NATURAL RESOURCES AND ENERGY

Where does Africa fit into
the global resource mix?

Shirley Webber Author

Shirley Webber

Managing Principal,
Head: Resources & Energy

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Shirley Webber explains how Africa is emerging as a global force in oil and gas markets and its growth in oil and energy demand is forecast to outstrip China in the coming years.

In 2019, the International Energy Agency (IEA) released a report highlighting that one in two people born between then and 2040 would be on the African continent which would overtake both China and India as the most populous region in the world. This growth presents both a challenge and opportunity as stakeholders review the role of the resources and energy sector in driving sustainable and responsible growth.

While Africa has many challenges and is regularly positioned as playing second-fiddle to the likes of China and India who have dominated the BRICs narrative for the last decade, we cannot ignore some of the themes playing out:

  • Africa is emerging as a global force in oil and gas markets and its growth in oil and energy demand is forecast to outstrip China in the coming years.
  • As African populations become more mobile, car fleets are expected to double. The so-called “motorisation rate” estimates that the African continent only has 42 cars per 1000 individuals, compared to the global average of 182 in developed markets. Many of these have poor fuel efficiency designs and this increase in demand will drive adoption of cleaner technology.
  • Africa is expected to be the third largest natural gas market in the world and the emergence of the “Hydrogen Economy” and innovative players like JSE-listed Renergen are likely to drive this energy shift materially.
  • The Angolan Sovereign Wealth Fund is expected to benefit from its investment in a UK-based rare earths processing facility supplied by an Angolan deposit - one of only three major producers outside of China – and this is expected to be driven by electric vehicles and clean energy trends bringing much needed revenue into Angola.
  • More than 70% of the worlds Cobalt reserves are mined in the Democratic Republic of Congo (DRC) which has been described as the “Saudi Arabia of the electric vehicle age”.
  • Zimbabwe and the DRC are home to two of the ten largest lithium deposits in the world and with the global lithium battery market expected to grow from $41bn in 2020 to $116bn in 2030, this represents an opportunity for these countries to attract foreign investment.
  • Major commodity trading houses are ramping up their investments in Africa to incorporate niche commodities including lithium, biofuels and other renewable energy spin-offs and this theme is leading to improved price discovery and interest in the African energy market as it transitions from fossil fuels to clean energy over time.

These are just a handful of the exciting themes playing out now, but the natural question comes in: Will Africa simply be an extractive market where foreign investors reap the benefits, but the local communities lose out?

Based on our extensive analysis of the continent, we believe the answer to this question is a resounding “no”. Local content regulations and beneficiation should be the focus for many governments to ensure inclusive economic growth for the continent.

While the mining and resources sectors are significant in terms of opportunity size, it now accounts for the minority of Foreign Direct Investment (FDI) coming into the continent. Long-term investors are bulking up investment in the likes of telecommunications and downstream support services as well as other critical infrastructure such as water, energy and transport. The number of LNG and planned LNG projects in Mozambique, Nigeria, Ghana, Egypt, Mauritania and Senegal are evidence that Africa is preparing for the energy transition. Research out of consulting firm EY captures this trend at a practical level where they showed that extractive activities accounted for more than half of FDI each year between 2005 and 2011. But between 2011 and 2018, this trend had fallen every year, leading Rod Wolfenden – EY Africa Markets Leader – commented as follows:

“The big building blocks are now in place. Africans are the beneficiaries, but so are the next wave of investors, who will have an easier time developing their projects.”

These building blocks are translating into big, exciting projects that will ultimately have a transformative impact on the African continent and its energy mix. The UN Sustainable Development Goals and the Paris Climate Accords are adding further impetus to these investments.

Morocco has built the world’s largest concentrated solar energy farm which is estimated to have a reduction of CO2 emissions in Morocco by as much as 800 000t per year.

The second largest project is in Egypt where a $4bn investment is expected to prevent two million tonnes of CO2 emissions each year.

Nigeria has set itself an ambitious goal of transitioning its energy mix to 30% renewables by 2030, while South Africa is regarded as a trailblazer in the renewable and clean energy spaces.

Africa is taking its place in the global resource market and we as Africa’s leading Pan-African banking group believe that our combination of industry insights and financial solutions position us to be the banker of choice for entrepreneurs who want to add to the building blocks of the future.

Shirley Webber Author
Shirley Webber

Managing Principal, Head: Resources & Energy

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