Somewhere at the intersection of money and climate are more than 600 million Africans who don’t have access to electricity, 890 million Africans without methods for clean cooking, dozens of African nations that depend on hydrocarbons to fund just about every service they provide, and African industrial development that can’t move forward unless it’s powered by fossil fuels.
Yet this week, the politicians, banking experts, civil society group leaders, and others who are gathering at that intersection – at a two-day event organised by French President Emmanuel Macron called The Summit for a New Global Financing Pact – are pushing an agenda that appears to be putting financing for African natural gas projects, the presumptive solution to many of the continent’s poverty woes, on the back burner, no pun intended.
The Paris summit was designed to lay the groundwork “for a new financial system suited to the common challenges of the 21st century, such as fighting inequalities and climate change and protecting biodiversity.” Though summit attendees didn’t arrive with an exact vision for what a new financial system would look like, their discussion is coalescing around four pillars:
- Restore fiscal space to countries facing short-term difficulties, especially the most indebted countries.
- Foster private sector development in low-income countries.
- Encourage investment in “green” infrastructure for the energy transition in emerging and developing countries.
- Mobilise innovative financing for countries vulnerable to climate change.
The truth is, we do need a new global financial system. It’s no secret that poor countries have more difficulty accessing financing for development projects that support economic and social growth than rich countries, and when they do, the cost of money is considerably higher, staggeringly so in some cases. It’s not unusual for rich countries to borrow capital at interest rates as low as 1%; for a poor nation with risky creditworthiness, the figure is more likely to be around 14%. Since the pandemic began, things have gotten even worse all around.
Global debt has risen sharply, and amid additional borrowing, it’s become tougher for developing and low-income countries to repay their debts. As a result, those nations have been thrust into a vicious cycle of vulnerability, unable to grow their economies or, as the UN and summit attendees noted, to satisfy their Sustainable Development Goals (SDG). Being able to level the playing field and to create new financing sources is an honourable and perhaps overdue goal.
And developing nations do need investment in green infrastructure. African nations need it – and welcome it.
It’s the missing wording in these pillars that that concerns me as I fear once again that the global path to net zero runs roughshod over African natural gas projects.
Valid Finance Concerns – Up to a Point
To understand how the summit arrived at its slate of priorities requires delving into something called the Bridgetown Initiative, a platform established by Barbadian Prime Minister Mia Mottley and named for the island nation’s capital city.
Since the COP26 United Nations Climate Change Conference in Glasgow, Scotland, Mottley has been championing a new way for rich nations to finance poor nations in a climate crisis. The Bridgetown Initiative asks for development banks to lend an additional $1 trillion at below-market rates to developing nations for climate resilience. The plan also calls for a privately backed mechanism to fund both climate mitigation and reconstruction after a crisis.
When Mottley – an outspoken critic of both the World Bank and the International Monetary Fund (IMF) – floated the Bridgetown Initiative at COP27 in Sharm el-Sheikh, Egypt, late last year, the response was overwhelmingly positive. One observer said he had never before seen the level of consensus and momentum around a single set of ideas.
Macron seized on the Bridgetown agenda. Like Mottley, Macron appears to be no great fan of the World Bank or IMF, even though France is one of the World Bank’s biggest stakeholders. Without naming names, Macron has said that current financial institutions have not delivered measurable results on climate finance to poor countries. (Western nations were infuriated when World Bank’s then-president David Malpass refused at a New York Times event in September 2022 to say whether the burning of oil, gas, and coal was driving climate change. The subsequent uproar led to his resignation in February of this year. Detractors said that under Malpass’ leadership, the World Bank did too little to “align its lending with international efforts to reduce greenhouse gas emissions, and [moved] too slowly to help poor countries deal with climate impacts” – while it continues to fund oil and gas projects.)
Macron said that to fight poverty, decarbonise the world’s economies, and protect biodiversity, the rules of international finance have to be reset. Countries must be able to invest in sustainable development through easier access to international, domestic, public, and private financing in all its forms: concessional loans, guarantees, debt swaps, carbon markets, hybrid financing, and investments.
