In the context of African economies and the phasing out of fossil fuels, the issue is not about stranded assets per se, but stranded economies. This phenomenon is playing out in Europe, where countries are becoming stranded economies because of their imprudent reliance on Russian gas.

Suddenly, the European Union (EU) is actively procuring gas from other parts of the world, with the US being the largest exporter. This development stands in stark contrast to Europe’s ambitious Green Deal and its overarching climate objectives.

EU member States such as Germany, which do not have liquefied natural gas (LNG) terminals, as they have been importing gas through pipelines, have to consider future investments in LNG terminals. Will these be stranded assets then? Germany now grapples with the dilemma of expensive energy and some level of deindustrialisation as a result of high energy costs. Then, out of the blue, the US’s Inflation Reduction Act, which features a massive subsidy scheme that goes against World Trade Organisation principles, is undercutting the Green Deal in Europe, as the US prioritises its own green industrial development.

Understanding the future of oil and gas entails grasping the structure and many possible scenarios that African oil and gas economies may face. These outcomes depend on factors such as the future demand for African countries’ products and how much of the rents they accrue from their exports is invested in new industries.

It is not feasible to talk about a stranded asset problem in Nigeria, for example, without also talking about the broader issue of the country’s stranded economy, particularly if it does nothing about economic diversification. The nature of what comes after oil and gas will determine the future trajectory of these economies.

The path to sustainable economies is not decided by the naive idea that switching from fossil fuels to something else will change oil- and gas-dependent countries’ fortunes. One-trick-pony campaigns against oil and gas dependence are likely to do more damage than good. Transition strategies must adopt a much broader and robust approach.

At present, oil and gas dependence holds whole countries to ransom. Transitions necessitate trade-offs, some of which we can anticipate and others we may not have fully captured in our purview. The shift from one economic dependence to something new has to be a resilient process.

You may save a ton of carbon and receive a lot of applause for doing so, but you will have a ton of sorrow, with many jobs lost and families needing to be fed, if you are not careful. Long-run solutions cannot be hastened by short-run desires, no matter how noble the cause may be. Success in climate transitions is tied to the nature of broader economic transitions.

Questions also arise about the pace of the transitions, as well as about who makes key decisions, and what a good economic transition looks like. The answers to these questions are not determined by technology or the availability of climate finance; they are entirely dependent on how prosocial elites become and whether the elites are capable of putting the interests of their people and country before their own interests. These elites exist both within a country and abroad.

Saudi Arabia, which sits on vast oil and gas reserves and also boasts substantial sovereign wealth funds and overseas investments, is trying to diversify its economy. Beyond its traditional strength, it is positioning itself as the trading hub for critical minerals and as a centre for AI innovation. The kingdom is also looking to expand in the tourism and services sectors and to build an entirely new city under its grand initiative, NEOM, a key facet of which is the export of high-tech goods.

The Saudis recognise that they will have to shift to new forms of economic activity. Whether these bets will materialise is dependent on many things: skills, demand for products, attracting the right companies and remaining competitive in the fiercely contested AI space, which may experience boom-and-bust cycles. The point here is that diversification must be done sooner rather than later.Diversification takes years to achieve and requires proper planning and coordination.

It must be borne in mind, however, that economic diversification that entails exporting alternative products to oil and gas may simply represents a shift to products that are subject to stiff global competition.

Navigating transitions on the African continent requires a much more holistic approach than the narrow stranded-asset model. In some countries, some stranded assets are so large, in terms of overall infrastructure investment, that they consume a significant portion of government revenues, as these assets may be new and linked to onerous debt obligations.

Unseating a stranded asset, particularly one that is the primary source of government revenues and exports, has the potential to destabilise the entire economy.

In some ways, investments in extractive oil and gas infrastructure tie the economic prospects of a country to the future fortunes of the oil and gas sector. This may be a yoke that may impede economic progress.

You will also find, where rich fortunes prevail, that there will be a tightly knit network of political and industry players who have managed to work out a bargain among themselves in the way they have control over rents from the extractive industry. They need to come on board.

A recent Bretton Woods Institute Multilateral Reform Working Group report noted that the challenges facing medium- and low-income countries (MLICs) include high debt costs, illicit flows to offshore havens, poorly developed capital markets, and the cost of capital. More importantly, transition technologies are still priced as ‘risky’ in MLICs because these long-term infrastructure solutions require effective cost recovery mechanisms to sustain the financing of sunk costs. Solving debt will be key.

This is the broader context in which we must understand transitions in African oil and gas economies. The first is the transition from the political economy to the new economy, which sets the stage for subsequent changes.