Alexis’s view
The Iran war is shaping up to be the catalyst of a seismic shift in Africa’s energy sector. And, in the case of the continent’s richest man Aliko Dangote, the conflict has proven the old adage that luck is what happens when preparation meets opportunity.
Dangote’s mega-refinery on the outskirts of Lagos State has revealed the scale of a West African market underserved by locally refined fuel, while upending conventional thinking by showing African refineries can supply markets in Europe and Asia. At the same time, disruption in the Strait of Hormuz has exposed the vulnerability of nations that are heavily dependent on fuel imports: South Africa and Kenya have hiked prices, which runs the risk of driving inflation. Meanwhile, President Bola Tinubu’s removal of Nigeria’s subsidy three years ago has allowed prices to skyrocket, turning the cost of fuel into a key campaign issue ahead of January’s election.
Policymakers have been quick to react to the altered energy dynamics. South Africa announced plans to increase its strategic oil reserves for the first time since the end of apartheid to mitigate supply shocks, Angola wants to implement faster exploration concessions while urging southern African governments to help finance a new refinery, and plans to build refineries in Uganda and Tanzania have gathered pace.
Fola Fagbule, who heads the Kenya regional office of multilateral lender Africa Finance Corporation, which helped to finance Dangote’s Lagos refinery, called the impact of the Nigerian billionaire’s project a “Big Bang” moment. He told me various projects are being developed across the continent “as a result of the new realities in the energy market.”
The shift has potential pitfalls. Daniel Evans, global head of fuels and refining research at S&P Global Energy, acknowledged the increased appetite for downstream investment across Africa, but warned difficulties remain around projects that require high levels of capital expenditure.
But a new generation of refineries has the potential to transform economies, not only protecting countries from future energy shocks but providing the baseload power needed to ramp up manufacturing. As Fagbule put it, the legacy of this paradigm shift could be how it triggered “massive, large-scale industrialization in Africa that nobody expected.”
Notable
- Dangote Refinery is pushing to extend the sale of its shares to Egypt, indicating that Africa’s largest IPO is likely to take a more pan-African shape.