Working Paper 114 - Additionality of Development Finance Institutions (DFIs) in Upstream Oil and Gas in Africa

Charles Wetherill ()
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Charles Wetherill: African Development Bank, Postal: 15 Avenue du Ghana P.O.Box 323-1002 Tunis-Belvedère, Tunisia, https://www.afdb.org/en/knowledge/publications

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Abstract: The landscape of oil and gas production in Africa is changing in ways that will increase the demand for upstream development finance and pull on funds from all sources, including development finance institutions (DFIs). A new cohort of countries is coming onstream for the first time, and new players from among the group of indigenous and independent oil and gas firms are carving out strategic niches in the sector around the continent. Commercial banks are strongly present and maintained interest in financing upstream development through the financial crisis. However, the funding needs of the sector are massive and growing. At the same time, for some countries, the sector holds the potential of significant development gains. Joining the club of oil and gas producers can generate a new stream of revenues that, if well managed, can lead to improvements in national welfare, growth and development. DFIs face the challenge of engaging in the sector in a way that is both relevant financially and solidly aligned with the successful realization of development gains among countries on the continent. This paper argues that DFIs should be strategically targeting and selecting positions in transactions where experience indicates they can add value. It takes the position that it is possible to differentiate between opportunities within the development phase of the upstream oil and gas sector in Africa and extract some general criteria to be applied in deal selection and project design. Core recommendations for DFIs, stemming from the paper, include pursuing transactions linked either to emerging, producer nations or indigenous or independent firms and focusing on improving development outcomes linked to governance and extractive industry transparency, social and environmental standards and benchmarks and local content.

Date: 2010-11-02
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