The total Gross Domestic Product (GDP) of Nigeria, the largest crude oil producer in Africa, risks taking a $30 billion battering on the back of fossil fuel divestment, compounding the country’s already existing revenue stream challenges.
According to the African Export-Import Bank (Afrexim Bank) Africa Trade Report 2024, divesting from fossil fuels could cost Nigeria and the rest of the African continent around $190 billion in GDP.
Data from the World Economics database revealed that Nigeria’s total GDP was $1.277 trillion at the end of 2023 in purchasing power parity terms.
“The challenge for these countries and for the region will be how to fund development if they begin to divest from fossil fuels without first achieving robust economic diversification,” said Benedict O. Oramah, president and chairman of the Board of Directors, the African Export-Import Bank (Afrexim Bank).
According to the report, for major oil exporting countries, including Algeria, Angola, Equatorial Guinea, Gabon, Nigeria, and the Republic of Congo, fossil fuel also represents the main source of export earnings and fiscal revenues, job creation, fossil fuel-based power generation and supply, and power to fossil fuel-intensive industries.
“Divesting from fossil fuel could reduce GDP by as much as $30 billion in Nigeria, $22 billion in Algeria, $19.3 billion in Angola and an aggregate of $190 billion for the continent.”
For Nigeria, the oil sector provides for 95 percent of foreign exchange earnings and 80 percent of its budgetary revenues.
According to the National Bureau of Statistics, the country earned N29 trillion from crude exports, taking 81 percent share of the N36 trillion revenue recorded in 2023.
The AfreximBank Africa Trade Report 2024 indicated that cutting back on fossil fuels could reduce emissions across Africa.
However, it pointed out that fossil fuels are crucial for many African nations, as they not only satisfy their immediate energy requirements but also play a significant role in exports, foreign exchange earnings, job creation, and the generation and distribution of power.
In addition, the report expressed concern over Africa’s severe energy shortages. Despite housing approximately 17 percent of the global population, the continent consumes just 6 percent of the world’s energy. It highlighted the stark reality that around 600 million Africans lack access to electricity, and about 900 million are without clean cooking fuels.
In recent years, there has been increasing pressure on African nations to shift away from fossil fuels and adopt environmentally friendly clean energy solutions as a strategy to combat climate change.
Back in 2015, all 54 African nations, including Nigeria, committed to the Paris Climate Agreement and have since ratified this pact.
As part of its commitment to the climate goals outlined in the Paris Agreement, Nigeria aims to cut its emissions by 20 percent compared to a business-as-usual scenario by 2030. Also, Nigeria has revised its conditional emission reduction target upwards, from 45 to 47 percent.
Despite continuous international appeals for African countries to reduce their dependence on fossil fuels, tangible support from these global advocates has been lacking.
According to the International Energy Association (IEA), African nations are expected to receive only 2 percent of the $2 trillion global investment in clean energy in 2024, equating to about $40 billion. In contrast, investment in fossil fuels on the continent is anticipated to reach $70 billion in the same year.
Last year, an executive from the African Finance Corporation (AFC) announced that the corporation would continue to support investments in fossil fuels, even amidst warnings from major development organisations about the climate crisis.
In the same vein, NJ Ayuk, chairman of the African Energy Chamber, has been championing investment in fossil fuel projects across the continent with the mantra “drill baby drill”, citing that Africa should be more concerned about energy security than transitioning.