Afreximbank, APPO to create multi-billion-dollar energy bank

Tuesday 17 May 2022 11:39 CET | News

Pan-African multilateral trade finance institution, the African Export-Import Bank (Afreximbank), has signed a Memorandum of Understanding (MoU) with the African Petroleum Producers Organization (APPO).

The partnership is meant for the creation of a multi-billion-dollar energy bank. Aimed at scaling up private sector investment in African oil and gas projects, the bank will provide critical financing for new and existing oil and gas projects, as well as energy developments across the entire value chain. Following international oil company divestment and the shift in global investment trends, the bank comes at a particularly critical time for Africa’s energy sector, according to the official press release.

While the developed world calls for the end of fossil fuels due to climate change, Africa continues to face the crisis of energy poverty. Over 600 million lack access to electricity and 900 million lack access to clean cooking solutions, leading to stakeholders calling for the rapid expansion of the oil and gas sector, recognising the role these resources play in making energy poverty history. Despite these calls, global investors are shying away from hydrocarbons, leaving the continent without the investment it needs if it is to capitalise on its resources.

According to the AEC’s Q1 2022 Report, the State of African Energy, from the peak in 2014 at USD 60 billion, capital expenditure in Africa declined to USD 22.5 billion in 2020. Despite projected increases to USD 30 billion in 2020, significant levels of investment are still required, and thus, the role of African financial institutions has been emphasised. Organisations such as the Afreximbank have already made notable progress to drive oil and gas project developments. At the end of 2020, the Afreximbank’s total assets and guarantees stood at USD 21.5 billion, with shareholder funds amounting to USD 3.4 billion. Other institutions including the African Development Bank – with an active portfolio of projects upwards of USD 12 billion – also represent critical providers across the African energy landscape. However, more needs to be done, and if large-scale discoveries such as those made in Namibia and Ivory Coast are to be sufficiently developed, more capital needs to be made available.

Stepping into this picture, the Afreximbank-APPO MoU aims to alleviate these challenges, ensuring the provision of capital for Africa’s upcoming oil and gas projects. Based in Africa, the bank will operate as an independent entity, regulated and led by experienced professionals that know and understand Africa’s energy needs. The proposed bank will not be a substitute for private investment, however, but rather, will serve as a catalyst for Africa-directed investment.

The proposed African Energy Bank will operate in the same way as the APPO-created Africa Energy Investment Corporation – a developmental financial institution created to channel resources towards the development of Africa’s energy sector. In addition to ensuring capital is made available for African oil and gas, the bank will serve as a vessel for mobilising African-sourced finance. Rather than utilising international banks for pension funds, the bank will serve as an investment corporation that will channel these funds into African projects, thus, ensuring high returns of investment as well as the development of Africa’s energy sector. The benefits will be two-fold: the funds will help drive oil and gas development while the oil and gas projects will drive socioeconomic growth through the increase in access to energy. Accordingly, the role this bank will play is pivotal.

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Keywords: trade finance, partnership, investment
Categories: Banking & Fintech
Companies: Afreximbank, APPO
Countries: Africa
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Banking & Fintech




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