With an Energy Bank, Africa Eyes New Sovereignty
A new development model storms onto the world stage
By 2050, Africa’s economy will increase tenfold, from $3.1 trillion today to almost $30 trillion. This means that by the middle of the century, if taken as a whole, Africa will be the fourth-largest economy in the world.
By the same time, almost 800 million people in Africa will join the global workforce, as Africa’s population jumps from 1.3 billion today to almost 2.5 billion, meaning Africans will represent 25% of the world’s population.
With this extraordinary growth comes bigger and bigger pressures on African nations to deliver infrastructure, services, and overall connectivity that a larger (and richer) population across the continent will demand.
A big part of this is energy.
Except, when it comes to transforming the energy landscape, Africa faces hurdles, which are all interlinked.
At the top of the list is financing. In 2022, Africa invested around $70 billion in energy. In the same year, China invested over $546 billion just in clean energy, four times the US ($141 billion) and three times Europe ($180 billion).
From a global standpoint, Africa only attracts 3% of energy investments.
According to the African Development Bank (AfDB), Africa has a funding gap between $35 billion to $50 billion when it comes to annual energy investments. Separately, the International Energy Agency (IEA) is projecting that by 2030 Africa needs $200 billion a year in energy investment to meet economic and social needs.
Some African nations are watching energy investment gaps widen. In Nigeria, between 2014 and 2022, investment in the oil and gas industry dropped from $27 billion to just $6 billion.
Combined with financing, are a mix-mash of several other challenges, like expensive capital, political, economic, and social instability, and separately, the fault lines of the US-China fight.
But none of this takes away from the importance of financing. Financing is the key to unlocking Africa’s new energy future. And in the process, reshaping African power and sovereignty.
To start a new chapter, in 2022, the African Export-Import Bank (Afreximbank) and the African Petroleum Producers Organisation (APPO) announced the creation of the “African Energy Transition Bank,” or “African Energy Bank” (AEB) as it is referred to today.
The bank has several goals, but the North Star is to finance energy projects in Africa that Western financiers are rejecting, like those related to oil and gas, as the West redirects cash towards green projects.
The AEB would enable Africa to control its energy future, from taking advantage of new oil/gas opportunities to transitioning energy landscapes (if nations choose to).
Initially, the goal was to launch the AEB in mid-2024. The bank would have $5 billion in starting capital. Part of capital would come from members, now counting 18 African states, each contributing $83 million, generating almost $1.5 billion. This figure would be matched by Afreximbank. The remaining funds would come from a blend of African and foreign investors, in particular sovereign wealth funds in the Middle East.
According to Nigeria, by 2028, the AEB could have $120 billion in capital, 24 times its starting nest egg.
The launch of the bank has been set for January, 2025 (a delay from July, 2024). In July, Nigeria was selected as the headquarters of AEB. And in October, over 45% of the starting $5 billion had been raised.
The AEB represents the intersection of three worlds: geopolitics, financing, and energy.
A new energy bank is about “inverting” the development model Africa has used for decades. To drive energy development, no longer will African nations be relying just on Western investment, which comes with its own conditions and terms. Africa will be relying on a “local” investment vehicle, controlled by local parties.
To access Africa’s energy growth story, from fossil fuels to clean energy, the world will have to pass through AEB. This is a massive shift, representing the rise of “sovereign development” in Africa.
As Africa moves in this direction, it will begin to shift Africa’s relationship with the rest of the world, generating new friction as Africa discards the prevailing status quo.
GREEN NARRATIVE
With AEB, African nations are effectively pouring cold water on the Western narrative about the green transition. As climate change fears rose over decades, the belief was that regions like Africa must transition away from “dirty energy” and adopt “clean energy” solutions (green). By doing this, these regions are protecting themselves - and the world.
However, the new energy bank signals that Africa is challenging this narrative.
Africa wants its own investment vehicle to drive oil and gas projects, not do away with them. This means parts of the world assumed to be “on board” with ditching so-called “dirty energy” are actually not.
They are not convinced by the Western beliefs.
