OPEC Fund’s quiet offensive in Africa

Last December, the oil cartel’s development fund approved $280m in loans to the continent – from Côte d’Ivoire ($75m) to Benin ($14m). In early February, a second $50m contribution to the Africa Finance Corporation (AFC) – the institution dedicated to supporting the continent’s infrastructure –  was announced, after a loan for the same amount was approved in early 2021.

$10bn in Africa

Created in 1976, the Fund is run by 12 oil-producing countries, all of which are members of OPEC except Ecuador and Indonesia. Historically, it only operates outside the borders of its member countries, the most important of which are Saudi Arabia (35% of the capital), Venezuela (16%) and Kuwait (12.8%). Its African shareholders are Nigeria (8.6%), Libya (6.2%), Algeria (3.5%) and Gabon (0.2%).

De facto, the continent has a particularly high share of the OPEC Fund’s resource allocations. “Exposure to African countries stood at $2.86bn in September 2022, compared to $2.56bn (an increase of $300m) in December 2021,” the multilateral development finance institution, which – like OPEC – is based in Vienna, told us.

Since its inception, the OPEC Fund has provided “a total of $23bn for more than 4,000 projects worldwide; 45% of this overall financing has been provided to African countries, with the figure standing at $10.4bn,” it said. At the end of September, Egypt ($328m in loans) and Morocco ($230m) were its leading operational countries on the continent.

A more ambitious, committed institution

The OPEC Fund has been led since November 2018 by Saudi Abdulhamid Alkhalifa, who holds a PhD in economics from Florida’s University of Miami and went on to the World Bank before becoming the Saudi Arabian Public Investment Fund’s number two. Under his leadership, the financial institution has become increasingly ambitious. In 2019, its shareholders approved the use of capital market financing.

The institution was heavily involved in the response to the Covid-19 crisis, approving a $1bn budgetary envelope in April 2020 and allocating it to some 20 projects and countries (including Egypt, Morocco, Benin, and notably on a pan-African scale via a partnership with Afreximbank).

Although it is run by hydrocarbon-rich countries, in recent years the Fund has been particularly active in financing efforts to curb climate change. In 2022, it approved a $1bn facility to address the effects on global food supplies and prices resulting from the crisis in Ukraine.

It has also committed $1bn “to address imminent food security needs in partner countries”, according to Standard & Poor’s (S&P). Its Climate Change Action Plan includes $5bn for these efforts, “in addition to its regular energy-related lending”, says the same source.

According to the strategic information provided to the rating agencies, as much as 15% of the new commitments will be for the continent, financed from a much larger resource envelope, thanks to funds mobilised in the markets. The Fund’s commitments are expected to grow at an average annual rate of 7%, up from 4.5% in recent years. According to S&P, “particular attention” will be paid to transport, agriculture, energy, trade finance, private sector development, and banking and financial services.

Incremental debt

To date, the institution has financed its operations solely from its own funds, a rare occurrence in the development world. As a result, its debt-to-equity ratio on 30 September 2022 was exactly 0%.

According to S&P, “its risk-adjusted capital ratio (CAR) was 81%,” based on figures from early November. “The OPEC Fund currently has no funding gap, with assets outnumbering liabilities by 80 to 1,” the rating agency said in January.

This situation is expected to change as the objectives laid out in the institution’s development plan is realised. In January, the Bank raised its first benchmark loan of $1bn on the markets. “We expect debt growth to be gradual and the debt-to-equity ratio to remain significantly below the 150% limit over the medium term,” says the rating agency.