ADDRESSING THE PERENNIAL CHALLENGE OF AFRICA’S ENERGY POVERTY: AN ENERGY BANK AS A CATALYST FOR CHANGE?

INTRODUCTION

At its 45^th extraordinary session held on the 4^th of July 2024 the Ministerial Council of the African Petroleum Producers’ Organization (“APPO”) announced that the headquarters of the newly established African Energy Bank (“AEB” or the “Bank”) would be hosted in Abuja, Nigeria. Nigeria’s selection followed a meticulous review process by the AEB Headquarters Ministerial Selection Committee which evaluated criteria such as socio-economic factors, safety, security and accessibility. The painstaking selection process underpins the careful consideration accorded Nigeria’s potentials and strategic regional importance.[1] Nigeria emerged victorious amidst bids to host the headquarters of the AEB by other contending member-States of the APPO such as Ghana, South Africa and Cote D’Ivoire. Nigeria’s Minister of State for Petroleum Resources (Oil) Senator Heineken Lokpobiri who broke the news of Nigeria’s successful emergence as the preferred host nation for the headquarters of the AEB stated that the decision reflected the collective ambition of the continent to create African solutions for African energy challenges while reiterating the country’s preparedness to contribute to the success of the Bank. The AEB, a brainchild of multilateral development finance institution- the African Export–Import Bank (“Afreximbank”) and the APPO was formally established on the 3^rd of June 2024 by the signing of its Establishment Agreement and Charter at a ceremony in Cairo, Egypt. The AEB is established with an initial capital base of $5 billion to achieve its principal objective of addressing the financing challenges faced by Africa’s oil and gas industry in the light of the global energy transition. Ultimately, the AEB aims to reduce the continent’s dependence on foreign capital and to promote a more autochthonous source of financing for the development of energy projects encompassing both fossil fuels and renewable energy sources.  To meet its significant capital requirements, the AEB will be funded by a minimum subscription fee of US$83 million from each APPO member-State, to reach an aggregate sum of US$1.5 Billion. Afreximbank and APPO will jointly contribute US$1.5 billion and the additional US$2 Billion will be sourced from external investors such as the Middle Eastern Sovereign Wealth Funds. In view of the Bank’s laudable objectives, this briefing note seeks to examine the critical role that the AEB will play in not only alleviating energy poverty in the continent, but also in providing  investment support for Africa’s energy sector development, to accelerate the attainment of aspirations 1[2] and 7[3] of the African Union Agenda 2063 and goals 7[4],11[5], and 13[6] of the United Nations Sustainable Development Goals (“SDGs”).

THE ROLE OF AN ENERGY BANK

An energy bank differs from a traditional bank because it is a specialised financial institution with the objective of providing energy sector-specific services, such as: coordination; promotion; financing; development of energy organizations; training; technical advisory; innovation; research and development; and the continuous advancement of the energy sector.[7] Through capital mobilisation, attraction of innovative financial instruments and risk management strategies, the AEB is well positioned to be an enabler of the development of Africa’s abundant oil and gas resources which have continued to suffer from paucity of funding options amidst the global transition to alternative sources of energy. With proven reserves of about 125 billion barrels of crude oil and over 600 trillion cubic feet of proven gas reserves, it would be counter-intuitive for Africa to completely abandon its vast fossil fuel resources prior to fully integrating renewable energy sources into the continent’s energy-mix. This is particularly in the light of the fact that the continent has the largest proportion of the world’s population living without access to modern energy.[8]  In the light of the above, there is no gainsaying that the AEB would play an integral role in providing the much-needed financing to rapidly develop these abundant energy sources and address the energy challenges that the continent has been bedevilled with. Beyond the development of traditional fossil fuel projects, the AEB would equally serve as an invaluable source of funding for the development of renewable energy projects which continue to grapple with funding challenges within the continent. For example, in 2020, renewable energy sources contributed only about 9% to the continent’s energy-mix.[9] Therefore, to ensure that renewable energy sources contribute more to Africa’s energy-mix, there is an urgent need for sector-focused financiers such as the AEB to, as a matter of urgency, commit to the funding of viable renewable energy projects within the continent.  For a more detailed discussion on the funding of renewable energy projects, please see our article titled: Financing Renewable Energy Projects in Nigeria.[10]

