Next week, the African Development Bank should choose transparency, inclusivity, and a green future over continued support for oil and gas.
When the board of governors of the African Development Bank (AfDB) meet for their annual meetings next week, the issues of energy finance and climate change will be high on the agenda.
Understandably so. 600 million people in Africa lack access to electricity. Meanwhile, the devastating impacts of the climate crisis are disproportionately felt on the continent - and every additional ton of carbon emitted makes the problem worse.
At the World Bank Spring Meetings in April, the AfDB held both of these challenges in mind as it committed to connect 50 million people to electricity through distributed renewable energy systems. This laudable initiative marked an important milestone in the transition away from fossil fuels, the main driver of the climate crisis. The AfDB is a key source of financial support for the energy transition in Africa, and its policies can have a big impact on the pathways open to African countries.
It is concerning therefore that the AfDB's broader approach to fossil fuels is far more mixed and far from transparent.
Leap-frogging fossil fuels
The case for the AfDB to channel its investments towards enabling African countries to build their renewable energy capacity is clear.
On the one hand, the continent's inadequate infrastructure presents the perfect opportunity for it to leapfrog fossil fuel systems. Like it did with telecommunications, Africa can jump straight to more advanced technologies when it comes to energy. As well as being clean, renewables also have the benefit of being more affordable, safer, and easier to deploy in decentralised ways to reach rural communities.
What's more, Africa has huge untapped renewable generation potential. The International Energy Agency (IEA) estimates that "Africa is home to 60% of the best solar resources globally, yet only 1% of installed solar PV capacity". Similarly, Africa currently exploits just 0.01% of its potential wind generation capacity. A study by the International Finance Corporation suggests Africa has onshore wind potential of almost 180,000 terawatt hours (TWh) per year, enough to satisfy the entire continent's current electricity demand 250 times over.
There is a growing evidence base that Africa can chart a course towards fully renewable energy systems that are accessible and affordable, with the investments required to deliver these systems paying for themselves many times over. This is because the initial costs of investing in renewable energy systems will be offset multiple times by eliminating the ongoing expenses related to fossil fuel extraction, processing, and consumption.
On the other hand, the risks of pushing ahead with fossil fuel production and ending up with stranded assets are high. The future global demand for gas and the price it commands on commodity markets is by no means guaranteed. The glut of supply coming to the market and the prospect of shrinking demand in the near future is likely to threaten the long-term feasibility of African gas production and export - especially amongst newcomer producers whose reserves will not come online for five to ten years.
According to the European Union Agency for the Cooperation of Energy Regulators (ACER), European demand for Liquified Natural Gas (LNG) peaked in 2023 and the EU will be over-contracted - whereby long-term contracts exceed demand - for LNG as soon as 2027. Other large gas importers, such as China and India, have also reduced their gas demand.
How the AfDB finances fossil fuels
Despite the compelling case for leapfrogging fossil fuels, the AfDB's current approach to energy policy at times works against its climate ambitions. For instance, although the AfDB - like other multi-lateral development banks - has committed to aligning its finance to the 2015 Paris Agreement, which committed to limit global temperature rise to 1.5C, it has only excluded financing for oil and gas exploration, but not other upstream activities such as extraction.
According to Oil Change International, the AfDB has no fossil fuel exclusion policy for indirect finance and provided at least $9 million of annual direct funding to oil and gas between 2020 and 2022 through official channels. Reporting, however, is inconsistent and severely lacking in transparency. As the 2023 DFI Transparency Index by Publish What You Fund (PWYF) notes, the AfDB's database lacks detailed sub-project investment disclosures and incomplete environmental and social risk categorisations.
This lack of transparency also makes it difficult to know how much the AfDB provides to fossil fuel industries via financial intermediaries (FIs), associated facilities, technical assistance, or policy-based lending. There are indications, though, that the Bank is indirectly supporting fossil fuel projects through these means. In 2021, for instance, the AfDB approved a line of credit of €70 million and $24 million equity investment to the West African Development Bank (BOAD), which two years later, supported the Ivorian oil and gas company PETROCI through long-term direct finance of $50 million.
While the sums the AfDB channels to fossil fuels may pale in comparison to the hundreds of millions from Multilateral Development Banks based within the G20, the function of AfDB finance is pivotal in determining the type and trajectory of energy infrastructures across Africa.
A critical juncture
As its annual meeting from 27-31 May in Nairobi approaches, the AfDB stands at a critical juncture, with a unique opportunity to redefine its role in Africa's developmental pathways.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
To truly lead the continent toward a greener future, it must adopt a comprehensive Fossil Fuel Finance Exclusion Policy that ends investments in all segments of the fossil fuel industry. This policy should extend to all financial mechanisms and intermediaries, ensuring no public funds support dirty energy.
It should also commit to transparency and fully disclose its transactions to promote accountability. Moreover, the AfDB should deepen its engagement with civil society, incorporating their insights into the revision of its 10-Year Business Strategy and climate frameworks. This inclusive approach will enrich the Bank's strategies and ensure they resonate more profoundly with the needs and aspirations of African communities.
Shifting the financial focus from fossil fuels to renewable energy through the lens of a just transition is vital. Such a transition prioritises community benefits, democratises energy access, and aligns with global environmental goals. Furthermore, the AfDB should enhance its internal and external governance practices to embody the principles of democracy, accountability, and human rights. By prioritising people over profits, the Bank can truly focus its resources towards a just and fossil-fuel free development in Africa.
Dean Bhekumuzi Bhebhe is the Campaigns Lead at Power Shift Africa. Fran Witt is the Campaign Manager at Recourse.
