On the question of Africa's Energy Poverty - All Options Remain on the Table

In Resolving Africa’s Energy Poverty – ALL Options Remain on the Table

Africa’s energy poverty is now a national security crisis. The region’s large and growing population places relentless pressure on small and dwindling resources, exacerbating the crisis of diminished state capacity. The specter of social and political disruption haunts regional stability, from coastal West Africa to the Great Lakes. Africa’s poverty translates into weak economic resilience and heightened vulnerability to shocks – internal and external. The recent spate of global crises has only worsened the problem. After decades of improvement, the World Bank reports that inequality is rising – that the global poor bore the brunt of the economic scarring of the pandemic, with incomes falling in the poorest countries more than they did in rich countries. “As a result, the income losses of the world’s poorest were twice as high as the world’s richest, and global inequality rose for the first time in decades.”[i] These losses are most pronounced in Sub-Saharan Africa where “incomes are falling further behind the rest of the world.”[ii]  

Nothing aggravates this condition more than the continent’s persistent energy poverty. It is thus a positive sign when at this year’s IMF/World Bank Spring meetings, the World Bank and the African Development bank agreed to invest in providing electricity to 300 million Africans by 2030.[iii] But the announcement raises a lot of questions, including Todd Moss’s: “What will the Bank do differently?”[iv] If the idea is to double down on renewables alone, this only accentuates the glaring divergence between what Africa needs and the “solution” the Bank is offering. In times of existential crises, no options are left off the table. Unless Africa increases the diversity and complexity of its exports, its poverty will persist.

Sub-optimal and Worsening Terms of Trade:

In 2000, the IMF reported that sub-Saharan Africa’s exports were dominated by primary commodities while “food items, oil and manufactured goods [were] their major imports.”  Africa’s terms of trade (the ratio of prices of a country’s exports to the prices of its imports (net barter terms)”[v] were unfavorable then.

When the IMF made this observation, in 2000, China barely registered among the continent’s major trading partners. Over the intervening two decades, China replaced industrialized countries as Africa’s largest trade partner. The difference in trade partners, however, has not materially altered the continent’s pattern or terms of trade. A recent IMF paper, twenty-four years later, finds that a “distinctive feature of China and Africa’s trade relationship is the composition of exports and imports…Africa predominantly exports natural resources, especially crude oil, and other fossil fuels as well as raw unprocessed minerals and other intermediate goods to China.”[vi]

The IMF concludes that this “persistent trend is a result of the relative abundance of natural resources posing challenges for economic diversification in African countries.”[vii] Yet this period also registered some of the most consistent years of high growth across many of the sub-region’s economies. From “2000 to 2010, real GDP grew at an average rate of 5.1% annually, up from an annual average of only 2.5 percent in the previous decade.” Even in the best of times, Africa’s inability to add value to its exports muted the economic impact of high growth.

Over the same period, every African country has released successive “visions” to move up the value chain of its exports and increase the returns to trade. The results have been disappointing. Addressing the energy crisis is an indispensable component of any response. Any “solution” that excludes fossil fuels is incomplete at best. For African economies – all sources of generation – wind, solar, hydro, nuclear power, natural gas and coal must remain on the table.

This approach is neither new nor revolutionary. It is not only the path that emerging economies have taken in the past, but it also remains a substantial component of their current industrial policy.

The Path Most Taken –

In October 2019, China inaugurated its longest coal transporting rail line. The 1837-km line is designed to transport 200 million tons of coal annually from Inner Mongolia in the north to Jiangxi in the East.[viii] No country has brought more coal-power plants online than China, even as it continues to expand its renewable energy assets.

Per reporting in the Financial Times, in the last 24 months, 218 GW of new coal-fired power capacity was granted construction permits and 40 percent of those plants were online by the end of 2023.[ix] Outside China, Indonesia, India, Vietnam, Japan, Bangladesh, Pakistan, South Korea and Zimbabwe brought coal capacity online. There are now 32 countries (excluding China) with new coal projects at pre-construction phases of development with seven plants are under construction.[x]

In October of 2023, India’s largest power producer NTPC reported an 83 percent jump in coal production from its mines in the first half of 2023/2024 fiscal year.[xi] As India has expanded its infrastructure – it has become the “new” growth story. Investors looking to diversify away from China are moving to India where over 70% of the electricity is generated from burning coal. This is also the trend in Japan where coal-fired electricity generation has grown in importance and about a third of Japan’s electricity is generated from coal, second only to the 34 percent provided by gas.

Policies resistant to the expansion of fossil fuels capacity in Africa without a requisite investment in renewable seem almost designed to perpetuate African poverty.

