The African Export-Import Bank (Afreximbank) and the African Petroleum Producers Organization (APPO) have signed a Memorandum of Understanding (MoU) for the development of a multi-billion-dollar energy bank, which is a global trade financing institution.
The bank’s goal is to increase private sector investment in African oil and gas projects by providing vital financing for new and current oil and gas projects, as well as energy advancements along the whole value chain.
For Africa, this comes at a critical time following major oil firm divestment and changes in global investment trends.
Afreximbank’s Rene Awambeng and APPO’s Dr. Omar Farouk signed the Memorandum of Understanding in the presence of H.E. Joo Lourenço, President of the Republic of Angola, APPO Ministers, and AEC Executive Chairman NJ Ayuk.
Because of climate change, wealthy countries are calling for an end to the use of fossil fuels. However, Africa is still grappling with its own version of an energy crisis. More than 600 million people do not have access to electricity and 900 million people do not have access to clean cooking solutions, leading to calls for the rapid expansion of the oil and gas sector.
As a result of these calls, global investors are turning their back on hydrocarbons, leaving Africa short of the capital it needs to exploit its riches.
from $60 billion in 2014 to $22.5 billion in 2020, the AEC’s Q1 2022 Report on the State of African Energy shows that capital expenditure has decreased. Significant investment is still needed, notwithstanding the planned increases to $30 billion in 2020. African financial institutions, therefore, play an important role.
Afreximbank, for example, has already achieved significant headway in driving the growth of oil and gas projects. Total assets and guarantees of Afreximbank by the end of 2020 were $21.5 billion, with shareholder funds of $3.4 billion. Other institutions, such as the African Development Bank, play an important role in Africa’s energy environment, with a project portfolio worth upwards of $12 billion.
If large-scale discoveries like those in Namibia and Ivory Coast are to be fully explored, additional cash must be made available.
The Afreximbank-APPO MoU enters the picture with the goal of alleviating these difficulties and securing the provision of funding for Africa’s prospective oil and gas initiatives. As an independent bank operating in Africa, the bank’s leadership will be made up of experts in the energy sector who have a deep understanding of the continent’s needs. Instead of replacing private investment in Africa, the planned bank will be used as a stimulus for investment.
“The African Energy Chamber has been pushing for the creation of an African Energy Bank, one that is African-based and Africa-focused, and I am proud to announce that the Afreximbank and APPO have taken the first steps towards its creation. The bank will be critical for Africa’s energy sector, serving as a catalyst – not a substitute – for private investment in African energy”
“This is a practical strategy for prosperity and a pragmatic vision that must be embraced by all who want to make energy poverty history and fight climate change,” states NJ Ayuk, Executive Chairman of the AEC, adding, “Why should our pension funds go to European banks who say they will not finance Africans and call us risky? We need to use that money to finance oil and gas.”
If approved, the African Energy Bank will be a development financial organization like the APPO-created Africa Energy Investment Corporation, which was established to assist with Africa’s energy sector development. Additionally, the bank will act as a vehicle to facilitate the mobilization of African-sourced money in support of African oil and gas development.
As an investment organization, the bank will channel capital into African projects, ensuring excellent returns on investment and the growth of Africa’s energy sector, rather than relying on international banks. Two things happen as a result of this: the money helps fuel oil and gas development and the projects themselves spur economic expansion by making energy more widely available. As a result, this bank’s significance cannot be overstated. It will not, however, be an impetus for investment in Africa.