Locked In: The Debt, Subsidy and Oil Economy Holding Africa Back from a Just Energy Transition

Africa stands at a critical crossroads in its energy story. On one path lies renewal, powered by clean technologies, decentralised systems, local value chains and climate resilience. On the other hand lies repetition, debt-fuelled fossil infrastructure, ballooning subsidy bills, stranded assets and weakened public finances.

Across the continent, governments are spending more to sustain fossil fuels than to build renewables. They are borrowing heavily to finance pipelines, refineries and gas terminals even as climate risks deepen and oil demand is projected to peak as early as 2030. The numbers tell a contradictory story: Africa wants a just transition, yet its financial and political choices are locking it deeper into the fossil age.

This lock-in is not accidental. It is the result of three reinforcing pressures: ballooning energy subsidies, mounting debt burdens and the continued expansion of oil and gas infrastructure.

The Subsidy Paradox

Fossil-fuel subsidies were once justified as a way to ease the cost of living and stabilise economies. Instead, they have become the most expensive barrier to the clean-energy transition. In 2024, African governments spent an estimated $100–120 billion subsidising petrol, diesel, electricity and liquefied petroleum gas. That is more than three times the total investment in renewable power across the continent.

Nigeria offers a revealing case. In 2023, the government announced it had removed petrol subsidies, only to introduce quasi-subsidies through “price stabilisation.” By the end of the year, fuel support had cost ₦5.4 trillion, while less than 10 percent of the national budget went to health or education. In Egypt, energy subsidies cost over $17 billion in 2024, while in Angola, fuel subsidies equalled 4 percent of GDP, more than annual infrastructure spending.

Most of this money disproportionately benefits those who drive cars, run diesel generators or own energy-intensive businesses, not the poorest households. Yet any move to remove subsidies triggers protests, strikes and political backlash. As one finance minister told the African Development Bank: “We know subsidies are killing us. But removing them can bring down a government faster than debt can.”

Debt-Fuelled Dependency

While subsidies drain budgets, debt locks in fossil dependence for decades. African sovereign debt has reached $1.13 trillion, according to the African Development Bank (2025), with at least 23 African countries now in or at high risk of debt distress. Fossil infrastructure is a major and growing contributor.

Consider the pipeline projects stretching across the continent. Uganda and Tanzania are constructing the East African Crude Oil Pipeline (EACOP), a $5 billion project backed by loans and sovereign guarantees. Mozambique has approved more than $20 billion in LNG investments in Cabo Delgado, financed by international banks, export credit agencies and state debt. In Nigeria, Dangote is expanding his Dangote Refinery to 1.4 million barrels per day, financed by loans, public guarantees and tax concessions.

These projects are built to operate for 20 to 40 years. Yet the International Energy Agency warns that to limit warming to 1.5°C, no new oil and gas fields should be approved. If global demand falls, as it must, Africa could be left paying for infrastructure that no longer generates revenue.

The World Bank warns of a “fossil debt trap”: countries borrow to build fossil assets; they then subsidise fuel to keep these assets politically acceptable; when debt payments rise, they borrow again, this time to repay past loans.

The Cost of Delayed Transition

The longer Africa delays transition, the more expensive it becomes. The IMF estimates that for every year subsidy reform and renewable investment are delayed, transition costs rise by 3–5 percent. Meanwhile, climate shocks are hitting harder. Floods in Libya, droughts in the Horn of Africa, and deadly heatwaves in the Sahel are already eroding GDP growth.

Yet cleaner alternatives remain financially sidelined. Solar and wind power are now the cheapest sources of new electricity globally. But the average cost of capital for renewables in Africa is two to three times higher than in Europe or China. Developers regularly face interest rates of 10–15 percent. Fossil projects backed by sovereign guarantees can secure debt at 4–7 percent.

In other words, Africa is paying more to stay in the past than it would cost to build the future.

A Generation That Wants Light, Not Diesel

The consequences are most visible not in boardrooms or ministries but in homes and marketplaces. In Nigeria, households spend $14 billion a year on diesel and petrol generators, according to the World Bank. In Sierra Leone, 90 percent of businesses run private generators. In South Sudan, the cost of electricity can reach $0.50 per kWh, among the highest in the world.

Young Africans are unlikely to wait quietly. Across Kenya, South Africa, Senegal and Ghana, climate movements are emerging that demand jobs in clean industries, not pipelines and coal stations. The phrase “just transition” is becoming less about global negotiations and more about domestic justice.

A South African activist put it plainly: “We cannot be asked to protect the planet while breathing sulphur from coal plants built on our land.”

What Must Change and Who Must Lead

If Africa is to break the cycle of subsidy, debt and fossil dependency, a new financial architecture is required, one that aligns justice, investment and sovereignty.

1. Subsidy reform that protects the poor, not petrol

Subsidy removal must be paired with direct social protection, cash transfers, public transport, clean cooking and rural electrification.

2. Borrow for the future, not the past

Sovereign guarantees must shift from oil refineries and gas terminals to grids, batteries, transmission corridors and domestic manufacturing of solar and wind components.

3. Build African financing institutions

African pension funds, sovereign wealth funds and banks must co-invest in green projects. The AfDB’s Sustainable Energy Fund for Africa and Afreximbank’s Energy Transition Facility are early models.

4. Create phase-out timelines for fossil fuels

Countries like Kenya and Ethiopia have set net-zero power targets. Others, Nigeria, Angola, Algeria, must follow with clear deadlines for coal and petrol phase-out.

5. Demand justice in global finance

African governments should push for climate debt swaps, lower sovereign risk premiums and direct access to the Loss and Damage Fund agreed at COP28.

A Choice That Cannot Be Deferred

Africa is not being asked to choose between development and decarbonisation. It is being asked to choose what kind of development it wants, one chained to diesel and debt, or one powered by dignity, sovereignty and innovation.

The window is closing. If the continent builds 30 more years of fossil infrastructure today, no amount of climate finance tomorrow will undo the damage.

The just transition will not be gifted at COP summits. It will be built in parliaments, central banks, ministries and communities, by those who refuse to accept that Africa’s role is to power the world while remaining in the dark.