Part of this is circumstance. Some African economies cannot just walk away from fossil fuels. In Nigeria for example, 92% of all exports derive their value from oil. And, oil and gas together contribute 65% of the Nigerian government’s revenue. In Algeria, oil accounts for 25% of the country’s GDP, while in Angola, oil represents around one-third of the country’s economic output.
What the West is calling for with ditching fossil fuels is not realistic in Africa.
Another part is outlook.
For the West, it is one or the other: green or not green. The Danish investment in “energy islands” in the Northern Sea, focused on wind energy and costing around $160 billion, is an example of the “no holds barred” approach of Western capitals.
But Africa wants its energy basket to include old energy engines and new energy engines. That is why, from Cameroon to Egypt, African nations are eyeing gigantic clean energy projects that will add double-digits to the nation’s overall energy supply.
In Cameroon, a hydropower project will boost energy production by 30%, while Egypt has the "Benban Solar Park,” which can produce 1.8 gigawatts of power (1 gigawatt of power can supply electricity to 750,000 homes).
(Side note: All of these countries, from Nigeria to Algeria and from Cameroon to Egypt, are all members of AEB. Not a coincidence).
This means, with AEB, a new friction is forming between Africa and the West over the green transition and, more broadly, how to best tackle climate change. This is a new dimension of geopolitics. So far, the main climate friction has been between the US, China, and India, over emissions. Or, frustrations from countries like the Philippines or Ghana over the West dumping garbage (almost 20 of the world’s 50 largest landfill sites, where Western trash is dumped, are in Africa - and 95% of these landfill sites are unregulated*).
*Interestingly, work is underway to utilize Africa’s landfill sites for energy production.
Now, with AEB, the friction or fighting could be far more significant. What Africa is doing is coming up with its own strategy to navigate climate change, regional development, and population growth that runs counter to what certain Western governments want.
And with AEB, the West is not able to exert the same kind of control or pressure, by pulling investments or freezing capital.
Africa’s moves through AEB could begin to influence the position of much of the continent on global climate deals, new foreign investment, green financing, etc. What the AEB does could enable African nations to stand up stronger and take sides on matters that run counter to what many others want or are used to, including parts of the Global South, like India, which wants to power a global solar transition.
The AEB could begin to cause others to question green strategies across the world, especially if sustainable projects fail to provide the same security/supplies as the traditional models.
For example, if Israel and Iran clash in the Middle East, causing Israel to target Iranian oil fields, oil prices could skyrocket. At this moment, governments will have to assess whether their green energy projects can offset the oil imbalances and fluctuations or not. And if not, it will mean that green projects are still not ready to replace the current energy architecture. And more nations might gravitate towards Africa’s model, which is underpinned by AEB.
When it comes to climate change, energy and financing are changing how governments think, which in turn, is changing the geopolitical status quo and realities.
NEW FIGHTS
As Africa moves forward with AEB, it could end up creating new fights.
The EU, for instance, wants to become a green superpower, in part to compete with the US and China. To achieve this, Brussels is taking its green economy to new heights.
This includes new trade rules for imports.
From the insight Corporate Sustainability Wobbles on World Stage
In the push to achieve this position [of a green superpower], the EU is unveiling a raft of new sustainable laws. One of them, the “Corporate Sustainability Due Diligence Directive,” will require European businesses to scan their entire supply chain for sustainability. Starting in 2029, firms have to “prove” (to Brussels) that their supply chains are designed to help the environment.
This is already having a major impact. The German chemicals company BASF, the largest chemicals company in the world, has exited a $2.6 billion project to refine nickel and cobalt in Indonesia, in part, because it threatened the local environment. With the new EU rules, BASF may not have been able to prove it had a “clean supply chain,” resulting in potential fines (and reputational hit).
A separate piece of legislation proposed by the EU, the “European Union Deforestation-free Regulation (EUDR),” is creating friction with Southeast Asia.
The EUDR would require companies selling a list of products in Europe (i.e. coffee, palm oil, beef) to show that their supply chains are not resulting in deforestation. Companies that can’t prove this would have their imports banned.
The EU wants its imports to be “clean” and “environmentally friendly.” And this means less fossil fuels and related projects. Except with AEB, Africa is focused on economic stability and sovereignty, largely through oil and gas projects, which Europe considers bad.
