Africa’s Energy Industry has found itself under a harsh spotlight as global concern over climate change increases. Various governments and IOCs around the world are pledging and planning to reduce their emissions – with varying degrees of ambition – in response to global climate change.
Approximately 140 global financial institutions have decided to limit thermal coal financing, insurance or investment, and we are now witnessing a similar, accelerating shift of capital away from oil and gas exploration. With 50 major European financial institutions leading the charge to increase renewable energy investments as risks in the oil and gas sectors rise due to falling demand and climate change, many other global financial institutions are exiting oil and gas while others are tightening policy loopholes to demonstrate a greater commitment to the Climate Accord.
In agreement with the European Investment Bank, “Energy is the key to all socio-economic development: an essential resource in agriculture and food processing, as well as in higher-value added services and industries”. As such, without energy we cannot improve social services, empower women or combat climate change.
With about 600 million people or above without access to electricity (about 57 percent of the population), sub-Saharan Africa has a particular need in this field. There is a wide recognition regionally and globally that this challenge needs to be addressed with some urgency. The African Development Bank (AfDB) has, for instance, identified access to energy as one of its High 5s – that is, one of the five areas that must receive priority as it rolls out its development strategy for the subcontinent.
The Clarion Call in Context
- As many as about 600 million Africans do not have access to electricity; also, more than 730 million rely on biomass for cooking.
Today, 770 million people worldwide still live without access to electricity, mostly in Africa and developing countries of Asia. The IRENA energy progress report of 2021 estimates that 75% of the world population without access to electricity is based in sub-Saharan Africa. The COVID‐19 crisis delivered a setback, slowing progress on new connections while also weakening the ability of households to pay for electricity (Figure 1).
Preliminary data show that the global number of people without access was broadly stuck at where it was between 2019 and 2021, after improving 9% annually on average between 2015 and 2019. In sub‐Saharan Africa, the number of people without access increased in 2020 for the first time since 2013.
Figure 1: About 40% of Africa’s population have no access to electricity
Source: World Energy Outlook; Electricity Access Database, IEA
- Energy: A Driving Force for Africa’s Industrialisation Agenda
In sub-Saharan Africa, 13.3 percent of enterprises in the World Bank Enterprise survey cited lack of reliable electricity as the biggest obstacle to their business. The survey also found that across the countries surveyed, an average 48 percent of firms owned a generator to supplement their electricity supply; and 4 percent of losses in annual sales was due to electrical outages.
- Africa’s energy potential is enormous, with only a fraction of it being currently tapped
As stated by BP Statistical Review of World Energy 2015, “Africa holds close to 9.6% of the world’s proven oil and gas reserves – with approximately 125.3 billion barrels of proven crude oil reserves and over 15 trillion standard cubic metres of natural gas”. This can help satisfy the continent’s future energy demand and play a key part in the electrification of Africa. Fossil fuels offer considerable development opportunities. Over the last decade, oil and gas operations have expanded to include new producers such as Ghana, Mozambique and Kenya; and in recent years, nearly 30% of the world’s oil and gas discoveries were in sub-Saharan Africa – while 2015 marked the largest gas discovery ever made in Egypt and the Mediterranean Sea. Increasing estimates of oil and gas reserves in Eastern and Southern Africa create significant opportunities in the mediumo to long-term, with several countries progressing toward commercial development.
Hydropower provides around a fifth of current capacity, but not even a tenth of its total potential has been utilised. The International Renewable Energy Agency estimates that the technical potential of solar, wind and geothermal energy is significant. Countries such as Cabo Verde, Egypt, Ethiopia, Kenya, Morocco and South Africa have launched major initiatives to utilise solar, wind and geothermal energy, resulting in over 10 GW of capacity contracted.
Let’s Bump the Breaks
African Energy Financial institutions might very well serve as a catalyst in establishing priorities for the energy sector from 2024 to 2032. Such financial institutions will help to transform Africa’s energy sector and promote inclusive growth, as well as aid in the transition to green growth by increasing energy production, expanding energy access, improving affordability, reliability and energy efficiency, and improving the sustainability of energy systems.
