AFC’s Zubairu on how Africa can fulfil its energy ambitions

Samaila Zubairu, president and chief executive officer of the Africa Finance Corporation (AFC) has reasons to be proud of the multilateral financial institution’s progress. One of the key development institutions on the continent, AFC is building the muscle that it needs to take on the challenge of financing Africa’s progress.

“We achieved the billion-dollar [revenue] mark for the first time last year. We also achieved $400m of total comprehensive income. We saw 18% growth or so to our bottom line.” Additionally, its subsidiary, AFC Capital Partners, has just achieved a first close of $398m with the Infrastructure Climate Resilience Fund – more grist for AFC’s frenetic mill.

AFC’s over-arching mission, as Zubairu explains, is to support the transformation of African economies, which are mainly driven by raw material exports, to focus on local value addition and capture. That way, he says, lies job and wealth creation, which the continent sorely needs. A major impediment to that outcome is the difficulty of access to capital – and, Zubairu says, AFC is deploying its own favourable ratings in service of making capital much more accessible to African countries and entrepreneurs.

“Access to capital is a challenge for the continent, so we use our credit ratings to make enhancements for African issuers in a way that they can better access the capital market at a more affordable cost.”

The bank itself, he adds, wants to be “leading or co-developing important projects that de-risk opportunities and create bankable projects,” such as Nigeria’s Dangote Refinery, expected to reduce fuel imports to the region’s largest economy. It’s a project in which AFC, alongside other African development and commercial banks, is playing a key role.

Expanding AFC’s remit

Pursuing these ambitions has required AFC to expand its remit and the services it offers. And while AFC cannot directly serve the small and medium sized enterprises (SMEs) that are the backbone of the continent’s economy, it has had to find ways to make its impact felt in that segment of the economy.

“We do mainly wholesale banking, but the big opportunity on the continent is the SMEs, which we can’t service. So what we do is support the institutions that serve them, to enhance their capacity, diversify their sources of funding and to have cheaper sources of funding so they can better serve that market. That way we are, together, accelerating development impact across the continent.”

Similarly, AFC also supports countries in their quest for affordable financing. “We did a similar thing for a government that approached us about its fiscal challenges and the need to access capital.”

The unnamed country had approached the International Monetary Fund, but was asked to demonstrate that it could raise funding from other sources. Unable to issue a eurobond, it turned to AFC.

“We took them to the Japanese market to issue a “samurai bond”, and they were able to reduce their borrowing costs by around 800 basis points – and with that, they were able to access the support from the IMF that they needed.”

As its ambitions grow, AFC itself has raised money on the markets. In October last year it issued a $500m unsecured five-year eurobond, its first on the London Stock Exchange, that ended up being oversubscribed. In January this year it issued another $500m perpetual hybrid bond. Zubairu says that there is a strong appetite for “African paper”, although it might be something of a dubious honour.

“It’s because the premium is so high for African bonds. We have to pay what I call a prejudice premium. Other countries with similar or worse credit than us do not pay as high as we do,” he points out.

And while AFC itself gets a better deal than most, because of its profile, Zubairu says this situation has to change. The continent has abundant funds that remain largely inaccessible to African managers, often due to prohibitive local legislation.

“Our most recent study on the pool of domestic capital in Africa indicates that we have over $1.8 trillion of savings on the continent,” he reveals.

This includes $400bn in pension assets; $400bn in central bank reserves; $300bn in insurance assets; and $130bn in sovereign funds. Zubairu’s position is that these funds must be made available for Africa’s development, rather than invested in foreign notes, as they mostly are.

“We have to find a way to both undertake durability reforms and create the intermediation for those funds to flow into infrastructure and industrial development across the continent,” he says.

Funds needed for energy priorities

Access to African funds might also allow more freedom in how the funds are applied, for instance in energy, where Zubairu believes that global priorities are misaligned with the continent’s urgent need to power an industrial boom as the baseline condition for its development.

In response to the climate crisis, investors have taken a dim view of fossil fuels and new projects have faced some challenges in getting support. Zubairu believes, however, that a more pragmatic conversation is now taking place, particularly around the utility of gas as a transition fuel while the continent tries to develop its renewable energy resources, of which it has plenty. Africa’s need, he says, is much more for “energy transformation and not energy transition” at this stage.

Even more seriously, in Zubairu’s view, is that there isn’t enough power to support an industrialisation agenda, which he says should be the primary focus of the continent.

