Changing Unjust Financial Rules Could Unlock $367 Billion a Year For Africa’s Just Energy Transition

Cape Town, South Africa  Ahead of the Africa Energy Week (in Cape Town from 12–16 October), Oil Change International’s new briefing, Funding Africa’s Just Energy Transition, shows that changing unjust economic rules could unlock at least $367 billion annually to fund a publicly-led renewable energy future for Africa. These reforms could help African countries expand reliable, affordable clean energy, create decent jobs, and build local industries on their own terms.

But, the finance required is not reaching Africa at anything close to scale. Africa is priced out of its energy transition by an international financial system that makes borrowing more expensive, keeps countries trapped in debt, and directs public and private finance towards fossil fuels that worsen climate disaster, makes countries’ economies vulnerable to the volatility of fossil fuel markets, and makes energy more expensive.

In the wake of geopolitical conflicts, renewable energy can reduce African countries’ exposure to volatile fossil-fuel prices, expand energy access, support industrial development and create decent jobs, while avoiding the long-term economic and climate costs of continued fossil-fuel dependence. The choice, therefore, is not between development and climate action. A publicly led renewable energy future can deliver both.

Key findings:

• Africa needs at least $217 billion annually for renewable energy generation, transportation, and universal energy access. Yet, only 21% of the estimated annual finance needed is reaching the continent.
• Changing international financial rules as well as integrating regional and domestic reforms could unlock $367 billion in public finance annually.
• While Global North countries continue to fail to pay the climate finance they owe, African governments are leading the charge to reform unfair tax, debt, trade, and other financial rules blocking their path to sovereign, renewable-based economies.

Unjust financial rules drive up Africa’s costs

African countries are being asked to finance a transition while operating within financial rules largely shaped, at Global North-dominated fora and institutions like the OECD, G20 and Multilateral Development Banks. The Global North bears a disproportionate responsibility for the climate crisis and for the fossil-fuelled economic system that enabled Global North countries, companies, and investors to exploit, extract, and accumulate much of Africa’s resource wealth.

For Global North countries, paying up means providing grant-based finance rather than adding to African debt, cancelling unsustainable debt, redirecting public finance away from fossil fuels and into a just energy transition, and supporting reforms to the global tax, debt and financial architecture that continue to transfer wealth out of Africa.

African governments lead the push for reform

African governments are already leading the charge. They are championing the creation of a UN Framework Convention on International Tax Cooperation and a parallel framework on sovereign debt. The African Union has launched an African Credit Rating Agency to provide an alternative to a system dominated by Global North-based rating agencies.

As new oil and gas investment continues to be presented as a pathway to African development at the Africa Energy Week, the briefing sets out a different proposition that a publicly-led renewable energy transition can direct investment towards energy access, and African development priorities, rather than locking countries into another cycle of foreign-owned extraction, debt and dependence.

Statements: 

Terry Githinji, Oil Change International Africa Program Manager, said:

“African governments and institutions are already pushing to change the unjust financial rules to develop on their own terms and benefit from a renewable energy future, yet a handful of rich countries keep blocking change to maintain their power over the global economy. African countries and communities pay the price in unreliable electricity and debt payments that drain public budgets. But the choice is not between development and climate action. A publicly led renewable energy future can deliver both. Reforms could unlock $367 billion for an African-led renewable energy future that delivers local revenues and green jobs. Rich countries must stop blocking reforms, cancel unjust debts, and deliver grant-based finance to allow Africa to prosper.”

Mercy John, Climate Finance Project Officer, Powershift Africa, said: 

“For too long, Africa has been told to choose between a clean energy future and development. The barriers we face in the continent are not about a lack of renewable energy potential, they are about borrowing costs five to seven times higher than what a European developer pays, and a credit-rating system that charges us billions for a risk it invented. When an African country is charged 15-18% to build a solar plant while a European one pays 2-5%, that is a rigged game. Africa is rewriting the rules to un-rig it, and rich countries should be supporting that, not blocking it.”

Notes to the editor:
[1] Past OCI analysis has shown that wealthy countries could mobilise $6.6 trillion annually to help pay their fair share towards a global just transition by transforming unfair financial rules and ending handouts to billionaires and polluters.