African Nations' Plan for an 'Energy Bank'

Introduction

African nations are considering the establishment of an African Energy Bank. The move comes as these resource-rich countries express frustration with Western banks' reluctance to provide loans for the development of oil and gas fields. As of now, the 18 members of the African Energy Bank initiative have agreed to each contribute $83 million towards the bank, totaling $1.5 billion.

The African Petroleum Producers Organization

The group of 18 states, collectively known as the African Petroleum Producers Organization, requires $5 billion to launch what they term an energy bank. These countries have expressed dissatisfaction with Western banks' unwillingness to finance the development of oil and gas fields, which they believe they have a sovereign right to exploit.

Haytham El Maayergi, global trade executive VP at African Export-Import Bank, stated in an interview that these countries are at a development stage where a sudden transition to green energy is not feasible. The African Export-Import Bank is collaborating with the 18 states to establish the new institution.

Africa's Carbon Footprint and Energy Resources

Africa, the continent with the smallest carbon footprint, is rich in untapped oil and gas. However, under pressure from pro-transition Western governments, international lending institutions such as the World Bank and the African Development Bank have ceased funding such energy projects. This limits these countries' opportunities to take advantage of their own resources in the same way as countries like the United States.

Interestingly, the U.S., the second-largest shareholder in the African Development Bank, has recently praised the latest boom in U.S. shale oil and gas. At the same time, the U.S. representatives in the ADB favor no oil and gas development in Africa, a stance that is likely to cause resentment.

The Right to Develop Hydrocarbon Wealth

El Maayergi highlighted that Africa's context is distinct from other regions. Much of Africa's hydrocarbon wealth remains undeveloped, which could help alleviate widespread poverty in many parts of the continent. Around 600 million people lack access to electricity, and as many as 1 billion cook with charcoal, dung, and firewood.

It would be difficult for institutions such as the World Bank or private banks to dispute the claim that African nations have the right to reap the same benefits from hydrocarbons that Western nations have enjoyed for decades before deciding to transition away from oil and gas. This is particularly challenging because the shift is proving more complex than anticipated, and the Western world remains largely dependent on oil and gas.

Challenges and Alternatives

African governments are grappling with boycotts by banks and, more recently, insurers, who are themselves under increasing pressure from climate activists. These activists insist that Africa must remain the least emitting continent, bypassing the hydrocarbon era and transitioning directly from charcoal to wind and solar. International lenders such as the WB and the ADB would be eager to finance such projects. However, there are issues with these alternatives.

Many African countries simply lack the necessary transmission infrastructure to economically accommodate utility-scale solar and wind installations. This is a problem even in mature wind and solar markets such as Europe, which highlights the magnitude of the transition challenge in African countries.

Therefore, African states are uniting to find an alternative to Western lenders. The 18 members of the African Energy Bank initiative have agreed to each contribute $83 million towards the bank, totaling $1.5 billion. The African Export-Import Bank will match this amount, leaving a $2 billion gap that needs to be filled by external institutions such as sovereign wealth funds, private funds, and other banks.

Untapped Resources

The African Energy Chamber, a group advocating for the development of local oil and gas resources, reports that there are 125 billion barrels of oil and 620 trillion cu ft of natural gas waiting to be tapped. Despite relentless pressure from activists, Big Oil, if not Big Bank, is showing interest in exploring these resources.

Namibia, for instance, aims to become the fifth-largest oil producer in Africa by 2035. Other countries such as Uganda and Senegal, along with legacy producers like Nigeria, Angola, and Libya, are also eyeing the development of their resources. All but Uganda are members of the African Petroleum Producers Organization.

Bottom Line

The initiative by African nations to establish their own energy bank is a bold step towards self-reliance and the development of their abundant natural resources. However, this move also presents a host of challenges, including the need for infrastructure development and the pressure to transition to green energy. It will be interesting to see how these nations navigate these hurdles while striving to uplift their economies and improve the living conditions of their citizens. What are your thoughts on this initiative? Feel free to share this article with your friends. You can also sign up for the Daily Briefing, which is available every day at 6pm.