Can new Africa Energy Bank power a continent while protecting the planet?

In response to growing reluctance by Western institutions to invest in fossil fuels, a group of African nations is set to launch a bank to finance oil and gas projects.

The long-planned “Africa Energy Bank” that is expected to take off soon was announced last June as a joint initiative by the African Export-Import Bank (Afreximbank) and the African Petroleum Producers ‘ Organization (APPO) – a group of 18 oil-exporting nations.

The bank aims to lift growth by boosting Africa’s energy supply. Its founders see it as a lifeline in a continent rich in natural resources, but where millions of people still lack access to electricity.

However, climate activists have questioned the justification for cutting back on fossil fuels.

As the world transitions to low-carbon alternatives, oil and gas projects built today have a high likelihood of becoming unusable “stranded assets” in the future, adding to the burden of expensive debt on nations’ balance sheets.

Experts believe a balance must be maintained in order to meet Africans’ needs for both material and environmental protection.

Between a rock and a hard place

Under the 2015 Paris Agreement, hundreds of countries pledged to hold global temperatures to below 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels. Governments and businesses, among them those in Africa, have since been under increased pressure to cut back on fossil fuel use.

In 2019, the World Bank stopped funding oil and gas extraction. After a High Court ordered Shell to halt its marine exploration activities off the coast of South Africa in 2022 as a result of successful legal challenges brought by environmental campaigners, the company suspended its work there.

At the time, Happy Khambule, a senior campaigner for Greenpeace Africa, said, “We must do everything we can to undo the destructive colonial legacy of extractivism, until we live in a world where people and the planet come before the profits of toxic fossil fuel companies”.

Omar Farouk Ibrahim, APPO’s secretary-general, has stated for his part that it is necessary to strike a “right balance” between the needs to combat climate change and prevent social upheaval that might arise from difficult economic and financial conditions in Africa.

Indeed, Africa’s energy needs are immense.

In recent years, there have been more than a million sub-Saharan Africans without electricity. As population growth outpaced new energy supply in 2023, 600&nbsp, million people (43 percent of the continent) were left in the dark, according to the International Energy Agency.

Although estimates vary, a five-fold increase in electricity would be required to support significant industrial activity and aid in the eradication of Africa’s majority of people, who currently live on less than $1.90 per day.

Africa uses the least amount of modern energy per person globally. At an economy-wide level, it also lags behind. Globally, manufacturing makes up 42.2 percent of total power consumption. In Africa, it’s just 16.8 percent.

APPO head Ibrahim says the Africa Energy Bank is the result of Western countries ‘ “abandon]ing] hydrocarbons” so that “the leaders of the continent have no choice but to look within to raise the required funds to sustain and grow the]energy] industry”.

The Africa Energy Bank will be headquartered in Abuja, Nigeria’s capital.

By the end of this quarter [by the end of March], according to Nigeria’s Minister of State for Petroleum Resources Heineken Lokpobiri, “the building is ready, and we are only finishing touches,” this bank will begin to expand.

Countries involved in the Africa Energy Bank include Nigeria, Angola and Libya, among others. Plans for projects range from offshore oil exploration to new gas-fired power plants, according to &nbsp.

Each nation has pledged $83 million and will raise $1.5 billion in total. That will be complemented by $14bn from the Afreximbank, a trade credit organisation.

The Africa Energy Bank hopes to secure $ 120 billion in assets over the next five years, according to Lokpobiri. Foreign banks interested in acquiring equity will most likely receive additional funding from sovereign wealth funds, commodity traders, and international banks.

Africa’s context is ‘ different ‘

Many African leaders agree that rapid industrial growth is necessary, but many oppose Western financial backers’ restrictions, which are increasingly preventing them from participating in traditional energy projects.

Arkebe Oqubay, a former adviser to Ethiopia’s Prime Minister Abiy Ahmed, insists that “Africa’s context is totally different from elsewhere because its economic resources have not been fully developed. At the same time, it’s made a minimal contribution to climate change”.

Only 4 percent of the world’s carbon emissions are produced in Africa, and this figure is only historically. Additionally, extreme weather events cause a disproportionate amount of harm to it.

“The moral imperative to cut emissions is not as present in Africa”, said Oqubay.

He claimed for Al Jazeera that “these] are developing nations where you can’t just say you can start the green transition” and that they can’t just commit to oil and gas.

The African Energy Chamber, an advocacy group, has also argued that Africa has a “sovereign right” to develop its natural resources, which, according to the group, includes 125 billion barrels of oil and 620 trillion cubic feet of natural gas.

African nations are entitled to increase their oil and gas capabilities until [renewable energy] funding becomes more readily available, Oqubay said. “The international community does not have the right to say we cannot do this,” said Oqubay.

“But to be clear, fossil fuels are not the future”, he said.

‘ Huge ‘ renewable energy potential

Africa’s energy shortages are a “development constraint”, said Fadhel Kaboub, an associate professor of economics at Denison University in the United States. Africa’s subdued power sector limits the production of fertiliser, steel and cement – hallmarks of economic development.

The continent’s inability to industrialise has exacerbated global growth divergence.

From 2014 to 2024, gross domestic product (GDP) per capita in sub-Saharan Africa dropped by more than 10 percent (from $1, 936 to $1, 700). Over the same period, global GDP per capita rose by 15 percent.

“To climb the development ladder, the continent needs more energy”, Kaboub said. The best course of action isn’t to increase fossil fuel consumption, though. And boosting oil and gas exports as an end, in itself, is what Afrexim is pushing for”.

He instead proposes that Africa should use its unused fossil fuel infrastructure to develop its “huge” renewable energy potential. Africa is endowed with solar, wind and geothermal resources, as well as the critical minerals&nbsp, needed for green technologies.

According to the International Renewable Energy Agency, Africa’s potential to generate renewable energy from existing technologies, accounting for current costs, is 1, 000 times greater than the projected demand for electricity in 2040.

“Of course, there are constraints to realising Africa’s renewable energy capacity. However, one of the reasons for this is cost, Kaboub said, citing reports that claim the majority of new wind and solar projects are run for less than their fossil fuel counterparts.

Instead, he contends that “debt is the pressure point not to change tack”.

Almost 60 percent of countries in sub-Saharan Africa are in debt distress, according to the World Bank. “For oil producers on the continent, economic activity mainly consists of exporting fossil fuels to stay on top of debt repayments”, said Kaboub.

He suggested that, by providing oil and gas for other countries ‘ industrial processes, African governments are engaged in “economic entrapment”.

“Industrial growth requires economies of scale]cost savings derived from high levels of production]”, said Kaboub. It doesn’t need more siloed oil and gas projects because “Africa needs regional development plans that complement and distribute national resources across nations.”

In his view, development banks are failing to present a long-term economic vision for the continent. “And the green industrial revolution, where renewable energies power domestic manufacturing, could be that strategy”, he said.

Source: Aljazeera