No Balanced Energy mix, No Industrialization

Africa’s export diversification is inextricably tied to its infrastructure – mainly power – endowment. Namibia, Zimbabwe, the DRC and others have all passed laws banning the export of unprocessed minerals. The legitimate attempts by these governments to ensure that their minerals are extracted and processed “in a way that helps [them] realize the full economic benefits of their resources’, should be applauded.”[xii] 

But the viability of these bans remains contested, and these efforts are very likely to stall, since insufficient smelting capacity has led to repeated issuance of waivers for similar bans in the DRC.[xiii]

About 80% of global energy consumption is tied to transport and heating (residential and industrial). This focus here is industrial heating (100 to 2000 C). The absence of adequate power supply to smelt ores in a commercially viable way has condemned the continent’s commodity exporters to ship their raw ore to China or India. South Africa, the continent’s most complex commodity exporting economy exports its chromite ore to China for processing into ferrochrome, which is used to manufacture corrosion, acid and heat-resistant steel.

Or take aluminum – the metal that is produced from bauxite. Guinea has the world’s largest bauxite reserves at over 7 billion metric tons.[xiv] However, aluminum making is one of the most energy-intensive processes in the world. “Only paper, gasoline, steel, and ethylene manufacturing consume more total energy in the United States than aluminum. Aluminum production is the largest consumer of energy on a per-weight basis and is the largest electric energy consumer of all manufactured products.”[xv] In Guinea and Sierra Leone, converting raw bauxite into intermediate metals will require prodigious amounts of installed and dispatchable power. Renewables have struggled to be cost competitive with burning fossil fuels to smelt ores. Even the most basic levels of beneficiation (removing impurities and improving the grade of the ore) often require electricity endowment that many commodity exporters lack. Unless Africa is able to increase the availability of cost-competitive energy at a scale, adding value to its mineral exports will remain a pipe drain. If the average Ethiopian continues to consume a mere 79.25 kWh per year, Ethiopia will struggle to match Bangladesh (497 kWh per year) in apparel manufacturing. If the average Nigeria consumes only about 150 kwH per year, Nigerian firms will struggle to compete with their Vietnamese counterparts  (2450 KwH per year).

The trend of using Africa exclusively as a source of unprocessed raw materials continues unabated today. Per the IMF, under certain netzero scenarios, “Global revenues from the production of just four key minerals – copper, nickel, cobalt and lithium – are estimated to totalk $16 trillion over the next 25 years.”[xvi] Even though this could deliver significant benefits to Africa, the trends are already in motion to disadvantage Africa. The Canadian battery manufacturer, Electra Battery Materials Corporation, recently signed a binding letter of intent with Luxemburg-based Eurasian Resources Group for the supply of 3000 tons of cobalt per year from ERG’s mines in the Democratic Republic of Congo. This cobalt will be compliant with the US Inflation Reduction Act because it will be processed in Canada and not in the DRC where it is mined.[xvii]

The Fund warns that if Africa simply sticks to the lower value-added states of extraction, the continent’s mineral-rich economies “risk losing substantial benefits from processing. Developing local processing industries could significantly boost profits, increase tax revenues, create higher-skilled jobs…”[xviii] None of this is remotely possible without expanding Africa’s electricity endowment.

The argument that Africa’s energy poverty poses an existential risk goes beyond adding value to Africa’s mineral, forest and agricultural exports. It touches every segment of African life – health, education, the arts etc. In mid-March, South Sudan closed its schools for two weeks and advised parents to keep all children indoors as temperatures “soared to 45C (113F).”[xix] As this scenario becomes more regular, countries like South Sudan will need more energy to cool their homes.

There is therefore stark divergence between Africa’s obvious needs and explicit demands on the one hand, and activists, the World Bank and some of its largest shareholders on the other. For over two decades, Africans have sought to make the moral argument that even though it is least responsible for the crisis, it is most at risk to the fallout. That moral argument has carried no weight with the rest of the world. The regions most responsible for triggering the climate crisis seem content with offshoring the cost of its impact to Africa – even if it means perpetual poverty there. Fossil fuels in Africa are not a question of preference, they are not a luxury, they are indispensable to the path out of poverty. African countries taking coal off the table and the World Bank taking natural gas off table is akin to asking a gladiator to face lions and tigers barehanded.

Fossil Fuels (Including Coal)  and the Existential Question:

At this year’s Spring Meetings,  “The Big Shift Global”, a global movement against fossil fuels, protested against the Bank’s financing fossil fuels. Their best intentions notwithstanding, this activism condemns Africa and Africans to indigence, since the countries adding the most fossil fuel capacity do not borrow from the World Bank. This earnest, but misguided, activism simply provides a convenient cover for rich countries’ World Bank executive directors who want to push the bank away from financing natural gas in Africa.

