The African Development Bank Group (AfDB) and international accounting firm KPMG South Africa have introduced an innovative solution to address foreign currency risks that hinder the financing and delivery of energy infrastructure projects across Africa.
The report, titled “New Mechanism for Mitigating Currency Risk to Support Africa’s Energy Transition”, was unveiled during the Africa Energy Summit held this week in Dar es Salaam, Tanzania.
Wale Shonibare, Director of Energy Financial Solutions, Policy, and Regulations at the AfDB, emphasized the transformative potential of the mechanism.
“Africa’s green energy future depends on unlocking innovative financial solutions that empower the continent to harness its vast mineral wealth.
“The proposed currency convertibility mechanism will play a crucial role in stabilizing investment flows and accelerating sustainable development.”
Wale Shonibare, Director of Energy Financial Solutions, Policy, and Regulations at the AfDB
The summit brought together African heads of state, government officials, development banks, private sector stakeholders, policymakers, and civil society representatives to discuss leveraging Africa’s natural resources for sustainable economic growth and bridging the continent’s substantial funding gap.
The report proposes a ground breaking financing mechanism centered around the creation of a “non-circulating currency” backed by a diversified basket of Africa’s critical minerals.
This currency would serve as an alternative to US dollar and Euro-dominated financing, mitigating exchange rate volatility and ensuring greater stability for Independent Power Projects (IPPs) and other energy initiatives.
Non-circulating currency would not circulate in traditional markets but would instead act as a reserve asset, backed by Africa’s wealth of critical commodities, including lithium, cobalt, copper, and rare earth elements—minerals essential for global energy transitions.
The concept, developed by the AfDB, leverages Africa’s estimated one-third share of the world’s critical mineral reserves, positioning the continent as a cornerstone of the global shift to green energy.
Africa faces an annual $400 billion funding gap for infrastructure. This mechanism could provide a significant boost toward addressing that deficit, particularly for energy projects.
Critical Minerals and Africa’s Global Role
The rising global demand for critical minerals, driven by the energy transition and rapid technological advancement, positions Africa as a key player in the future of energy.
Auguste Claude-Nguetsop, Partner and Head of Financial Services at KPMG Southern Africa, underlined the urgency of the situation.
“The demand for critical minerals will continue to grow exponentially over the next 30 years, and Africa’s role in the global energy transition cannot be overstated.
“By leveraging Africa’s resource wealth, we can create an environment that attracts investment at lower costs and accelerates infrastructure development.”
Auguste Claude-Nguetsop, Partner and Head of Financial Services at KPMG Southern Africa
The Africa Energy Summit underscored the importance of partnerships in implementing innovative solutions.
Multilateral development banks, private sector stakeholders, and international organizations were encouraged to work together to ensure the mechanism’s success.
“This initiative demonstrates the power of collaboration in addressing Africa’s unique challenges and unlocking its vast potential,” said Claude-Nguetsop.
Frank Blackmore, Lead Economist at KPMG South Africa, emphasized the transformative impact of this approach.
“By addressing financial constraints and mitigating currency risks, we can unlock new economic opportunities, enhance industrialization, and drive sustainable growth across the continent.”
Frank Blackmore, Lead Economist at KPMG South Africa
The launch of the AfDB and KPMG’s report signals a bold step toward overcoming one of Africa’s most pressing barriers to energy infrastructure development: foreign currency risks.
By leveraging its unparalleled wealth of critical minerals, Africa can position itself as a leader in the global energy transition while addressing its internal energy and development challenges.
As the continent works to bridge its $400 billion funding gap and ensure energy access for all, the proposed non-circulating currency mechanism offers a promising path forward.
With sustained collaboration, innovative thinking, and strong political will, Africa’s energy future looks brighter than ever.
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