Oil-producing African countries, operating under the auspices of the African Petroleum Producers Organization (APPO), have created an African Energy Bank (AEB) with an initial capitalization of $5 billion to help finance African energy projects facing declining investment. However, the new institution faces a difficult challenge as it adapts to the changing global oil and gas market.
“The biggest challenge we have in Africa as oil-producing countries is financing, so a while ago, the council met and said the solution was the Energy Bank,” said Nigeria’s oil (petroleum) minister, Heineken Lokpobiri. he said at the July APPO meeting in Abuja.
Afreximbank and the African Energy Foundation are also contributing funding. However, whether AEB’s capitalization is enough to bridge the industry’s funding gap remains to be seen.
“AEB is a wonderful idea, but as with all things African, it will face some challenges, even if they are simple problems,” says Marcel Okeke, former chief economist at Zenith Bank.
He wonders where AEB would find additional capital if needed. Okeke suggests it could force the bank to reach out to non-African investors, perhaps in the form of the African Development Bank, which has non-African members.
Investors consider many factors, including security and macroeconomic challenges, before deciding where to invest. In Nigeria, investment in the oil and gas industry fell sharply from 2014 to 2022, from $27 billion to $6 billion, the Nigerian Petroleum Regulatory Commission said last year.
Some international oil companies have left the country, citing the tough business environment and economic insecurity. “Insecurity in Nigeria is driving away investors and the oil and gas industry has become unsavory,” says Okeke, who added that this is also happening in other African countries.
He also notes that the world is going through an energy transition where alternatives to hydrocarbons are growing in popularity. At the same time, oil and gas have become political hot potatoes, which does not favor the bank. βThis is why alternative energy could become the focus of the energy market rather than fossil fuels. So the reality is that those who would have cooperated with the bank may not,β says Okeke.