FACTBOX-Key political risks to watch in the Gulf of Guinea

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The Gulf of Guinea – a growing source of oil, cocoa and metals – spans more than a dozen West African countries, many ravaged by civil wars and coups. The region faces increasing piracy threats, drug smuggling and political uncertainty.

The Gulf 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.

NEW ENERGY FRONTIER?

Gulf nations produce more than 3 million barrels of oil a day – about 4 percent of global output – mostly for European and American markets, the bulk coming from OPEC member Nigeria (2.2 million bpd), Reuters reports.

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 by next year. 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 concerns over piracy increase.

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.
– 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.

COCOA HUB

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. Although Ivorian port arrivals are slightly ahead of last season’s at the moment, that is only because last year’s conflict temporarily held up hundreds of thousands of tonnes from being exported. They are widely expected to end the season down, and output is also lagging in Ghana and Cameroon. The International Cocoa Organization (ICCO) predicted declines in West African output across the board this season.
– Ivorian cocoa reform: Ivory Coast changed regulations in its cocoa industry in an effort to guarantee farmers a price floor for their cocoa, but the reform lacks enthusiastic support from leading exporters. If the reform effort encounters problems, it would jeopardise Ivorian efforts to improve farmer incentives, husbandry and reinvestment in long-neglected plantations.

A successful bid to reform the cocoa industry, however, would be seen as broadly positive, potentially breathing new life into neglected plantations and opening up the door to enhanced debt relief. The country abandoned a previous effort to regulate the market more than a decade ago after it was undermined by corrupt bureaucrats, who took bribes at the expense of farmers the regulation was meant to protect.

IRON ORE AND OTHER MINERALS

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 and Sierra Leone recently started iron ore shipments. 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, saying 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 No. 3 gold miner, is seeking to raise the state share in mining contracts, echoing 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, 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 that has interfered with mining investment in other countries, including 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. Presidential polls can be turbulent in the region, with elections in Congo, Liberia, Guinea and elsewhere having turned violent. Outcomes of the polls also raise the risk a new administration will seek to alter mining laws or contracts. Sierra Leone, which saw its first shipment of iron ore in November 2011, holds a presidential election on Nov. 17, while new oil producer, Ghana, holds presidential and parliament polls in December.

PIRATES, DRUG RUNNERS & COUPS

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 main cocaine transit point due to its weak government, is facing considerable risks following a coup in April.