As crude oil prices continue to soar on the world market, many African oil-importing countries are starting to think more seriously about ways to lessen their dependence on the fuel. They fear that continued high spending for imported oil and other petroleum products may jeopardize the economic growth they have registered in recent years. As a result, alternative forms of energy are starting to look more attractive.
Crude oil prices jumped from less than US$40 a barrel in 2004 to nearly $70 by September 2006. With expectations of increasing global demand, especially from China, experts predict that prices will remain relatively high for the next few years.
That is good news for the 13 African economies that are currently net oil exporters. The challenge facing them is how to use the additional income in less wasteful ways than in the past. As UN Conference on Trade and Development (UNCTAD) Secretary-General Supachai Panitchpakdi told a meeting of African oil and gas officials in Algeria in April, African oil producers should use “their gains to invest in infrastructure and diversify their economies.”
But for the 42 African countries that are net oil importers (including three that also produce modest amounts of oil), higher world oil prices pose quite different challenges. Since countries must spend more for oil imports, they have less foreign exchange left for other essential imports. Businesses that rely heavily on energy and transportation are hit especially hard, making production more expensive and possibly leading to cutbacks and job losses.
Higher energy and transport costs are also usually passed along to consumers. The prices of many other goods and services are also pushed upwards, affecting the poor most severely. The African Development Bank (ADB) estimates that the inflation rate in oil-importing African countries will on average be about 2.6 per cent higher in 2006 than would otherwise be the case.
A number of these African oil-importing countries are responding with short-term measures to soften the immediate impact of high oil prices on their economies and consumers. Some have set import quotas to limit the use of oil products. Mr. Paul Obi, an economics instructor at the University of Buea in Cameroon, told Africa Renewal that such efforts “seek to bridge the financing gap arising from the oil price increases.” By limiting imports, a country can save scarce foreign exchange needed for other products.
Until recently, one standard response to high oil prices was to introduce subsidies to keep down domestic fuel prices. But subsidies have serious financial drawbacks. In Ghana, the government subsidized prices in 2004 when the cost of imported fuel first began to skyrocket. Since domestic Ghanaian fuel prices were lower than in neighbouring countries that permitted higher prices, unscrupulous traders began smuggling out Ghanaian fuel. The government also spent some US$200 mn that year to pay for the subsidy, money that could have been used for priority development projects.
Today most African nations, including Ghana, have chosen to simply pass along the oil price increases. Instead of subsidizing oil prices, Ghana now seeks to help the poor offset the rising cost of fuel and transportation by eliminating primary school fees.
Citing Ghana’s example, Mr. Sanjeev Gupta, the International Monetary Fund (IMF) assistant director for Africa, admitted in May that such measures have not completely protected consumers from rising prices. But the government has at least partially compensated for the higher costs. And by foregoing subsidies, African governments have experienced fewer financial losses than during earlier periods of high prices. “We have had no requests for additional finance to cope with the oil increases,” Mr. Gupta observed.
Eyes on the future
Development experts argue that African oil-importing nations should seek ways to reduce their dependence on oil. That would make economic sense in the long term, especially as energy needs rise with growing economies and populations. But it would also help preserve the environment, since most of the alternative energy sources are far cleaner and less polluting than oil, a carbon-based fossil fuel that must be burned.
Some African nations have already begun switching to non-oil energy sources that could potentially enable them to reduce their reliance on costly petroleum products. Those alternatives include “biofuels,” as well as solar energy and electricity generated by water-driven hydro-projects. Although natural gas, like oil, is a fossil fuel, it is comparatively cleaner and can be easily transported through pipelines.
Some African nations have already begun switching to non-oil
energy sources that could potentially enable them to reduce their
reliance on costly petroleum products.
Some alternatives are more feasible for some countries than for others. All entail a few economic or technical drawbacks, at least at their current stage of development. Moreover, efforts at economic diversification have generally proved quite complex and difficult in Africa, where policymakers and economic operators are preoccupied with numerous other immediate problems and find that it takes considerable capital and political will to alter existing production systems.
