• 31st July, 2023

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      From In Africa

      Energy and Gas Supply Lead African Greenfield Investment in 2022

      Despite global inflation, foreign countries and companies continue to look to Africa as a fertile ground for long-term energy investments.

      Energy and Gas Supply Lead African Greenfield Investment in 2022

      The United Nations Economic and Social Commission for Western Asia defines greenfield investments are a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operations from the ground up – in agricultural parlance, ploughing a greenfield. They differ from international project finance, which provides funding through non-recourse loans for the development of infrastructure and other projects in foreign countries.  

      Africa saw a massive increase in announced greenfield investments in 2022, per the United Nations Conference on Trade and Development’s World Investment Report. Total finance for greenfield projects across the continent was US$194.90 billion, a 273% jump from the previous year’s $52.22 billion, and a further 441% increase from 2020.  

      Viewed regionally, 66.7% of all the announced greenfield investments were in North Africa, with Egypt alone responsible for $107.49 billion. Southern Africa followed with $36.45 billion in announced investments, split between South Africa ($26.78 billion) and Namibia ($540 million). East Africa ($17 billion), West Africa ($6.65 billion), and Central Africa ($4.78 billion) followed in that order.  

      Contrastingly, foreign direct investment (FDI) flows into Africa declined in 2022 from 2021’s figures. It must be noted that announced greenfield investments are a form of yet-to-be-realized foreign direct investment, while FDI flows are actual financing. Hence, one can rise while the other declines. Total FDI flows saw a –44% growth rate from 2021’s $79.58 billion to 2022’s $44.93 billion. 

      Countries like Egypt ($11.4 billion) and South Africa ($9.05 billion) led all African countries in FDI inflow. Egypt is one of the few leading African economies that saw foreign investment rise in 2022, with its total figure a 123% increase from 2021. Countries like Kenya and Uganda also saw increased foreign investment in 2021, with $750 million and $1.53 billion FDI inflows respectively. Most major economies, however, saw a contraction in FDI inflow. South Africa’s $9 billion inflow saw a –78% growth rate from 2021’s $40.95 billion, while Algeria (-90%) and Mozambique (-61%) also saw contractions. Nigeria saw FDI flows turn negative to -$187 million due to equity divestments. 

      The majority of the announced greenfield investments were in the energy and gas supply industry — $119.65 billion of the $194.9 billion total. Mustard Insights has previously discussed rising oil and gas investments in Africa. Oil and gas (more gas in recent years) are attractive areas for greenfield investments; this investment type will give the sponsoring company the highest degree of control and most development in this area is that of newly discovered fields.  

      Africa is also a clear target for oil and gas development as regions such as the European Union and China seek to diversify import destinations. While investment in oil and gas continues to be immensely profitable financially, supply may have exceeded profit as the primary motive. Greenfield developments allow foreign investors to create established sources, especially of liquefied natural gas (LNG), as they will have majority ownership and control.  

      An example is the announced investments by the Italian company, Eni. Upon the July 2022 discovery of oil in the Baleine East 1X oil well offshore Côte d’Ivoire, the company awarded two contracts worth $971 million to the engineering company Saipem for the development of the field. The company also announced plans to develop and export 4.5 billion tons of LNG from the Democratic Republic of Congo’s Marine XII project.  

      Construction and extractive industries are also significant sectors of greenfield investment. As regards the latter, the rise of electric vehicles has led to a rush for cobalt and lithium, the two most essential components of vehicle batteries. An example is the November 2022 announcement by the trading firm, Trafigura, to finance the development of cobalt and copper mining and processing facilities in DR Congo to the tune of $600 million.  

      International project finance deals declined by 47% in 2022—$74 billion, down from $140 billion in 2021. However, there was a 15% increase in the number of deals, from 136 in 2021 to 157 in 2022. Renewable energy projects dominate the number of deals, with the 78 renewable energy deals adding up to $22.09 billion in project financing accounting for nearly 50% of all finance. Power follows with $20.77 billion of finance spread across 13 deals, followed by Petrochemicals ($6.46 billion; 7 deals), Oil and Gas ($5.71 billion; 9 deals), and Transport ($5.28 billion; 6 deals).  

      Analysis of the numbers shows the coming growth of renewable energy as the solution to Africa’s electricity crisis. Renewable energy projects are of a smaller scale than that of Oil and Gas and Power (transmission and distribution). Hence, they can be deployed remotely in multiple locations. Governments will have less difficulty attaining finance for renewable projects such as microgrid installations and small-scale wind and solar farms. It appears that governments are taking note – renewable energy deals receiving international project finance increased by 70% from 2021 to 2022. Total finance fell, again indicating the inclination towards small-scale projects.  

      • Published: 31st July, 2023


      Emmanuel is an economic researcher and writer who likes to investigate systems, connect the dots, and find solutions.


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