Can finance buffer the burn? Energy prices, financial access, and industrialization in Africa

Persistent energy price shocks have emerged as a major constraint to industrial transformation in Sub-Saharan Africa (SSA), raising concerns about the region’s ability to achieve sustainable industrial development. Against this backdrop, this study investigates whether improved financial access can cushion the adverse effects of energy price inflation on industrialization in 39 SSA countries over the period 2000–2023. The study uses the Ordinary Least Squares (OLS), Fixed Effects (FE), and the System Generalized Method of Moments (GMM) as estimation strategies and employs two indicators of financial access, domestic credit to the private sector and bank credit to bank deposits, and six measures of industrialization, namely manufacturing growth, manufacturing value added as a share of gross domestic product (GDP), manufacturing output, industry growth, industry value added as a share of GDP, and industry output. The results show that rising energy prices are a major barrier to industrialization in SSA. While enhanced financial access stimulates manufacturing growth, manufacturing output, and the contribution of manufacturing to GDP, the effects are not uniform across all dimensions of industrialization. The results further show that domestic credit exerts a negative influence on industry growth and the industry’s share in GDP. More importantly, the evidence indicates that financial access is more effective in supporting broader industrial development than in fully offsetting the adverse consequences of rising energy costs on manufacturing activities. The findings point out the need for policies that go beyond credit expansion alone. Accordingly, governments should strengthen financial intermediation, improve credit allocation toward productive industrial sectors, and complement financial sector reforms with targeted energy policies aimed at reducing firms’ exposure to energy price volatility.