These two strategies oppose each other.
The projects the AEB invests in will be diametrically opposite to the imports Europe wants. This could result in European companies canceling projects in Africa that involve projects funded by AEB. Or, it could see African nations being ineligible for new European investments if AEB projects are not halted.
It is not that Europe will be explicitly going after AEB. Rather, it may be going after Africa’s oil and gas ecosystems, which are partly underpinned by the new bank.
A complex geopolitical web could form, interlinking Europe’s green agenda, Africa’s sovereign development, and the footprint of global companies. In the end, Europe could begin to restrict certain African imports for breaching green trade rules, drawing in AEB.
At this moment, the AEB and Africa could go on the offensive, warning that Europe’s trade moves threaten Africa’s economy and businesses. A new fight could form between African capitals and Brussels, in part because of the projects AEB is backing and investing in.
A separate matter is how AEB projects fit into the broader oil world.
Countries like Saudi Arabia, Russia, and, more recently, the US are the shot callers of the global oil trade.
A big part of their status is that they have oil refining facilities, allowing them to produce and refine oil, and then export it to the world. On the other hand, countries from Africa to Asia, don’t have this. As a result, it has restricted their geopolitical power and made them reliant on the world and exposed to it.
After the Ukraine war began, there were shortages at gas pumps in Africa, and airlines faced oil squeezes because Africa lacked refining capability, meaning it had to import oil from the world stage as prices soared.
With AEB, this could begin to shift, as a new chapter of African oil production begins, including refinement.
Already, Nigeria has finished construction of the Dangote Petroleum Refinery, a $19 billion oil refining facility, the largest in Africa and one of the largest in the world. At maximum capacity, it will be able to produce 650,000 barrels of oil a day, enough for Nigeria to end its reliance on foreign refineries.
As AEB accelerates more Dangote-type refineries in Africa, African nations could begin to eye their own geopolitical plans with energy, from strategic relationships with India and China (through cheap oil exports) to forming their own oil bloc to set prices and production.
As this happens, Africa could be at loggerheads with countries like Saudi Arabia or organizations like OPEC. As Africa eyes its own energy sovereignty, eventually it will have a surplus that it wants to sell on global markets. At this point, the rise of African energy exporters, in the same league as the “old captains” could make some governments uncomfortable.
Lastly, the global investment plans from the West are up in the air.
Take “Global Gateway.” This is a green connectivity plan from the EU, targeting 300 billion euros in investments by 2027 to drive sustainable projects around the world. The cornerstone of Global Gateway is the “Africa-Europe Investment Package,” which earmarks over 150 billion euros for investment across Africa.
When Global Gateway was unveiled, Africa did not have AEB. Now, Africa does.
And with it, AEB could begin taking steps that once again run counter to Global Gateway. While Global Gateway invests in a solar project on the opposite side of the continent, AEB might be invested in an oil project. A parallel system could form as Africa invests in its own economy.
Could Europe halt Global Gateway in Africa?
The European green connectivity plan, seeking to help Brussels take on the US and China, could find itself competing with an African financing plan for fossil fuels. On the African continent, two separate geoeconomics could play out focused on two very different outcomes.
ARAB CARD
The fact that the AEB is turning to Middle Eastern sovereign wealth funds is no coincidence.
The fourth largest investor in Africa, after China, Europe, and the US, is the United Arab Emirates (UAE). This means that the UAE and, separately, Saudi Arabia, have become shot callers on the African continent.
However, there is more to this than just clout.
Involving Gulf funds was a strategic calculation by African capitals as to who to align with globally. The AEB could have turned to investors from the West to China, from India to Japan.
But they chose Gulf funds, led by Abu Dhabi and Riyadh.
African governments prefer Middle Eastern involvement in certain geoeconomic projects, over other nations.
Part of the calculation could be that Middle Eastern nations are directly connected to the success of Africa - unlike the West, China, or India, who are less “connected” to African affairs. Add to this, Middle Eastern funds might have fewer conditions and terms for their investments, mimicking what took place in Egypt, where the UAE invested $35 billion to develop part of the Egyptian coastline on the Mediterranean.