The Summit for a New Global Financing Pact is meant to serve as a sort of global think tank to determine the long-term strategies, multi-stake partnerships, and detailed investment plans that would allow governments to “mobilise incentives for a more targeted and efficient use of both international and domestic resources.”
And, again, that’s an excellent idea. But the brainstorming that takes place this week will be doing developing countries, including Africa’s gas-producing nations, a disservice if it focuses solely on green energy financing. I would also argue that while I recognise the need to prevent climate change and address the overall impact of the energy industry, not all fossil fuels have the same impact on the environment. Natural gas is a cleaner-burning fossil fuel than oil or coal, and it can play a significant role in reducing greenhouse gas emissions. It has a critical role to play in just energy transitions for many developing nations, including those in Africa.
To truly support developing nations, wealthier nations must accept that reality. Unfortunately, that’s not what we’re seeing.
Look at Afrieximbank’s Excellent Example
In the run-up to the summit, there have been increasing calls for lenders of all types to reassess and reconfigure their portfolios. That includes Africa’s important domestic banks.
For example, earlier this month, African civil society organisations urged the African Export-Import Bank (Afrieximbank) to “invest in clean energy projects that focus on regional integration of the power sector,” and to pull back on financing oil and gas projects that undermine “our efforts to achieve 1.5 degrees climate target and the Sustainable Development Goals.”
As the trade finance bank of Africa, Afrieximbank is motivated to see African economies, businesses, and people prosper. To that end, it supports a range of clients, including domestic energy companies.
Last November, for example, the bank signed a reserve-based lending facility term sheet with Nigerian independent oil and gas company Amni Petroleum. The $635 million facility will allow Amni Petroleum to fund capital expenditure in the Okoro and Tubu oil and gas fields and is expected to help the company more than double its oil production in less than a year, boost liquefied natural gas (LNG) exports, and provide fuel for power generation across West Africa. This is a game-changing opportunity for a Nigerian company with Nigerian workers that will provide revenues to the Nigerian government. How could Afreximbank turn its back on that?
At almost exactly the same time, however, Afreximbank pledged $250 billion to bridge the climate finance gap, ensuring it would have a major role in “revitalising Africa’s climate adaptation and mitigation initiatives.”
To me, what this proves is that financing hydrocarbon projects and green energy can go hand-in-hand. In fact, monetising our vast reserves of natural gas can provide the financial wherewithal to help us pay for our logical, sustainable transition to renewables.
This is No Time to Turn Our Backs on Gas
Again, the problem is that the green agenda ignores how important natural gas is to bringing life-changing prosperity to the continent in the form of jobs, business opportunities, capacity building, and, yes, electricity. Gas-to-power is nothing less than central to Africa’s economic and industrial future. Aligned with the UN SDG 7.1, the Africa Just and Affordable Energy Transition Initiative (AJAETI) hopes to leverage natural gas to bring affordable energy to 300 million Africans over the next four years and to transition them to clean cooking fuels. What’s more, it expects to increase access to electricity from renewables by 25% over the same period. As for Africa’s much-needed industrialisation, we all know that’s not possible solely with wind or solar power, at least not with the technologies available now.
All of this requires money.
As I’ve written time and time again, we cannot allow the green agenda of other nations to ignore or dismiss our unique needs and priorities. Prioritising the financing of green projects won’t work for Africa when it leaves resources in the ground that could be used to lift people out of poverty. We cannot hope to meet the UN’s sustainable development goals without energy access, and we must exploit oil and natural gas to do that. Further, as Namibia’s petroleum commissioner Maggy Shino reminded us at COP27, previous promises by wealthy nations to work alongside Africa to finance clean energy remain unkept.
“If you are going to tell us to leave our resources in the ground, then you must be prepared to offer sufficient compensation, but I don’t think anyone has yet come out to make such an offer,” she said.
The fact is, African resources offer an avenue toward a greener and more prosperous future, and not just for Africa. This is where the intersection of money and climate represents the best of all worlds.
By NJ Ayuk, Executive Chairman, African Energy Chamber