International commercial banks are withdrawing from the African oil-and-gas sector to reduce their exposure to hydrocarbons. However, a wave of African banks and other innovators are stepping in to provide the necessary finance for the next phase of Africa’s energy development.
This is a prominent theme emerging from the energy event AOW: Investing In African Energy, taking place in Cape Town this week. The event, focused on supporting dealmaking in the African energy sector, highlighted the rapid change and innovation in financing African upstream projects.
While traditional commercial bank financiers globally are reducing their involvement in oil and gas, most African upstream projects still require debt finance. This funding is now being provided by African commercial lenders, commodity traders, and African multilateral banks who understand the environment, are willing to take risks, and are eager to support the development of their continent.
“There is a strong appetite and optimism for African oil and gas projects, and there is liquidity available,” said Pascal Nicodeme, CFO of Africa Oil Corp. “The only difference now is that the actors have changed. The era of international banks is over, but African banks have stepped in. There is still great interest in quality projects with the right financial position.”
“Africa is open for business,” said Babajide Sodipo, senior manager at Afreximbank in export development advisory. “As a development bank, we continue to support fossil fuel financing in a way that does not harm the environment and benefits the community.”
Speakers at the event opposed the notion that Africa is a high-risk investment destination.
“Africa is a fantastic place to conduct business,” said Anastacia Deulina, CFO of Afentra, an independent oil and gas company with interests in Angola. “Most countries on the continent are stable and even a bit dull. In Angola, we have found a practical, supportive, and efficient environment, and we were able to secure financing for one of our projects within six weeks.”
“We need to ensure we invest in the current energy system without dismantling it while we invest in the new one,” said Mike Fidler, CFO of Azule Energy, an international energy company based in Angola. “But there is funding available for quality projects that have strong technical resources, government support, and adhere to high ESG standards.”
Another solution energy companies are adopting is structuring deals themselves and then approaching potential partners such as traders or development finance institutions to sell these deals.
“We are not witnessing banks rushing to provide financing,” said Akinbambo Ibidapo Obe, general manager of commercial for Nigeria-based energy company Oando. “To address this challenge, we are transitioning from a traditional customer-seller relationship to a more partnership-oriented approach.”
All the speakers at AOW agreed that for projects to secure financing in this changing landscape, management teams must outline their strategies for minimizing the carbon impact of operations and ensuring their developments bring positive change to host communities.
“ESG commitments hold significant importance today,” said Taiwo Okwor, vice president of the Africa Finance Corporation, a pan-African development finance institution. “We are willing to partner, but we first need to understand your position on ESG and how we can assist.”
Energy companies emphasized their support for decarbonizing the sector and maintaining high ESG standards.
“There is pressure for ESG compliance from lenders and shareholders,” said Fidler. “However, complying with ESG is easier when you have the right culture that cares about the society in which it operates.”
Another emerging solution in the African energy sector is the increasing involvement of independent commodity traders as owners and financiers of producing oil and gas assets.
One of these traders is Trafigura, one of the world’s largest commodity suppliers. Matthieu Milandri, the firm’s head of upstream finance, expressed enthusiasm for the African market.
“The idea of political risk in Africa is exaggerated,” said Milandri. “Traders are finding success in Africa. We evaluate the asset’s quality, the management team, and the country risk. As long as there is production, we can do business.”