I believe that by mobilising domestic and international capital for innovative financing in Africa’s energy sector, assisting African governments in strengthening energy policy, regulation and sector governance, and increasing Africa’s investments in energy and climate change, we can establish a transformative partnership in energy for Africa.
This Energy Bank should be focused on five major strategic themes to address issues currently holding back the development of our energy sector, by: (i) creating an enabling policy environment; (ii) significantly increasing the number of bankable energy projects, and also broadening the funding pool to deliver new projects; (iii) supporting ‘bottom of the pyramid’ energy access programmes; (iv) propelling major Intra-Africa projects and driving integration; and (v) rolling out waves of country-wide energy ‘transformations’.
How to Finance this Transformation
An innovative financing structure will change Africa’s energy outlook. Domestic financing on the continent is on the rise, with finances coming from government budgets, sovereign bonds and pension funds. President-African Energy Chamber, NJ Ayuk, has offered some very insightful and compelling solutions in raising capital for our energy projects.
NJ suggests that: “African governments can set aside a percentage of their oil and gas revenues for new project funding. In Africa Energy Outlook 2021, the African Energy Chamber projected that African governments’ earnings from royalties, profit oil and other taxes in 2021 would reach US$100billion. Even 5% of that amount would produce US$5billion, and that could be leveraged for exploration, development or infrastructure.
“We can also raise capital by investing African pension funds in African energy projects. According to Cape Town-based investment firm RisCura, local pension funds collectively manage around US$350billion of assets in sub-Saharan Africa, and they are actively looking for new places to invest. Why not encourage them to add oil, gas, and renewables projects to their list?
“Investing pension funds in the energy sector is hardly a new practice. Some of America’s largest pension funds are invested in fossil fuel producers, and pension funds around the globe are investing in green energy projects. This would not be a giveaway: Investing in fossil fuels, especially gas projects and developing marginal fields, provides a large return on investment. And millions of Africans would be participating in our growth and our future.”
Our capital-raising options do not end there. We should also ask for the assistance of wealthy Africans who want to invest in a better future for Africa. Total private wealth in Africa was estimated to be around US$2trillion as of December 2020. Not to mention the African diaspora. Imagine what we would achieve if we all worked together. In 2014, the private sector invested US$4.8billion in energy, with US$2.5billion being pure private sector funding. As evidenced by the large IPP electricity production in Egypt, Kenya, Morocco and South Africa, the private sector has shown a robust and sturdy interest in developing projects in Africa.
Whatever the final contribution of public and private sectors or DFIs to bankrolling the sector may be, the current priority is aimed at getting all players to substantially increase their contributions – and most pertinently, getting governments to establish conducive conditions that are attractive to investment.
Establishing African energy banks is one way for our countries to safeguard themselves from these social and economic threats. In the advancement of this distinctive economic structure, China may be a credible partner for Africa. It provides a lifeline to flawed but essential support systems.
Conclusion
It goes without saying that Africa requires the establishment of a Continental Energy Bank. That is the only ideal solution for African countries to continue exploring the continent’s humongous hydrocarbon resources. Africa requires a dedicated energy policy that shifts away from highly centralised energy systems that benefit the wealthy at the expense of the poor. It also requires specialised energy-sector governance and financial transparency. Considerable ideological leadership will be required.
With the financing in place, African companies will be able to not only produce oil and gas but also provide self-sustaining funding flows for all types of African energy – as well as support local social inclusion, develop green energy markets and be critical to the sub-Saharan energy transition’s progress.
Africa is well-positioned to lead the global energy revolution, unlock the potential for skilled jobs, create economic transformation and reduce inequity by investing in its oil and gas industry.
The writer is a Director & Board Member | Wingfield Group
T: +233 (2415) 92875
M: +233 (2789) 68690
A: The Octagon, Accra-Central, Ghana
