Oil-producing African countries, operating under the aegis of the African Petroleum Producers Organization (APPO), have set up an African Energy Bank (AEB) with an initial capitalization of $5 billion to help fund African energy projects that face declining investments. However, the new institution faces a tough challenge as it adjusts to the changing global oil and gas market.
“The biggest challenge we have in Africa as oil-producing countries is funding, so a short while ago, the council held a meeting and said the solution was the Energy Bank,” Nigeria’s minister of state for petroleum (oil), Heineken Lokpobiri, said at the July APPO meeting in Abuja.
Afreximbank and the African Energy Foundation are also contributing funding. Yet 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 everything African, it will face some challenges, even if they are just teething problems,” says Marcel Okeke, a former chief economist of Zenith Bank.
He wonders where the AEB would find additional capital if needed. Okeke suggests that it could force the bank to approach non-African investors, perhaps in the form of the African Development Bank, which has non-African members.
Investors consider several factors, including safety and macroeconomic challenges, before deciding where to invest. In Nigeria, investment in the oil and gas industry took a steep dive from 2014 to 2022, from $27 billion to $6 billion, the Nigerian Upstream Petroleum Regulatory Commission said last year.
Some international oil companies have left the country, citing a tough business environment and economic insecurity. “Insecurity in Nigeria is chasing investors away, and the oil and gas industry has become inclement,” says Okeke, who added that this is happening in other African countries, too.
He also notes that the world is going through an energy transition whereby hydrocarbon alternatives are rising in popularity. At the same time, oil and gas have become political hot potatoes, which doesn’t favor the bank. “This is why alternative energy could become the focus of the energy market, rather than fossil fuel. Therefore, the reality is that those who would have cooperated with the bank may not,” says Okeke.
