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Wale Ajibade, executive director of Sahara Group, said that collaboration between financial institutions, development agencies, trading companies, national oil companies and other stakeholders in Africa would enhance the contribution of intra-Africa solutions to the continent’s trade and project financing challenges

wale Ajibade Executive Director Sahara GroupAjibade said the prospects for large-scale projects on the continent had set the tone for increased funding requirements. (Image source: Sahara Group)

This was Ajibade’s submission as he gave a keynote address on Challenges of Financing and Investing in the African Oil Industry at the African Petroleum Producers Organisation (APPO) CAPE VII Congress and Exhibition in Malabo, Equatorial Guinea.

“Our collective mandate and deliverable should be to prioritise African solutions for African challenges. Our businesses should be given viable incentives to enable them participate specifically in this industry; our development and commercial banks should have a marked incentive, or lower funding rates, for African companies participating in this space. We must place the utmost value on capacity building and skilled knowledge transfer and training,” he told delegates at the conference.

At the conference, oil ministers, top-level executives and opinion leaders from the continent reinforced the importance of cooperation among African countries as the most sustainable way to achieve shared ‘Prosperity in the African Petroleum Industry’.

“We need to see more collaboration between African oil producers in the future as intra African trade can be as large as international trade. We must promote intra-regional trade and encourage the government to government contracts underlined by the private sector. This is a cause Sahara Group is passionate about and we will continue to lead the narrative.”

Ajibade stated that the prospects for large-scale projects on the continent had set the tone for increased funding requirements, most of which would be in the area of trade and project financing.

“Final investment decisions (FIDs) in southern/East Africa are expected to be approximately US$70-80bn over the next few years. Overall, major projects in Africa are expected to contribute a further 1.1mn boepd and around 9.4 bcfd to global production by 2025.

Planned and on-going refinery developments in Uganda and Nigeria, as well as terminal storage facilities and domestic gas infrastructure, will create significant financing and investment requirements for the African oil and gas sector in the near term,” he added

He explained that challenges for trade and project finance transactions include government subsidies on oil products, significant currency fluctuations, limited local banking capacity, letters of indemnity (LOIs), banking compliance procedures, political influence, high lending cost and uncertain government regulation.

“In recent years, a number of previously active European commercial banks have either reduced their investments in sub-Saharan Africa or have pulled out of the region altogether and at the same time; the participation of African commercial banks in trade finance has shown signs of decreasing. It is a sad reality that less than 10 per cent of these products are financed using local financial institutions in the various African countries,” he noted.

Ajibade further added that the continent can address these challenges through government-government collaboration, ensuring steady regulatory policies, boosting local banking capacity and promoting stronger partnerships between development banks and the private sector.

“We need a collective and deliberate change in mentality that will drive government policies, industrial and development banks policies, commercial banks initiatives and most importantly, the businesses and companies operating with the African oil and gas space. There should be deliberate policies by the government and the central banks to facilitate trading across Africa through hedging tools for foreign currency, lower cost of funds and mechanisms to issue LOIs, among others,” he concluded.