk Ivory Coast could fall back into old traps like corruption. The country abandoned a previous effort to regulate the market more than a decade ago after it was undermined by corrupt bureaucrats, who took kickbacks at the expense of the farmers the regulation was meant to protect.
- Ghana output: Ghana is the only country in the region recording an increase in cocoa volumes this season, despite poor weather for production which is afflicting the entire region. Authorities in the world's No. 2 grower have said output increases are the result of improved husbandry, though analysts have said the country - which pays a fixed price for cocoa that is higher than the going rate in neighbouring countries like Ivory Coast - is benefiting from smuggling. Ivorian farmers have said depressed prices in the east have led planters to send sacks of cocoa to Ghana.
Ghana's Cocobod authorities plan to raise $2 billion for the next cocoa season to buy at least 850,000-900,000 tonnes. Analysts predict cocoa purchases will exceed that figure.
Gulf of Guinea nations - already home to top bauxite exporter Guinea and major gold producer Ghana - have attracted billions of dollars of investment from resource firms eager to dig up its vast unexploited iron ore reserves.
The region could eventually produce nearly 10 percent of the world's iron ore, up from less than 1 percent last year, according to the U.S. Geological Survey.
Investments announced in 2010 from BHP Billiton , Rio Tinto , Vale and Chinalco amount to around $10 billion.
Liberia recently started iron ore shipments, while Sierra Leone expects more mines to come on line any day. Cameroon's large Mbalam deposit and Guinea's Simandou project could start shipping as early as 2014.
What to watch:
- Resource nationalism: Countries in the region are raising royalties, toughening up mining laws and undergoing contract reviews. Guinea is the latest, and said it is planning to review and amend contracts to ensure accords are fair.
Congo's state firm Gecamines is also planning an audit of joint ventures to raise money for expansion. Landlocked Mali, Africa's third-largest gold miner, is seeking to raise the state share in mining contracts, an echo of a similar move in Guinea.
- China's move: China is making moves on some of Africa's biggest iron ore resources so as to break Rio, Vale and BHP's grip on iron ore supply and prices. China's Hanlong Mining has made a deal to buy Australia's Sundance Resources, which owns the Mbalam project in Cameroon, for $1.3 billion.
China is still keen on the massive Belinga project in Gabon, while Chinalco is in joint venture talks with Rio over the Simandou project in Guinea.
Guinea is also in advanced talks with state-owned China Power Investment to develop a bauxite mine and build an alumina refinery, deep water port and a power plant.
- Other risks in the region include tight power generation capacity, especially in countries such as Liberia and Sierra Leone - something which has interfered with mining investment in other countries such as South Africa and Chile.
Most notably, Cameroon is hoping to triple power generation by 2020 after shortages forced Rio Tinto's joint-venture Alucam smelter to cut back operations in 2009.
- Elections. The Democratic Republic of Congo is still on the edge after disputed elections. There is a risk of street unrest and renewed fighting that could discourage investment.
Liberia completed an election in November, which the government hopes could pave the way for billions of dollars in investment in its iron ore sector. Neighbouring Sierra Leone, which saw its first shipment of iron ore in November 2011, will hold a presidential election on Nov. 17, while the region's new oil producer, Ghana, will hold its own presidential poll in December.
Piracy in the Gulf of Guinea is not on the scale of that off Somalia, but analysts say an increase in scope and number of attacks in a region ill-equipped to counter the threat could affect shipping and investment. Benin in particular is seeing an increase in activity off its coast.
The U.N. Security Council has said it is concerned about the increase in piracy, maritime armed robbery and reports of hostage-taking in the Gulf of Guinea and its damaging impact on security, trade and economic activity.
West African drug trafficking is also having an impact on the region's economies. The United Nations estimates that $1 billion worth of cocaine, destined for Europe from Latin America, passed through West Africa in 2008.
Guinea Bissau, which has become West Africa's cocaine transit point due to its weak government, is facing considerable risks following the death of President Malam Bacia Sanha in Paris on Jan. 9. The country's stability is fragile and there are concerns the army, which has always meddled in Bissau politics, may intervene once again. (Writing by Richard Valdmanis; Editing by Susan Fenton)