ENERGY POVERTY IN AFRICA

Energy availability, access and affordability are strong drivers for inclusive growth as it promotes health and educational development, poverty alleviation, reduction in unemployment rates and economic growth and development. Regrettably, as reported by  the International Energy Agency’s Africa Energy Outlook 2022[11], not only are 600 million people out of the 1.2 billion of the African population without access to electricity, it also forecasts that the continent’s population, income, agriculture and commerce industry growth will cause an expansion in the demand for modern energy by a third between 2020 and 2030 in Sub-Saharan Africa and this will make affordability a major concern.[12] Subsidising energy prices by nations particularly the debt-distressed ones, then becomes quite unfeasible. With the vast resources available to the continent,[13] generating electricity from natural gas, renewable energy sources and renewable energy technologies appear to be the silver bullet to achieving sustainable and affordable energy in Africa. However, the absence of infrastructure impedes the realisation of this possibility.  The effect of this is insufficient energy availability and access which then has a ripple effect on the continent, some of which are: the annual numerous deaths attributed to the use of wood-burning stoves for cooking; the clogs on the operations of hospitals and emergency services; compromised educational attainment; and agonising increases in the cost of doing business.

Whilst lofty policies and political will[14] subsist, financing for clean energy remains grim, as although Africa accounts for one-fifth of the global population, it attracts barely 3% of global energy investment.[15] Evidently, this figure is abysmal particularly when it is juxtaposed with the amount of investment required to develop the infrastructure and renewable energy technologies which will not only electrify the unserved population, but also promote clean cooking, facilitate industrialization, empower vulnerable groups within the continent and create more employment opportunities. It is against this background that the AEB needs to step in to bridge this funding deficit with a view to addressing the continent’s alarming energy crisis by positioning itself to be the game-changer in the continent’s pursuit of economic development and environmental sustainability.

OPPORTUNITIES FOR THE CONTINENT’S ENERGY LANDSCAPE

The AEB has the potential of transforming the Continent’s energy landscape in the following ways:

a.    Increasing electricity production and electrifying more of the population: With investments deployed to diversifying the continent’s energy mix, resources such as solar, wind, hydro etc can be utilised to install off-grid/hybrid electricity generation equipment that will ensure increased regional access to energy particularly in rural areas.

b.    Enhancing energy security and energy efficiency: Diversifying the energy mix will not only increase electricity production but also enhance energy security across the continent, as there will be a great reduction on the dependence on the importation of fossil fuels which are subject to price volatility and price disruptions. Several energy products will thus be available to match the energy demand.

c.     Invention of local solutions for local challenges: Given the recent trend of divestments by multinationals from the continent’s energy sector, the AEB will encourage energy independence as indigenous players will be able to unlock financing from a regional focused energy bank. Moreso, this will facilitate within the continent, beneficial and consistent energy policies and legislations, and a united front in the global energy sector.

d.    Infrastructure development and technology transfer: It is also expected that the Bank will devise innovative financial instruments that will mobilise and allocate capital to green and cutting-edge technology and infrastructure across the continent. By deepening interconnectedness, this also makes room for energy-technology transfer among African States.

e.     Sustainable economic development: The investment in energy infrastructure and attraction of investment will create jobs, develop local industries, train indigenous professionals, promote research and development, positively impact healthcare, education and entrepreneurship.

CONCLUSION

The AEB stands poised to revolutionize Africa’s energy landscape. With its inauguration set for September 2024, the AEB is not just another financial institution-it is a beacon of hope for addressing the continent’s energy challenges, catalysing investment and resolving the infrastructural deficits that have for long ravaged and limited the continent’s advancement. As the Bank’s capital base and Compound Annual Growth Rate (CAGR)[16] is expected to expand significantly in the coming years, there is great optimism that the AEB will be the catalyst for sustainable development and energy equity across the continent. Africa’s journey towards energy security and economic empowerment is on the cusp of a transformative era, and the AEB is at the heart of this exciting future.