But the potential is there. According to the ADB, up to 10 per cent of East Africa’s current energy needs could be supplied by the full development of just two alternative forms of energy: thermal power, which is produced from steam that emanates from below the earth’s surface, and cogeneration, in which heat energy escaping from a power plant or industrial process is used to generate electricity.
In his address to the African oil and gas officials, Mr. Supachai of UNCTAD noted that a week earlier he had been in Brazil, a country that has made considerable progress in developing biofuels. Such fuels are derived from organic matter — often sugarcane or maize — which is fermented to produce an alcohol known as ethanol. Usually ethanol is blended with petroleum to make a cheaper, cleaner-burning fuel. Brazil now uses half its sugar crop for that purpose, and produces enough ethanol to fuel half the cars running in the country.
“All this may seem a bit far-fetched, or at least far off, today,” Mr. Supachai admitted to his listeners. “And you may well ask, of what interest are biofuels to Africa?”
Yet some African governments and companies are already showing an interest. In Senegal, the government is urging villagers and businesses to emulate Brazil’s example. In Kaolack, young farmers are planting a local grass whose cellulose can be processed into ethanol. Near the town of Richard Toll, the private Compagnie sucrière sénégalaise (CSS), the country’s main sugar producer, has signed a contract with an Indian firm that specializes in installing ethanol distilleries. The CSS hopes that within two to three years it can produce about 10,000 tonnes of ethanol annually.
Actis, a UK-based private equity investor in emerging markets, announced in April that it plans to invest $100 mn in agro-industries in East, Central and West Africa. This would provide up to half the funds needed by African agribusinesses to invest in growing crops including sugarcane, maize and sorghum, some of which are slated for biofuel production.
Elsewhere, D1 Oils Africa, a British bioenergy company, has developed 174,000 hectares of land in Zambia dedicated to crops for the production of biodiesel, a fuel derived from either vegetable or animal oils that is suitable for use in diesel engines. The company is a member of Zambia’s task force on renewable energy and has been contracted to develop a biodiesel policy for the country.
Mr. Demetri Pappadopoulos, the chief executive of D1 Oils Africa, notes that support from the Zambian government has been paramount in developing the project, “which will result in cultivating oil-bearing crops as a sustainable source for the betterment of the country.” The company is also conducting studies for similar projects in a number of other African countries.
Solar power is derived from the sun and converted into thermal or electrical energy. Solar energy requires no additional fuel to run and is pollution free. Sunlight can be captured as usable heat or converted into electricity by means of solar (photoelectric) cells or synchronized mirrors known as heliostats that track the sun’s movement across the sky.
In Namibia, solar and wind power currently account for just 1-2 per cent of all electricity produced in the country. But the government is looking for ways to finance new projects to boost the sector, and in late August announced plans to increase the amount of electricity produced from solar and wind sources by at least 0.5 per cent a year, with solar energy taking the lead.
Mr. Shimweefeleni Hamutwe, an adviser on alternative energy at Namibia’s Mines and Energy Ministry, told the Reuters news agency that the venture is still in its planning stage, with efforts focused on identifying funding for the projects, which could cost $5-10 mn a year.
South Africa’s electricity supply company, Eskom, is exploring the possibilities of a 100-megawatt solar project to help generate more electricity for the country’s main power grid. Feasibility studies began in 2001 and Eskom has now finalized the technological aspects of the ambitious project.
One of the drawbacks of solar energy at its current stage of development is a relatively high initial investment. But the subsequent costs of operating and maintaining solar energy generation are relatively cheap. Some countries are exploring innovative financing schemes to enable communities to develop their own sources of solar power (see NEPAD article).
Large natural gas reserves
Natural gas is another of Africa’s underexploited fuels. It is usually found in oil deposits, and most of it is simply burned off into the atmosphere during oil extraction. When it is captured for commercial purposes, natural gas is today often used for cooking and heating homes. But it can also be harnessed for electricity generation.
Africa’s proven gas reserves have grown strongly. In 1995, estimates showed the continent had about 6,300 bn cubic metres, but it was expected that by 2010 further exploration would increase known reserves to an estimated 17,650 bn cubic metres. Of the proven natural gas reserves in Africa, 78 per cent are in Nigeria, with the remainder concentrated in a few other countries — Algeria, Egypt, Libya, Angola, Mozambique, Namibia and Tanzania.
