The Real “Gift From God”: Why The Africa Energy Bank Is A Bad Idea

A coalition of African oil-producers is set to launch a $5bn oil bank. This is not just environmentally but economically misguided.

In his address to world leaders earlier this week, President Ilham Aliyev of Azerbaijan, the host of the COP29 climate talks, didn’t shy away from expressing his true feelings about oil and gas. Having acknowledged that fossil fuels are “not very popular at a climate change conference”, he doubled down on his assertion that they are “a gift from God”. He denied that Azerbaijan is a “petrostate” as it accounts for less than 1% of global oil and gas production – side-stepping the fact that that production accounts for two-thirds of the country’s revenue – and insisted that “we must be realistic”. Africa has a huge comparative advantage on this front. It has almost endless solar and wind power potential and is richly endowed with huge reserves of the critical minerals needed to build the relevant technologies. Investing in renewables would allow the continent to avoid slow, costly, and risky fossil fuel projects in favour of clean sustainable alternatives. And it would also engender greater economic sovereignty; while oil and gas prices can fluctuate wildly – as seen during the Covid pandemic and in response to the war in Ukraine – the costs of renewables can largely be fixed at the point of deployment, and have more than halved in the past decade.

Given that he was speaking at the start of crucial climate talks over which his country is presiding, Aliyev’s comments have understandably been seen as defiant and perhaps even inappropriate. But the Azerbaijani president is by far from the only world leader to hold these views.

A coalition of oil and gas-producing African countries are currently seeking $5 billion to launch a new Africa Energy Bank in early-2025. Due to be headquartered in Nigeria’s capital Abuja, the bank will finance fossil fuel projects across the continent.

The 18 countries that make up the African Petroleum Producers’ Organization (APPO) are expected to contribute $83 million each, adding up to $1.5 billion. This will be matched by the African Export-Import Bank (Afreximbank), a strategic partner in the project. The remaining balance will be sourced externally – including from oil-rich Gulf States, banks, sovereign wealth funds, and cash-rich traders – in exchange for equity.

African fossil fuel producers hope the new energy bank will fill a funding gap left by traditional Western backers increasingly turning away oil and gas. The World Bank no longer directly funds upstream fossil fuel projects, while Standard Chartered Bank followed other funders last year in withdrawing from the controversial East African Crude Oil Pipeline project.

The African coalition and its partners see fossil fuels in a similar way to COP29’s host – as a “gift from God” that should not be returned. They argue that it is unrealistic to leave vast unexploited resources in the ground, especially when 600 million people in Africa lack access to electricity. Pointing out that Africa is responsible for just 4% of historic carbon emissions, they say it would be unfair to kick away the ladder of oil and gas for a continent in desperate need of development and industrialisation.

A misguided strategy

While there is value to some of these notions and the idea of an Africa Energy Bank, the arguments in favour of fossil fuels are dangerously misguided. The proposed initiative fails to convince on both economic and environmental grounds.

Economically, spending $5 billion locking African governments deeper into a dependency on volatile globally traded commodities fails to make sense. The prices of fossil fuels, which are largely driven by global supply and demand, can fluctuate significantly with severe consequences for countries whose economies are heavily reliant on them. Moreover, doubling down when the rest of the world is increasingly turning away from oil and gas – and imposing levies on carbon-intensive goods – makes a move towards fossil fuels seem even more outdated, risky, and liable to leave the continent with enormous stranded assets.

It is also somewhat ironic to see Africa’s big fossil fuel producers argue that the answer to underdevelopment and poverty is more oil and gas. Many of the continent’s biggest oil producers – such as Nigeria, Libya, and Angola – are also among those facing the biggest challenges in terms of inequality, poverty, energy shortages, and debt.

Environmentally, the idea of investing Africa’s scarce resources into fossil fuels, which are responsible for 75% of global greenhouse gas emissions and 90% of carbon emissions, is similarly wrong-headed. While it is true that the continent has barely contributed to these emissions historically, it is also the case that African countries are among the most vulnerable and least adapted to the climate crisis, which worsens with every additional emission. At a more local level, air pollution kills millions of people prematurely every year and fossil fuel projects have led to environmental degradation across the continent.

The real gift from God

While the backers of the Africa Energy Bank are misguided on the solution, they are correct that the continent is in urgent need of power, development, and industrialisation. Rather than focusing their attention on soon-to-be-outdated, polluting, and volatile fossil fuels, however, they ought to be looking at renewables.

Africa has a huge comparative advantage on this front. It has almost endless solar and wind power potential and is richly endowed with huge reserves of the critical minerals needed to build the relevant technologies. Investing in renewables would allow the continent to avoid slow, costly, and risky fossil fuel projects in favour of clean sustainable alternatives. And it would also engender greater economic sovereignty; while oil and gas prices can fluctuate wildly – as seen during the Covid pandemic and in response to the war in Ukraine – the costs of renewables can largely be fixed at the point of deployment, and have more than halved in the past decade.

It is in this sector that investment is truly needed. There has been too little investment and expensive capital flows continue to be a barrier to growth. Africa has a unique opportunity to leapfrog the dirty and obsolete energy systems of the past and pivot towards more modern, people-centred integrated energy solutions that combine the advantages of both centralised and decentralised approaches powered by green energy sources.

The continent does not need the Africa Energy Bank. It needs a green energy bank and must push for greater investment in its renewable energy projects at COP29. The real gifts from God are not the climate crisis-driving carbon bombs that multinationals are searching for thousands of metres below the earth’s surface and whose proceeds will primarily benefit elites, but the freely offered wind and sun than can sustain us all.