Elsewhere in the continent, Uganda is pushing hard for its own refinery to complement the Kingfisher and Tilenga oilfield developments and the associated East African Crude Oil Pipeline. Even unstable South Sudan has made noises in recent months about refinery projects, as unrealistic as that seems. But overall, the emerging pattern is clear: Africa is increasingly keen to refine its own oil.

A major factor in this shift is the growing availability of alternative sources of finance than the traditional Western lenders

There appears to be a growing awareness in the continent, among both governments and non-governmental organisations—such as the African Energy Chamber and the African Refiners and Distributors Association—that sub-Saharan Africa really needs exactly these kind of projects to develop and industrialise. The old, some might say neo-colonial, trade patterns of African nations exporting their raw materials to the West and then importing more expensive, processed goods and products—such as gasoline—must be broken for African countries to improve their trade balances and spur economic growth.

Downstream developments will be critical to help African countries retain more of their natural wealth, widen local access to energy—of which there is a chronic shortage in the region, impeding economic activity—and free up the funds saved from improved trade balances for internal development.

Access to finance

A major factor in this shift is the growing availability of alternative sources of finance than the traditional Western lenders. With the Nigerian mega-refinery, the Dangote Group was able to secure large sums from domestic Nigerian banks, as well as funds from international banks including South Africa’s Standard Bank. A much more robust financial sector is now emerging in Africa, and one which is willing to invest in these huge and much-needed infrastructure developments.

Sentuo is a Chinese-led development, part of the much wider wave of Chinese investment in Africa. Beijing’s willingness to finance and build large-scale projects—even if done through private intermediaries—is resulting in significant change in Africa’s investment landscape. Historically, Western lenders have tended to back IOCs and their upstream developments, prioritising crude and gas exports away from Africa, rather than downstream, refining projects that confer additional benefits on local people. And in the last few years, many Western lenders have shied away from oil- and gas-related investments, fearful of negative publicity related to environmental concerns.

At the same time, the EU’s increasingly stringent environmental and carbon reduction targets have reduced the global competitiveness of European refineries and are discouraging the long-term investment that would be required to maintain the bloc’s current capacity.

European refineries could traditionally count on Africa—especially West Africa—as a key market for petroleum products, and growing African self-reliance in this regard may help accelerate the closure of refineries in the EU, where a wider wave of deindustrialisation is taking place. Nevertheless, ongoing capacity expansion in the Middle East and China is likely to ensure strong competition in the refining sector, which could put pressure on these African projects.

And in order for Africa to maximise the local benefit from these new refineries, major reforms will also have to be made. Dangote’s feedstock access problems point to the issue of entrenched commercial interests in Nigeria’s oil sector, with traders and middlemen reportedly raising the prices of local barrels, while national regulators and former NOC NNPC have been so far slow to act. Trade barriers and tariffs are another significant issue in West Africa and could easily limit the regional penetration and reduce the competitiveness of Africa-refined products, especially given the presence of well-established and politically connected petroleum product smuggling networks in and around Nigeria. However, there are also initiatives such as the African Continental Free Trade Area, which promise to break down these barriers to free trade and could eventually allow African refineries to provide affordable products to a much wider swathe of the continent, a development which would help spur economic growth.

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