January 4, 2020

A Green Industrialization Strategy for Africa

Tariye Isoun Gbadeges January 4, 2020

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African countries cannot abandon “brown” industries – those that depend on oil, gas, and minerals – and create a green economy overnight. But they can use them as a tool to achieve a clean, sustainable economy.

LONDON – Africa has contributed less to the climate crisis than any other continent, but it will suffer some of the worst consequences. It already is: this year, Cyclone Idai killed more than 600 people in Mozambique, and droughts in eastern and southern Africa left more than 45 million people without enough food. How can Africa achieve economic growth and development, without contributing to further global warming?

Africa has an enormous incentive to industrialize: the world’s fastest-growing population and an urbanization rate that is nearly double the global average. To create jobs for the nearly 450 million young people expected to enter the job market over the next two decades, Africa must accelerate economic growth, or face a growing risk of severe social unrest.

But, historically, industrialization has required burning huge amounts of fossil fuels. Moreover, for most African countries, natural resources like hydrocarbons are vital sources of foreign exchange and budget revenue.

These countries cannot abandon “brown” industries – those that depend on oil, gas, and minerals – and create a green economy overnight. But they can use them as a tool to achieve a clean, sustainable economy. That means putting brown industries at the center of African governments’ green industrialization plans.

International oil demand may remain relatively strong today, but it is set to drop significantly over the next decade. McKinsey estimates that if electric vehicles (EVs) are adopted at scale, oil demand for road transport will plummet, while total oil demand will peak before 2025. This could leave African oil producers with a supply glut.

But these oil producers have options. By investing in the local petrochemicals industry, which can absorb excess crude supplies, they can lay the groundwork for the manufacture of goods that are critical to the green economy of the future, such as solar panels, wind turbine blades, and EV parts. Oil-rich African countries like Nigeria, Angola, and Algeria have a narrow window to initiate this shift, following in the footsteps of Saudi Arabia, which is basing its economic-diversification efforts on a robust petrochemicals industry.

Similarly, investment in natural gas can help to propel Africa’s transportation sector toward a green future. A major source of pollution from the hydrocarbons industry is gas flaring: oil producers burn off the natural gas they extract along with oil, often owing to a lack of infrastructure for (or interest in) storing the gas and putting it to productive use. Gas flaring releases massive amounts of CO₂ and results in nearly $20 billion in economic losses globally each year.

In Africa, where gas flaring is common, countries should pursue targeted infrastructure investments that enable the commercialization of abundant natural-gas reserves for use in transportation. After all, while natural gas does not amount to clean, let alone renewable, energy, burning it emits less CO ₂ than burning diesel. Large trucks and buses running on natural gas emit ten times less nitrogen oxide – a far more potent greenhouse gas than CO₂ – than their diesel counterparts.

A third critical element of an African green transition is to capture more value in the global EV supply chain. EVs are expected to account for 80% of global battery demand by 2030, and Africa holds more than half the world’s cobalt supply and a large share of its rare earth minerals – critical battery inputs. Yet it is China that manufactures the majority of EV and battery components, often using commodities it imports from Africa.

If the Democratic Republic of the Congo kept just 10% of its cobalt for domestic processing, instead of exporting 99% of it to China, it could capture part of the $5 billion global battery market, which is expected to grow ninefold, to $46 billion, within the next decade. African producers of lithium and nickel – also used to manufacture batteries – will have similar opportunities to play an important role in the green industries of the future.

Africa’s late industrialization, which put it at a significant disadvantage in the past, can be its greatest asset in the transition to a green future. With less legacy infrastructure in place, African businesses and consumers have been among the earliest adopters of renewable energy and digital technologies; for example, the continent is home to some of the world’s largest solar-power projects.

African countries must now embrace progress in their legacy industries as well. By leveraging existing oil, gas, and mineral assets, they can secure a place in the green economy of the future and play a central role in the global fight against climate change.

Tariye Isoun Gbadegesin is Head of Heavy Industries and Telecoms at Africa Finance Corporation.

The text has been adapted from Project Syndicate website

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