However, this does not come without wrinkles.
By taking Gulf money, Africa is opening the door to Gulf competition spilling over into the continent, namely between the UAE and Saudi Arabia. The two nations are not seeing eye-to-eye on many matters. The new Saudi project, calling on foreign firms to set their regional HQ within the Kingdom or lose out on state investments, is a shot at Dubai to hold the economic crown of the Arab world.
Equally significant is that by bringing Middle Eastern funds directly into the AEB, Africa is integrating itself deeper into Middle Eastern affairs.
What takes place in the Middle East will reverberate back to Africa in more complex ways.
As AEB seeks to raise its capital to $120 billion, it could lean on Middle Eastern funds more. But if Middle Eastern geopolitics explodes, like with Israel and Iran swinging in bloody ways jeopardizing oil flows, Middle Eastern capitals might be hesitant to pour more cash into AEB.
This could disrupt the AEB’s funding plans and force a turn to the likes of China and the US/West, changing the environment within the bank.
Other moves the Middle East is making, like choosing sides between the US and China, might also begin to ricochet back to the AEB. And before African nations realize it, other countries could have a “hand” in the bank through the Middle East.
ACTIONABLE TAKEAWAYS
Africa has reached a new stage in its development journey. The old “Africa” is not what exists today. African nations are rising, and have a hunger to accelerate their development. Because many nations are in a new development stage, they are not turning to the old ideas and solutions. They are eyeing new methods and models, like the AEB.
Sovereign development is a new global North Star. Whether it is Africa, Asia, or South America, governments want to call the shots when it comes to development. They do not want to be beholden to external parties, especially governments who might have their own agenda/interests. Sovereign development is the new North Star for many capitals, using funding and other instruments that are controlled by local stakeholders.
West has to go back to convincing world. When it comes to climate change and the green transition, the West has to go back to the drawing board and figure out how to convince, or “re-convince,” the world that fossil fuels should be on their way out. The AEB represents the start of a counter-push, as the Global South refuses to jeopardize itself for a “greater good.”
Competition in Africa has become complicated. At one moment, Middle Eastern nations have become new shotcallers in Africa, on the same level as the US, China, and others. However, at another moment, the AEB shows that Africa will not be controlled by foreign powers. A geopolitical paradox is forming, as Africa cedes autonomy (through foreign investment in AEB) to reassert sovereignty (by using AEB throughout the continent).
Rise of brand new African-oriented order. The formation of AEB represents the rise of a new set of African-controlled vehicles that will establish a new kind of African presence in the world. Through AEB and other such vehicles that will eventually follow, Africa is making it clear where the global borders end and where Africa’s borders begin.
CONCLUSION
The AEB is a transformative push by Africa. It is not going to take decades to materialize. And it is not thinking small in terms of capital. Africa is thinking big because Africa is realizing the significant role it will play in shaping the coming decades.
Strangely, as Africa thinks this way, the West and China are in the same boat.
The West and China are now being forced to redirect investments through African-controlled doors. And this inverts the power dynamics. Instead of the West or China calling the shots, now it is Africa who calls the shots. In the new setup, the West and China will be investors, not captains.
Equally significant is that the world of development banks faces a new status quo as AEB forms. From the World Bank to AIIB, countries are turning to more local and sovereign options instead of the global standard bearers.
The AEB comes at a pivotal moment for Africa. Its development and rise are about to snowball. But this means the existing gaps will widen dramatically if they are not solved.
At the center of solving this challenge may be energy. Developing Africa’s vast energy reserves could solve many other challenges. Failing to build a proper energy foundation, however, could jeopardize everything else.
As AEB walks Africa on a new path, closely behind is the world of geopolitics. Whatever AEB does will draw in the world stage. And, what happens on the world stage, could trickle down to the AEB.
This means creating and launching AEB might be the easy part.
Now the pressure is on AEB, and by extension Africa, to show it can meet the needs of the hour and not fall prey to old habits and beliefs. And in all this, navigate the choppy waters of geopolitics, which surround everything AEB wants and imagines.
-Abishur/Mr. Geopolitics
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