Increasing Africa’s energy per capita consumption is an existential question – from keeping South Sudanese children alive in extreme heat to earning more from African exports. African governments ought to understand that outsourcing existential questions to outsiders whose intentions are, at best, ambivalent is a dereliction of duty to their people.

When coal-powered electricity is rising in prominence in the world’s largest industrial countries, it is unreasonable to expect Africans to “save the world”, by sacrificing their poverty reduction and industrialization goals on the unrealistic “hope” of an all-renewable energy mix. Every form of energy generation must remain on the table. Where viable, nuclear energy ought to be pursued too – whether the partner of choice is China or Russia, especially since Rosatom and the African Commission on Nuclear Energy (AFCONE) have approved a plan for cooperation. China has made progress on small modular reactors; this option and all others must remain on the table.

Financing the continent’s fossil fuels assets will be difficult. China has indicated it is no longer willing to finance such projects.[xx] But African governments must ack and seek Chinese support on this issue at this year’s FOCAC. At the South African BRICS summit, President Xi committed that China would launch “initiatives to support Africa’s industrialization and agricultural modernization.”[xxi] The continent needs electricity for any of that to be possible.

Both the World Bank and some private capital are hesitant to extend financing for new fossil fuel. Because this is a national security imperative, African governments should be prepared to make hard choices about using domestic resources, making cuts to spending elsewhere to fund these plants.

For economies where coal power plants are viable, governments must make demonstrable efforts - setting aside land, conducting feasibility studies, and mapping the coal value chain for these plants. For countries where the option is natural gas – the same processes should be set in motion. What passes as concerned counsel about “stranded assets” and “sunk costs” must be set aside, as such advice will perpetuate the status quo of a perennially poor Africa. When it is time to retire fossil fuel power plants, Africa can insist on the sequence of deployment: the first plants to go online would be the first to go offline. New African fossil fuel power plants will therefore be the last ones to retire.

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[i] https://www.worldbank.org/en/news/feature/2023/12/18/2023-in-nine-charts-a-growing-inequality

[ii] https://www.imf.org/en/Publications/REO/SSA/Issues/2024/04/19/regional-economic-outlook-for-sub-saharan-africa-april-2024

[iii] https://www.worldbank.org/en/news/press-release/2024/04/17/new-partnership-aims-to-connect-300-million-to-electricity-by-2030

[iv]

Three Big Questions for the World Bank’s new electrification plan for Africa

[v] https://www.imf.org/external/pubs/ft/fandd/2000/06/cashin.htm

[vi] https://www.imf.org/en/Publications/WP/Issues/2024/02/23/Navigating-the-Evolving-Landscape-between-China-and-Africas-Economic-Engagements-545104#:~:text=China%20and%20Africa%20have%20forged,by%20the%20COVID%2D19%20pandemic.

[vii] Ibid

[viii]

https://twitter.com/PDChina/status/1153764219176857603

[ix] https://www.ft.com/content/71cc3332-9a0b-49cc-a933-e18225d0058d

[x]

[xi] https://oilprice.com/Latest-Energy-News/World-News/Coal-Production-Surges-By-83-At-Indias-Largest-Power-Firm.html

[xii] https://www.state.gov/minerals-security-partnership/#:~:text=The%20MSP%20aims%20to%20ensure,economic%20benefits%20of%20their%20resources.

[xiii] https://www.reuters.com/article/idUSKBN25I0LR/

[xiv] https://www.statista.com/statistics/271671/countries-with-largest-bauxite-reserves/#:~:text=Countries%20with%20the%20largest%20bauxite%20reserves%202023&text=Guinea%20has%20by%20far%20the,5.8%20billion%20metric%20dry%20tons.

[xv] https://www.energy.gov/eere/amo/articles/us-energy-requirements-aluminum-production

[xvi] https://www.imf.org/en/Publications/REO/SSA/Issues/2024/04/19/regional-economic-outlook-for-sub-saharan-africa-april-2024

[xvii] https://copperbeltkatangamining.com/electra-and-eurasian-resources-group-sign-cobalt-supply-agreement/

[xviii] https://www.imf.org/en/Publications/REO/SSA/Issues/2024/04/19/regional-economic-outlook-for-sub-saharan-africa-april-2024

[xix] https://www.theguardian.com/world/2024/mar/18/south-sudan-closes-schools-in-preparation-for-45c-heatwave

[xx] https://www.ft.com/content/30840645-58d2-4da5-be05-f476623677d2

[xxi] https://www.reuters.com/world/chinas-xi-pledges-support-africas-industrialisation-brics-2023-08-24/#:~:text=JOHANNESBURG%2C%20Aug%2024%20(Reuters),Africa's%20industrialisation%20and%20agricultural%20modernisation.