“My view has always been that the reason why we have energy poverty on the continent is because we’re looking at energy mainly for households, rather than for transformation and industrial activity. So we need to be looking at more integrated energy systems and we need to find a way to ensure that industrial activity is the main user of energy and that pays for the investments in the energy systems,” he argues.

As the continent’s energy needs grow, Zubairu sees a greater role for gas. “Gas has always been an important part of our energy systems in Africa. It’s one of the few dispatchable, flexible, and scalable energy sources that Africa can develop today to stabilise grids, power our industries and support the integration of renewables,” he points out.

He is not alone in that view, as African governments scramble to utilise their gas resources to meet their energy needs. With 60 GW of gas capacity under construction and another 25 GW at the planning stages, Zubairu sees gas displacing diesel and coal in the continent’s energy mix.

“In fact, our electricity mix tracker shows a very clear decline of thermal, coal and diesel in the pipeline of future power projects, with a rise of gas and renewables,” he reveals.

Around the continent, AFC is backing this conviction by supporting various projects. “We did the first gas-fired plant in Ghana, which is the 350 MW Cenpower combined cycle gas-fired plant. Just a month ago, we had the first fire of the 360 MW combined cycle gas-fired plant that we’re financing in Senegal. We are also supporting the 75 MW combined cycle plant in Togo.”

These plants are not only contributing to meeting energy needs but also reducing the carbon output from energy production and reducing costs as well.

“So, for example, in Ghana they have gas from the West African Gas Pipeline coming from Nigeria as the main source of gas supply there. In Senegal, they have a huge gas find, but in the interim, they are importing the gas, which is still cheaper than what they currently have. So we’re looking at holistic, long-term solutions for our energy systems.”

All this is important if the continent is to catch up to its energy needs, which are growing. “We are not facing a crisis of access alone; we are facing a crisis of adequacy and delivery.

“In 2024, we added about 6.5 GW of utility-scale power to the grid. That’s less than half of what we need to meet the basic developmental targets that we have… we need to be looking at our energy systems more seriously.”

To drive home his point, Zubairu refers to the concept of “modern energy minimum” as defined by the Energy for Growth Hub, a global energy think tank. “Every economy should have at least 1000 kWh per person per year, of which 30% should be [for] homes and 70% for the broader economy. In Africa today, only 10 African countries are above that threshold,” he notes. To attract the energy investment that Africa needs, Zubairu says the continent must forcefully articulate its green energy potential.

Moving from projects to programmes

Having adequate levels of power for industrialisation would mean that the continent is able to pursue the path of local value addition, which is something of a cause for Zubairu. In particular, he is convinced that myriad benefits will accrue from adding value to the copper, cobalt, graphite and lithium, critical for the energy transition, that it has in abundance.

“We need to go beyond just exporting the minerals and metals required for electrification,” he says. Instead, Africa must build intermediate and high-value products, like battery precursors and components for electric vehicles. Currently worth $7 trillion, the electric car industry is projected to grow to a staggering $40 trillion by 2050, with studies showing that by shifting from raw exports to battery precursor production African countries could expand the value of their share from $12bn to $240bn.

To realise all this potential, Zubairu says there must be a shift in the approach from individual projects to standardised and comprehensive programmes. “We need to look at how to create programmes for energy development, by which I mean standardised power purchasing agreements across the entire market; standardised grid connection agreements; and regional power pools. That way we can create the appetite and skill that international investors can work with.”

A well-structured programme, Zubairu says, would obviate the need for sovereign guarantees, at least, in the long term. “Every country has had to provide those guarantees to start. My view has always been that when you create a programme, you might need some guarantees, especially if the programme reduces the costs of your power. But once the investors come in, then you don’t need those guarantees.

It is important, Zubairu stresses, to learn from the examples of success on the continent. The AFC’s research, he reveals, shows that South Africa, Morocco, Egypt and Kenya alone received more than one-third of all clean energy public financing that came to Africa between 2012 and 2022.

Those same countries also accounted for over two thirds of the continent’s power generation public-private partnerships (PPPs) during that period.

Their success, which involved “establishment of clear route-to-market frameworks, upgrades in transmission infrastructure, synchronous policy results around the unbundling of utilities, privatisation, and tariffs, and the offering of large-scale projects to investors,” offers proof that it can be done in Africa.