Oil-rich Africa faces an energy dilemma

Climate Energy

Oil-rich Africa faces an energy dilemma

Share on

African countries that produce fossil fuels face a challenging question: focus on making the most of oil and gas reserves while they can or invest in renewable energy for longer-lasting, more sustainable economic growth…and a greener future? 

For economies that have struggled, it will be difficult to maximize both. Several African nations derive a significant percentage of income and GDP income from oil exports. In Nigeria, Africa’s biggest economy, more than 70% of foreign income has come from oil. The fossil fuel industry, as a result, plays an outsize role in African economies, government policy, spending, and employment. This has helped Africa in ways — bringing development, revenue and modernization — but it also fostered a painful and ongoing history of exploitation, pollution, health issues, military conflict and, now, the pressures of climate change. 

The COVID-19 pandemic brought the most recent upheaval. Demand for oil plummeted, sending shockwaves throughout the value chain, from exploration and production to transportation, refining and markets. The drop in demand and prices cut the net value of African oil exports, to $31 billion in 2020, according to the African Union. That’s the lowest value in two decades — less than half of 2018 revenue, and just over a tenth of the peak value in 2008. The steep drop in revenues hurt African economies, leaving 4% more people living without electricity in 2021 than in 2019. 



Estimated value of African Oil Trade in 2020. Credit: African Union Energy report, 2020.

The global post-Covid economic recovery, as well as Russia’s invasion of Ukraine and its deep cuts in exports to Europe, then caused fossil fuel prices to spike — and boosted African economies again. As Europe scrambled to replace lost Russian exports and regain energy security, Africa’s fossil fuel industries have received new investment. Reuters reported that energy firms are looking to invest $100 billion in Africa. The International Energy Agency (IEA) estimated that Africa could replace up to one-fifth of Russian exports to Europe by 2030. 

However, Russia’s attack on Ukraine and cuts in oil exports to Europe also acted as a global wake-up call that relying on fossil fuels no longer offers energy security, prompting governments, industries and individuals to reevaluate energy choices and explore renewable energy options. 

This global shift toward cleaner energy alternatives could leave African economies behind again, if they don’t invest aggressively in renewable energy, too.

“Achieving Africa’s energy and climate goals means more than doubling energy investment this decade…Multilateral development banks must make increasing financial flows to Africa an absolute priority.”

Some 600 million people — 43% of Africa’s population — lack reliable access to electricity, most of them in sub-Saharan Africa, the IEA reports. The agency’s 2022 Sustainable Africa Scenario calculated that providing “universal access to affordable electricity… by 2030… requires bringing connections to 90 million people a year, triple the rate of recent years… In rural areas, where over 80% of the electricity-deprived live, mini-grids and stand-alone systems, mostly solar-based, are the most viable solutions.

“Achieving Africa’s energy and climate goals means more than doubling energy investment this decade. This would take it over $190 billion each year from 2026 to 2030, with two-thirds going to clean energy,” the IEA reports. “Multilateral development banks must make increasing financial flows to Africa an absolute priority.”

The multilateral development banks and Africa’s own governments are taking steps — but not at the pace needed to provide by 2030 the universal energy access that Africa —  home to the world’s youngest population, and one-fifth of the global population — would need to achieve its economic growth potential. And they don’t seem sufficiently focused on the magnitude of the problem — nor the scale of the opportunity — to get there. 

In 2021, African nations agreed that international financing to help developing countries address climate change should be scaled up more than tenfold to $1.3 trillion per year by 2030. Global agencies have yet to provide anything like that funding. 

In Nigeria, the recently elected President Bola-Ahmed Tinubu promised to end fossil fuel subsidies over time, and shift funds to a sovereign fund dedicated to infrastructure. That sounds like an excellent start. But the shift has barely begun.

Nigeria worked with the International Renewable Energy Agency (IRENA) to publish a Renewable Energy Roadmap earlier this year. Dr. Adeleke Olorunimbe Mamora, Nigeria’s Minister of Science, Technology and Innovation, called for a new agency to develop “a coherent plan.” 

That agency, however, has yet to be created. The Global Energy Alliance for People and Planet (GEAPP) and the private Nigeria-based investment bank Chapel Hill Denham (CHD) have partnered to create the Energy Transition & Access Facility for Africa (ETAFA), which aims to deploy nearly $1 billion by 2030  to accelerate the deployment of renewable energy in developing countries.  So far, however, that plan includes just $50 million in Nigeria.

Related content:

Financing for suppliers in developing countries is key to meeting climate goals

Large insurers say no to African oil pipeline despite global oil shock

Contrast that $50 million with the $18.5 billion that is actually being invested now to build the world’s largest petrochemical refinery in Nigeria, according to the International Centre for Investigative Reporting. (That’s up from initial projects of $9 billion.) The Dangote refinery, subsidized by the Nigerian government, is expected to generate 650,000 barrels of oil per day. It was commissioned by former Nigerian President Muhammadu Buhari, and backed by the African Development Bank (AfDB) and other African presidents, including Nana Akufo-Addo of Ghana and Mohamed Bazoum of Niger Republic. 

Contrast that $50 million (planned for renewables) with the $18.5 billion that is actually being invested now to build the world’s largest petrochemical refinery in Nigeria.

