Energy Capital & Power

The Gambia’s Financial Sector Gears up to Support New Energy Development

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The Gambia’s economy has long been oriented around agriculture, foreign remittances, and tourism, which accounted for up to 20% of GDP pre-COVID-19. However, in light of relatively recent, large-scale oil and gas discoveries between 2014 and 2017 in neighboring countries like Senegal and Mauritania, there has been renewed interest from investors in exploration opportunities in other countries within the MSGBC Basin. Among them, The Gambia is well-positioned to attract FDI, thanks to ongoing improvements in its investment climate and a post-COVID-19 recovery that is already underway.

The Gambian energy sector, though still in its early stages of development, nevertheless holds sizeable potential as a future source of government revenue. Analysts of the U.S. State Department note that significant strides are being made in the energy sector through oil and gas exploration campaigns, a strong focus on renewable energies (especially solar power), and the development of other types of natural resources like heavy sands, which hold reserves of heavy minerals.

The financial sector of The Gambia will play an important role in helping the country transition to a more energy-based economy over the course of the next decade. It currently comprises 12 commercial banks, one of which is an Islamic bank, and is supervised by the Central Bank of The Gambia. The sector is dominated by subsidiaries of Nigerian banks, though these subsidiaries are fairly independent of their parent institutions and are usually majority-owned by Gambian entities.

The banking system is highly liquid and most banks are profitable. The majority of banks operating in The Gambia meet the requirements of the Central Bank in terms of capital adequacy and liquidity. However, because of the capital-intensive nature of oil and gas exploration, as well as renewable energy projects, The Gambia’s domestic financial sector alone is not sufficient to ensure adequate project financing. As a result, the authorities are looking to tap into alternative sources of capital either through bilateral loans or ongoing cooperation with multilateral financial institutions.

In recent years, The Gambia’s financial sector has witnessed impressive growth and become more diverse, consisting of commercial banks, insurance companies, foreign exchange bureaus, microfinance institutions and other non-bank finance companies. However, commercial banks dominate the industry, controlling over 90%. There are currently at least seven banks with an average foreign equity of over 60%. In terms of scope of activities, banks operate mainly within the Greater Banjul Area, with some branches and agencies located in other parts of the country. The remaining regions of the country are mainly catered to by micro-finance institutions.

International organizations like the World Bank Group, African Development Bank and OPEC have all taken an active role in providing funds for The Gambia to upgrade its power and transportation infrastructure, as well as carve out a role for its energy sector to make more significant contributions to the national economy.

Last June, the OPEC Fund for International Development signed a $20-million loan agreement with The Gambia to co-finance the expansion of the Bertil-Harding Highway. The upgrading of the road infrastructure aims to improve safety, reduce travel time and costs and facilitate access to marketplaces, social amenities and jobs for more than 520,000 people in the Greater Banjul Area. In addition to the loan, the OPEC Fund’s public sector commitments to The Gambia total close to $128 million supporting energy, transportation, education and multi-sectoral projects.

The OPEC Fund was established by the member countries of OPEC in 1976 with a distinct purpose: to drive development, strengthen communities and empower people.  The OPEC Fund’s work is focused on financing projects that meet essential needs, such as food, energy, infrastructure, employment (particularly relating to SMEs), clean water, sanitation, healthcare and education. To date, the OPEC Fund has committed more than $22 billion to development projects in over 125 countries, with an estimated total project cost of $187 billion.

The World Bank Group is also playing an important role in financing projects in The Gambia that are designed to improve access to energy and water. In June 2020, The World Bank Board of Executive Directors approved a $43-million grant from the International Development Association  for The Gambia’s Electricity Restoration and Modernization Project.

“While The Gambia’s national utility company (NAWEC) has made significant improvements in its operational and financial performance in recent years, the utility has yet to achieve financial viability. This support will build on the ongoing efforts of the government to strengthen the electricity and water sectors,” noted The World Bank.

“The additional financing will further strengthen NAWEC’s transmission and distribution network, provide additional support to transform NAWEC into an efficient and credit-worthy utility, and expand the scope of the project to the water sector. Specifically, more than 1.6 million people will have gained or improved access to electricity; 17 km of transmission lines will be constructed or rehabilitated; and 20 grid-connected photovoltaic systems with storage will be installed.”

The Gambia does not yet have its own stock market and lacks the necessary mechanisms to channel large volumes of portfolio investment. This is one of the reasons why the Gambia’s Investment & Export Promotion Agency (GIEPA) is particularly important, in terms of attracting new capital inflows towards strategic sector that will shape the development of the Gambian economy over the next decade. GIEPA is the national agency responsible for the promotion and facilitation of private sector investments into the country, and identifies highly prospective sub-sectors within the energy value chain.

Meanwhile, The Gambia Renewable Energy Center (GREC) was established by the Gambian authorities to collaborate with interested entities for the development of renewable energy through research and development. The Gambian Government is encouraging the use of other energy sources, with deployment of solar photovoltaic (PV) equipment increasing for industrial, commercial and domestic uses (The country receives an average of 2,500 hours of sunshine per year). In addition, the use of biomass is on the rise, though it tends to be restricted to agricultural waste such as sawdust, groundnut shells and straw. Use of windmills for powering water pumps is also gaining ground throughout the country.

GIEPA has outlined high potential energy investment opportunities, which include increasing installed power generation capacity and improving efficiencies, so as to reduce the high cost of energy. The Gambia also requires new capital investment to improve the state of transmission and distribution systems, which currently experience large technical losses and unmetered consumption estimated at about 40%. Finally, The Gambia aims to encourage greater usage of green energy, especially through solar PV and wind energy projects.

The Government of The Gambia and its national oil company, Gambia National Petroleum Company, will be sending a high-level delegation to participate in the upcoming MSGBC Oil, Gas & Power 2021 Conference & Exhibition taking place in Dakar, Senegal (December 13-14). The Gambian delegation will showcase emerging investment opportunities in the country’s energy sector, as well as the role of new synergies derived from enhanced regional cooperation among MSGBC Basin member countries.

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Energy Capital & Power

Energy Capital & Power

Energy Capital & Power is the African continent’s leading investment platform for the energy sector. Through a series of events, online content and investment reports, we unite the entire energy value chain – from oil and gas exploration to renewable power – and facilitate global and intra-African investment and collaboration.