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Taking charge of raising capital: why Africa needs to develop its own financing structures

Africa’s vast oil and natural gas resources represent a critical solution to the continent’s energy crisis and its unprecedented degree of energy poverty. With a population of more than 600 million without access to reliable electricity, and as global pressure increases to switch to cleaner energy sources, fossil fuel funding restrictions are hampering the development of resources that could lift millions of people out of poverty and boost the continent’s economic growth. As international funding channels are diverted away from oil and gas, Africa must find its own capital raising solutions and build on its own projects if it is to eradicate energy poverty by 2030.

African financial institutions

Given the evolution of international capital flows in Africa, regional financial institutions have a progressive role to play in financing oil and gas developments. Based and focused on Africa, these institutions will be important for the development of the continent and the reduction of energy poverty. As such, institutions such as the African Development Bank (AfDB) and the African Export-Import Bank (Afreximbank) have an increasingly valuable role to play in financing Africa’s energy future. . The AfDB currently has an active portfolio of energy projects totaling over $12 billion, while at the end of 2020, Afreximbank’s total assets and guarantees stood at $21.5 billion, shareholder funds amounting to $3.4 billion.

“If we insist on exploring our oil and gas reserves when the world cuts investment in the sector, we must create a financial institution, an African Energy Bank, to develop the oil and gas sector. gas,” said HE Timipre Sylva. , Nigerian Minister of State for Petroleum Resources, adding, “Now is the time for us to come out of Nigeria to market this investment environment. We must not leave Africa to attract investment. We need to put structures in place to fund our system.

Many stakeholders – including Afreximbank, the Nigerian National Petroleum Corporation and the African Energy Chamber – have reiterated the role that an African energy bank will play in financing Africa’s energy future . The pan-African institution would be essential for the continent’s energy developments, enabling oil and gas projects while minimizing reliance on foreign capital. The development of an energy bank will be imperative to phase out financing for hydrocarbon-focused investments as the continent embarks on its energy transition plan, which would require an estimated annual investment of $40 billion. Therefore, an African Energy Bank will open the oil and gas sector to massive intra-African investment, serving to encourage economic development and reduce energy poverty.

“We have everything it takes to develop and promote energy transition and reduce energy poverty, but we never focus on ourselves as a continent,” said Prof. Benedict Oramah, Chairman of Afreximbank, who added that “the urgency of the future has arrived. It is here, now. We no longer need empty words, we need action, cooperation and, most importantly, we need energy.

As the largest oil producer in sub-Saharan Africa, Nigeria is expected to start operating around 100 oil and gas projects between 2021 and 2025. The flagship Assa North-Ohaji South gas processing plant, with a capacity of 300 million cubic feet of natural gas per day, represents a key project in the West African country’s gas-to-power sector, while the liquefied natural gas (LNG) expansion project Nigeria’s $7 billion facility is expected to begin operations in 2025, increasing annual LNG production capacity to over 30 million tonnes per year.

Meanwhile, new discoveries and new field development projects in Mozambique, namely its LNG project, which is on track to deliver LNG by 2024, will require more funding to improve local consumption and supply. use of energy resources to encourage economic development. In addition, Namibia announced the significant discovery of oil and gas by energy supermajor, Shell, in the country’s offshore, which is expected to spur a wave of investment in the southern African country.

Public-private capital mechanisms

Reinvesting capital in domestic developments, as well as cross-border infrastructure projects, will enable oil-producing countries to boost African economic growth and reduce energy poverty. Mature oil and gas markets such as Angola, Nigeria and Libya – with oil exports totaling $27.7 billion, $18.7 billion and $5.7 billion, respectively – can reinvest revenues from exports in new project developments, both domestically and continentally.

Additionally, integrating a myriad of parties in raising capital can ensure the development of large-scale projects that are often too large to be financed by independent investors. The Sankofa gas project in Ghana and the liquefied natural gas project in Mozambique led by TotalEnergies are prime examples. These projects have successfully raised $1.35 billion and $15 billion respectively from a myriad of lenders. Namibia, with estimated reserves of 11 billion barrels of oil and 2.2 trillion cubic feet of natural gas, has also been a major draw for regional and international energy companies as new explorers begin to show interest in the country’s high-potential oil and gas market. .

Such developments are imperative to reduce dependence on financial aid, to develop an environment in which Africa can rely on its own resources and financing, and through which energy can be used to promote development and socio-economic growth, while alleviating energy poverty, diversifying the continent’s energy mix, and adhering to the global call for an energy transition. “Creating our own market-driven models for financing energy projects will send a clear signal to the market that Africans are looking to become leaders in raising private capital. This will show that we are advancing natural gas development and infrastructure while supporting low carbon investment. Said NJ Ayuk, Executive Chairman of the African Energy Chamber.

As African stakeholders turn to innovative financing mechanisms to fund the continent’s energy and economic future, platforms such as the Africa Energy Week (AEW) 2022 – taking place in Cape Town from 18-21 October – are the perfect place to secure investments, sign deals and form partnerships that will advance Africa’s energy growth. AEW 2022 is committed to promoting African capital-raising solutions, and through progressive investor forums, collaborative roundtables and market-focused seminars, the event will showcase African energy projects to regional financial institutions, ushering in a new era of integration and financial security.

Distributed by APO Group for the African Energy Chamber.

AEW 2022 is the AEC’s annual conference, expo and networking event. AEW 2022 brings together African energy players with international investors and partners to drive industry growth and development and promote Africa as an energy investment destination. For sales related inquiries, please contact [email protected]

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