The Fierce Urgency of African Energy Banks (By NJ Ayuk) – Africa.com
Author: NJ Ayuk, Executive Chairman, African Energy Chamber (https://EnergyChamber.org).
For more than a year, the African Energy Chamber (AEC) has been resisting growing pressure to block new foreign investment in Africa’s oil and gas sector.
To prevent catastrophic climate change, environmental groups, financial organizations and governments in Europe and North America insist that developing countries, including Africa, must immediately shift from the production and use of fossil fuels to renewable energy sources such as solar, wind and hydrogen. . Note that most of those making these demands come from fossil fuel-based industrialized countries—oil and gas power their economic engines—but are unwilling to allow less developed countries to use fossil fuels for the same purposes. Even more troubling is the fact that the countries targeted by these groups have abundant natural resources at their feet that can be monetized and used to build a better future.
We have explained many times why African countries, businesses and communities still need the support of international oil companies, foreign governments and investment institutions for oil and gas projects. International oil companies, for example, play an important role in sharing knowledge and helping Africans develop valuable job skills. Additionally, foreign oil and gas investment creates revenue opportunities that can be used to build and improve energy infrastructure—both fossil fuels and renewables. And, by backing gas projects, investors are opening a path for gas-to-power projects, helping to minimize the energy poverty prevalent on the continent.
In July 2021, when it became clear that reasoning was not yielding results, the Chamber went so far as to resort to the same tactics used by the international community against our members. We call for a boycott of financial institutions that discriminate against Africa’s oil and gas industry.
But calls to end funding for African oil and gas are growing louder and more determined. Recently, during the 2021 United Nations Climate Change Conference (COP26) in Glasgow, more than 20 countries and financial institutions committed to halt public financing of overseas fossil fuel projects. Europe then decides that gas is clean for Europe and therefore will be funded, but for Africa, gas is dirty and will not be funded. The UK and EU have reportedly joined calls for a ban on fossil fuel subsidies in developed countries.
Other expectations for this year’s meeting include calls for member states to formally commit to tripling their renewable energy capacity by 2030 and doubling energy efficiency across the board.
In terms of our work in the African Economic Community, the thread that ties all these commitments together is that none of them bodes well for the future success story of Africa’s energy economy.
For those of us who care about Africa’s oil and gas industry, it’s time to face the facts: We need to find a way to save it. The African Economic Community has called on African countries and the private sector to fund the African Energy Bank, which focuses on financing energy projects in Africa. The African Petroleum Producers Organization (APPO) and the African Export-Import Bank (Afreximbank) have paved the way for this. The idea is to create sources of funding for all types of African energy – from oil and gas exploration to solar and hydrogen operations – so projects don’t rely on foreign support.
We can do this, and we must. The risk is too great. We cannot fail to take advantage of recent discoveries such as light oil found offshore Angola, oil in Namibia’s Orange Basin, shale gas in South Africa’s Karoo Basin or oil and gas off the coast of Côte d’Ivoire. These are just some of the important recent discoveries, each bringing significant opportunities to ordinary Africans.
You may be wondering whether an African energy bank is a realistic goal. How can a continent that is struggling to lift many of its people out of poverty finance energy projects? I believe it can be done. First, African governments could set aside a percentage of oil and gas revenues to finance new projects. In its Africa Energy Outlook 2021 report, Rystad Energy expects revenue from African governments from royalties, oil profits and other taxes to reach $100 billion in 2021. Even 1% of this amount would generate $1 billion.
We can also raise capital by investing African pension funds in African energy projects. Cape Town-based investment firm RisCura said local pension funds collectively manage about $450 billion in assets across sub-Saharan Africa and are actively looking for new investment locations. Why not encourage them to add oil, gas and renewable energy projects to their lists? Investing pension funds in the energy sector is nothing new. Some of the largest U.S. pension funds invest in fossil fuel producers, and a growing number of pension funds around the world are investing in green energy projects.
Our options for raising funds don’t end there. We should also seek the support of wealthy Africans who want to invest in a better African future. As of December 2023, total private wealth in Africa is approximately US$2.3 trillion. This does not include the African diaspora.
In May 2022, the African Export-Import Bank and APPO signed an agreement to jointly establish a special multilateral financial institution (MFI) – the African Energy Bank – to provide support for the transition away from fossil fuels. The agreement requires APPO member countries to provide equity and serve as founding members of the new institution, with Afreximbank as a co-investor and provide organizational support.
The new bank will be able to cover more countries than APPO or Afreximbank alone, as their rosters are not identical: APPO has 15 member states, while Afreximbank has 51, and there is substantial overlap, with Algeria and Libya being the only ones APPO members who are not members of Afreximbank. But the point remains that if the two institutions join forces, their combined efforts will go much further.
Afreximbank President Professor Benedict Orama explained as follows in May 2022: “For us at Afreximbank, the emergence of the support (African Energy Bank) will make the transition between fossil fuels and renewable energy It will also free up Afreximbank’s human and other resources to more effectively support its member countries’ transition to cleaner fuels.”
Not only do we have access to capital, but we also have examples of banks that Africa needs to fund its own energy projects, which go back decades. I’m talking about the African Export-Import Bank. In 1993, African governments partnered with public and private investors to create a bank to finance, facilitate and expand trade within and between Africa. They succeeded. In 2020, Afreximbank received the African American Institute (AAI) Institutional Excellence Award for its commitment to the development and implementation of the African Continental Free Trade Agreement and its continued dedication to investment in education. AAI noted that between 2015 and 2019 alone, Afreximbank disbursed more than $30 billion to support African trade, of which more than $15 billion was used to finance and promote intra-African trade.
I say, let’s build on the Afreximbank model. More than that, let us develop a pool of investors who recognize and value the importance of oil and gas to Africa. Capital from foreign and corporate sources will always be welcome – as long as it is not predicated on a timely phase-out of fossil fuels. If they push too hard for renewable energy, they won’t be part of our solution.
With the support of one or more African Energy Banks, local oil and gas companies will obtain the financing needed to acquire assets. They will receive funding to build crude oil and gas pipelines across Africa and promote the use of natural gas, including liquefied natural gas, to power Africa, thereby minimizing energy poverty and promoting industrialization.
African countries and entrepreneurs will be able to fund the development of renewable energy businesses, especially blue, green and gray hydrogen businesses, creating more opportunities for Africans. Africa has established emerging green hydrogen operations in Mali, Namibia, Niger and South Africa and, with the right funding, could become a major green hydrogen exporter.
The AEC will support the Energy Bank initiative and work to bring potential participants together. Creating our own institutions to finance energy projects would send a clear signal to markets that Africans are seeking to be leaders in scaling up private capital. It will show we are advancing gas development and infrastructure while supporting low-carbon investment.
With financing in place, African companies will not only be able to produce oil and gas, but will also support local community development, develop green energy markets and create jobs.
For many African countries, the oil and gas industry is our best chance of providing millions of Africans with the jobs, living standards and stability that developed countries have enjoyed for more than a century. We must hold firmly to these goals and make every effort to achieve them.
Distributed by APO Group on behalf of the African Energy Chamber.