Bridging Africa’s infrastructure-investment gap

Nigeria

Samaila Zubairu, president and CEO of Africa Finance Corporation (AFC), talks to The Energy Year about challenges African countries need to overcome to achieve growth and how the AFC is encouraging the success of African economies. Africa Finance Corporation is a financial institution dedicated to solving the continent’s infrastructure investment deficit.

How has the Covid-19 pandemic underlined specific weaknesses in African markets?
The pandemic has been devastating for Africa; it has wiped out the last eight or nine years of development. However, the pandemic is a major opportunity to reset our relationship with the rest of the world.
Africa is a commodity producer. The continent holds 12% of worldwide crude oil reserves, 40% of global gold reserves and 90% of the world’s chromium and platinum reserves. However, we do not have bargaining power over the price of our commodities because we only export raw materials. Additionally, when we export raw materials, we pay freight charges and export employment opportunities.
Global value chains have been disrupted due to the pandemic, and we now require production centres closer to the sources of raw material. It is an opportunity we should not miss out on. African nations must create an ecosystem for processing raw materials in order to generate our own end products and not depend on imports.
The price of crude oil is based on market demand. If we go up the value chain and refine and produce diesel, for example, we will have a better say in the price. Projects like the Dangote Refinery are therefore vital to ensure our continued growth.

How is AFC supporting growth in African markets?
AFC is focused on mobilising investment around infrastructure. We provide support to African governments via loans or direct investments into infrastructure that contribute to a nation’s development. The need for proper infrastructure has become more urgent during the pandemic. We are a point of financial support for projects of this nature during these unprecedented times.
The continent requires more than USD 170 billion in annual investments to bridge the infrastructure-investment gap. This includes developments to sustain economic growth and injections to maintain existing infrastructure. In addition, USD 67 billion is needed for water and sanitation, USD 50 billion for energy, USD 46 billion for transport and logistics and another USD 7 billion for information communication technology.
The pandemic has taught us that we need to be more self-sufficient. Within the context of the AfCFTA [African Continental Free Trade Area], we need a manufacturing base that can increase the value of our products and supply goods to the local market. We are looking into building a pharmaceutical city that can produce drugs needed on the continent.

What is energy’s importance to the development of African economies?
Energy is a key area for AFC given its importance to GDP growth. Addressing energy deficits in Nigeria would increase the country’s GDP by 2%. We have identified the continent’s energy needs and assessed where best to invest. Our pipeline for energy projects is more than USD 2 billion, and our plans include natural gas, pipeline and renewable energy infrastructure. In terms of power generation, we are moving away from the more commercial 14-MW or 16-MW projects towards large-scale projects.
We are the first institution to be accredited by the Green Climate Fund in Africa. We believe renewable assets are the future and have 1 GW of renewable energy projects in various stages of development. Last year, we announced the issuance of a CHF 150-million [USD 162-million] green bond to finance sustainable development across the continent.
We built the first wind farm in Cape Verde, which provides 25% of the energy requirements of the state. We are constructing a wind farm in Djibouti to provide them with energy independence. We invested in a 300-MW fuel plant in Ghana that runs on natural gas, crude oil and diesel. We also invested EUR 174 million in a 44-MW hydroelectric power and transmission project in the Ivory Coast.
The energy transition is becoming a reality. Whether it be natural gas or renewables, we are determined to be a part of this phenomenon. We are helping the oil industry embrace the change by building renewable plants to replace diesel and coal-fired plants used in their production processes. We are also looking at using renewable energies to support Africa’s mining sector.

How important is your relationship with the United States International Development Finance Corporation (DFC)?
We were able to secure a USD 250-million tier-two capital loan from DFC in January 2021. This capital will enable us to continue investing in project development and to de-risk infrastructure opportunities on the continent. This loan will go towards energy, information communication and logistics sectors. It is part of our medium-term plan to grow our balance sheet by USD 10 billion by 2023. Energy accounts for more than USD 1 billion of our total assets .
Since our inception in 2007, we have injected USD 8.7 billion across 35 African states. We are a proven public-private partnership that has a lead role in infrastructure projects throughout the continent. We are one of the few investment-grade institutions in Africa, which gives us access to capital. Deals with entities such as DFC demonstrate our ties with global financial markets.

In what ways is AFC involved in the Dangote refinery and other modular refineries?
AFC invested USD 300 million in the Dangote Refinery. The 650,000-bpd facility includes a urea fertiliser complex with a capacity of 2.8 million tonnes per year. It will contribute around USD 13 billion to Nigeria’s economy once completed, which represents a 20% increase in GDP and an increase in government revenue of more than USD 3 billion. The refinery is forecasted to improve Nigeria’s trade balance by about USD 8 billion.
We are also looking at modular refineries. We were involved in the financing of the 5,000-bpd Waltersmith refinery in Nigeria and a modular refinery in Liberia. Our aim is to enhance refining capabilities of African nations and promote self-sufficiency. The rationale is simple. If you have an oilfield, you can have a modular refinery processing 10,000 bpd to produce refined products. This not only makes it more profitable for companies, but for the whole economy. We can cater to the market demand without the need to import.

How is AFC supporting Nigeria’s gas industry?
There is no doubt that gas is the new oil in Nigeria. However, proper infrastructure is needed to make the most of the associated gas extracted from oil-producing fields and reduce flaring rates. We need to use the gas that is currently flared to produce power via captive power projects.
Our goal is to build a gas pipeline and an FPSO to aid production. We are working with oil majors to build more efficient infrastructure to lower emissions. Most gas infrastructure in the country is old and decaying. We also have problems with vandalism.
We are now trying to build new subsea infrastructure that will directly connect to an FPSO. We are trying to promote the development of gas infrastructure in areas where we know there are potential fields that could use the same installations. Our plan includes having an eastern cluster in Warri and a western cluster in Port Harcourt.

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