Afreximbank, APPO sign MoU for Energy Bank creation

The 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) for the creation of a multi-billion dollar energy bank. With the aim of increasing 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 throughout the value chain. Following the divestiture of international oil companies and changing global investment trends, the bank comes at a particularly critical time for Africa’s energy sector.

The MoU was signed by Mr Rene Awambeng, Director and Global Head, Client Relations, Afreximbank, and Dr Omar Farouk, Secretary-General of APPO, in the presence of HE João Lourenço, President of the Republic of Angola, Ministers of the APPO and African Energy. Executive Chairman of the Chamber (AEC) NJ Ayuk.

As the developed world calls for an end to fossil fuels due to climate change, Africa continues to face the crisis of energy poverty. More than 600 million lack access to electricity and 900 million lack access to clean cooking solutions, leading stakeholders to call for the rapid expansion of the oil and gas sector, recognizing the role these resources play in making energy poverty history. Despite these calls, global investors are turning away from hydrocarbons, leaving the continent without the investment it needs to capitalize on its resources.

According to the ACS First Quarter 2022 Report, the State of African Energy, from a peak of $60 billion in 2014, CAPEX in Africa fell to $22.5 billion in 2020. Despite projected increases to $30 billion in 2020, significant levels of investment are still required, and thus the role of African financial institutions has been emphasized. Organizations like Afreximbank have already made notable progress in driving the development of oil and gas projects. At the end of 2020, Afreximbank’s total assets and collateral amounted to $21.5 billion, and shareholder funds amounted to $3.4 billion. Other institutions, including the African Development Bank, with an active portfolio of projects of more than $12 billion, also represent critical providers across the African energy landscape. However, more needs to be done, and if large-scale discoveries like those in Namibia and Côte d’Ivoire are to develop sufficiently, more capital is needed.

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

“The African Energy Chamber has been pushing for the creation of an African Energy Bank, one based in Africa and focused on Africa, and I am proud to announce that Afreximbank and APPO have taken the first steps towards its creation. The bank will be central to Africa’s energy sector, serving as a catalyst, not a substitute, for private investment in African energy. This is a practical strategy for prosperity and a pragmatic vision that must be adopted by all who want to make the history of energy poverty and fight against climate change”, says NJ Ayuk, executive president of the ACS, adding: “Why should our pension funds go to European banks that say they will not finance Africans and call us risky? We need to use that money to finance oil and gas.”

The proposed African Energy Bank will operate in the same manner as the African Energy Investment Corporation created by APPO, a development finance institution created to channel resources towards the development of Africa’s energy sector. In addition to ensuring that capital is available for African oil and gas, the bank will serve as a vessel to mobilize financing from African sources. Instead of using international banks for pension funds, the bank will serve as an investment corporation that will channel these funds to African projects, thus ensuring high investment returns as well as the development of Africa’s energy sector. The benefits will be twofold: the funds will help fuel oil and gas development, while the oil and gas projects will drive socio-economic growth through increased access to energy. Consequently, the role that this bank will play is essential.