Egypt is currently exploring the construction of a liquefied natural gas plant in the Nile Delta, which claims much of the country’s estimated 430 bn cubic metres of proven reserves. In Tunisia, gas development is centred on the Miskar field, 125 kilometres offshore, with 23 bn cubic metres of recoverable reserves. The current gas field development project there is British Gas’s largest such project outside the UK.
The New Partnership for Africa’s Development (NEPAD) has been promoting the development of a West African gas pipeline. The project, which is not yet fully financed, will eventually involve building a network of pipelines to carry liquefied natural gas from Nigeria’s huge reserves to neighbouring Benin, Ghana and Togo.
Although natural gas is the cleanest-burning of all fossil fuels, it does still pollute. Another drawback is that building the plants to capture and liquefy natural gas is highly capital-intensive and it is more expensive to transport and store than are other liquid fuels. But the cost of building the facilities and pipelines is a one-time charge. Once developed, natural gas is a cheap source of energy.
The generation of hydro-electricity is the main alternative source of energy currently being developed in Africa, but it has considerably greater potential that has yet to be harnessed. It is derived from water-driven hydro-turbines, usually built into dams across some of Africa’s numerous river courses. Unlike oil, this source of energy is not used up in the process of generating electricity, so it is considered renewable and sustainable over the long term.
The Volta River project in Ghana is one of the continent’s oldest and best-known hydro-electricity projects. According to the Ghanaian Ministry of Energy, it generated about 83 per cent of the total domestic energy produced in 2005. The main station at Akosombo generated 4,718 gigawatt hours, with another 910 gwh from the Kpong station.
Construction of the Manantali Dam in Mali’s Kayes region began in 1988. The dam is managed collectively by Mali, Mauritania and Senegal through the regional Organisation pour la mise en valeur du fleuve Sénégal (OMVS). The dam’s initial function was to irrigate 2,550 square kilometres of land and maintain the navigability of the Senegal River between Saint-Louis in Senegal and Ambidédi in Mali. Hydro-turbines were later installed with the help of World Bank financing, and the first megawatt of electricity flowed in Mali in 2001. The supply of power has since been extended to both Mauritania and Senegal as well.
Two dams were previously built at Inga Falls in the Democratic Republic of the Congo, but because of the country’s economic and political turmoil, they are currently inactive. The World Bank, among other groups, is now considering investing as much as $500 mn in their rehabilitation. A plan for a third Inga dam, a massive hydroelectric station, is also under investigation, with proponents of NEPAD arguing that it could also supply electricity to much of the region, including to South Africa if the Inga power lines were connected via the electricity grids in neighbouring Angola and Namibia. Construction costs are estimated at about $6 bn. The project has a potential generating capacity equal to that of all Southern African countries combined.
Like several of the other alternative sources of energy, a hydro-electric project requires heavy financing and considerable planning for its establishment. A vast area is required to hold water with a dam. Some dam projects have been controversial for displacing villages from the flooded areas, as well as for some health and environmental consequences. A number of development experts have argued that smaller-scale hydro-electric projects could be a solution to such drawbacks.
Which form of alternative energy — if any — an African country develops will depend to a great extent on its particular circumstances. Some countries have large natural gas reserves. A number have rivers and waterfalls suitable for hydro-electric energy. Almost all receive plentiful sunlight for solar power, and many are also in a position to devote agricultural land to biofuel crops. But political commitment, favourable markets and the availability of domestic and external investment capital are also weighty factors.
A few of Africa’s oil importers suspect they have undiscovered oil deposits, and have invited oil exploration companies to see if they can develop their own domestic sources of oil, thereby reducing the need for imports.
But one thing is clear. If world oil prices remain high, more of Africa’s poorer, oil-importing countries will have to confront the costs of inaction: stalled economic growth and increasing poverty. They will therefore likely move ahead with developing one or more of the alternative energy sources, even those now deemed to be somewhat “far-fetched.”