African energy's 'Big Bang' moment

The ongoing Iran war is poised to trigger a seismic shift in Africa's energy landscape, according to Alexis. Aliko Dangote, Africa's wealthiest individual, has demonstrated the adage that luck follows preparation and opportunity. Dangote's mammoth refinery near Lagos has exposed the underdeveloped West African market for locally refined fuel, while challenging the notion that African refineries can only serve regional markets.

The Iran Strait of Hormuz disruption has highlighted the risks faced by countries reliant on fuel imports: South Africa and Kenya have recently raised prices, potentially triggering inflation. President Bola Tinubu's removal of Nigeria's fuel subsidies three years ago has led to a surge in prices, making fuel costs a major election issue in January.

In response to the altered energy dynamics, policymakers have swiftly acted. South Africa has announced plans to increase its strategic oil reserves for the first time since the end of apartheid to buffer against supply shocks. Angola aims to expedite exploration permits while urging neighboring countries to fund the construction of a new refinery.

Moreover, plans to construct refineries in Uganda and Tanzania are gaining momentum. Fola Fagbule, head of the Kenya regional office of the multilateral lender Africa Finance Corporation, which assisted in financing Dangote's Lagos refinery, described the impact of Dangote's project as a "Big Bang" moment. He noted that projects are now being developed across the continent due to the new realities in the energy market.

However, the shift also presents challenges, with Daniel Evans, global head of fuels and refining research at S&P Global Energy, acknowledging the surge in downstream investment but warning about the difficulties associated with capital-intensive projects. Nonetheless, a new generation of refineries has the potential to transform economies, offering countries protection against future energy shocks and the baseload power required to boost manufacturing.

As Fagbule observed, this paradigm shift could lead to "massive, large-scale industrialization in Africa that no one expected." Dangote Refinery is actively pushing to extend share sales to Egypt, suggesting that Africa's largest initial public offering could take on a more pan-African character.