Africa’s richest man, Alhaji Aliko Dangote, CEO of the Dangote Group, which has contracts for both building and operating the refinery, said the project, now a decade in the making, was “borne out of the desire for Nigeria’s economy to become a key player in the global competitive oil market.” 

Dr Akinwumi Adesina, president of the AfDB, said, “This is not just any company; this is Africa’s very own growth accelerator. We can proudly declare it as the driving force behind our continent’s progress.”

The Dangote Refinery in Nigeria is expected to produce 650,000 barrels of crude oil per day. Credit: BrandSpur Nigeria

The Dangote refinery raises profound questions about Africa’s future. Now that Africa faces a growing climate crisis, where intensifying heat in some places has made it impossible to support life, will the AfDB, the African nations backing the refinery, and international development banks mobilize anything like the financial and political support for renewables that have been put into the Dangote refinery? Not yet.

Oil has been such a powerful force, in fact, that some African leaders have shown reluctance to shift their focus — and investments — toward renewables. When asked about addressing climate change, Tinubu said, “It’s a question of how do you prevent a church rat from eating poisoned holy communion.” A Tinubu supporter explained that the president used this local expression to say that it can harm the poorer nations in Africa if they accept “climate policies formulated by international organizations… (led) by the richer industrialized countries that contribute the most to climate change and global warming… that continually place the poor nations under disadvantages.” Indeed, the history is clear: Africa has more often been profoundly hurt than helped by engagement with major powers.

It’s understandable that African nations would want to capitalize on higher oil prices, just as many companies and countries do. But they face the same challenge that wealthy nations face: If they don’t invest more in renewable energy and sustainable business practices, then the climate crisis will harm their economies and destabilize their societies — and likely sooner than it will hurt wealthier nations. Parts of Africa are expected to experience, with growing frequency, high temperatures that literally don’t support life

The global transition from fossil fuels is in early stages, but accelerating. And economies that continue to depend exclusively on oil will see their fortunes wane. The U.S. and Saudi Arabia, the world’s two largest fossil fuel producers, see this, and are increasingly investing in renewables. 

Credit: IMF

Africa’s investments in fossil fuels and partnerships with Western oil giants, since oil was discovered in 1958, have come at what remains a punishing price.

In June, another “major” oil spill at the Trans-Niger Pipeline operated by Shell contaminated Niger Delta farmland and the Okulu River, which provides water to communities and feeds into other rivers. It’s the latest of nearly 12,000 recorded spills in Nigeria since 2010, according to Nigeria’s National Oil Spill Detection and Response Agency (NOSDRA), and thousands before that since oil was discovered there in 1958. Those spills have made the Niger Delta “one of the most polluted places on Earth,” Amnesty International reported, tainting drinking water, damaging human health, farming and fishing, and sparking violence. 

Shell hasn’t produced oil in the Oginiland region since 1993, and announced in 2021 that it would pull out of Nigeria. The Nigerian government promised to clean up the pollution after the UN called for a multi-billion dollar clean up, but critics have accused Nigeria of failing to act, and communities have sued Shell in London courts.

All this leads to the inevitable question: with so much loss of human health, economic growth and national wellbeing, is investing many billions in oil now, and just a few million in renewables, in the best interests of Nigerians – and Africans?  

The answer is pretty clear.

If the African Union’s vision for “an integrated, prosperous and peaceful Africa” is to become reality, its business and political leaders must prioritize innovation, adoption of new technologies, and take action against the climate change that’s already eroding the continent’s future. The abundance of rare earth minerals needed to make batteries for electric vehicles, homes and businesses offers some African countries additional opportunities to invest in the future. Africa’s tech-savvy youth are unleashing their potential, driving entrepreneurship and digital innovations. And African nations can draw on their communal spirit and shared goals to advance common goals. However, if Africa does not make these economic investments, its leaders and people will likely lose the prosperity they crave. The continent’s petrostate and business leaders, therefore, need to think not just about capitalizing on their fossil fuel resources, but also about investing in an economic revitalization that is inclusive — and sustainable.

Featured photo: Alhaji Aliko Dangote, CEO of the Dangote Group, in front of the Dangote Refinery in Nigeria which, when completed, will be the world’s biggest “single train” refinery. Photo credit: Nairametrics

Olaniyan Joseph Ayomide proposed and contributed to this article. 

Written by

Barclay Palmer

Barclay is Executive Editor and Head of Business Strategy at Climate and Capital. As founder of Black Birch LLC., he serves as strategic advisor, consultant and/or investor in cleantech, media, energy, and edtech, specializing in messaging, fundraising, recruiting and operations. Barclay has also been an award-winning journalist, producer, and media executive. He played a leadership role in creating the CBS News Streaming Network; designed and led "Reuters TV," Thomson Reuters' first public-facing digital video and social programming in partnership with YouTube and Google; served as a founding senior producer for CNN's Anderson Cooper 360, Amanpour and NewsNight 2.0; led two top programs at Bloomberg TV; designed and managed video programming at RealVision and Newsweek Media Group; and has written, edited, and developed sponsored brands and social media strategies for premium journalism and sustainability-focused companies.