RI_Climate and Africa: a continent of paradoxes

ARTICLE

CLIMATE AND AFRICA: A CONTINENT OF PARADOXES

by Ophélie Mortier,
Responsible Investment Strategist at DPAM

When it comes to Africa’s take on sustainability, the irony runs deep¹: Africa is one of the smallest emitters of greenhouse gasses on a global scale. Yet, even if the continent manages to maintain its current rate of emissions going forward, Africa will pay the price for the rest of the world’s inadvertence: It has become one of the first continents to experience the many consequences of climate change.

Africa also doubles down on the contradictions when it comes to its policies on renewable energy. Although it is overflowing with untapped renewable potential and plenty of natural resources, these are not always easily accessible. In fact, the majority of the sub-Saharan population still relies on fossil fuels and wood for electricity. Amidst this abundance of renewable resources, most do not even have direct access to electricity. Those that do, pay exorbitant amounts for a heavily polluting source of power, and are troubled by constant outages.

Let’s take a look at the many climate ironies that plague the African continent and the opportunities that lay ahead. First, we examine Africa’s role as the smallest contributor to global warming, but likely also its biggest victim. Secondly, we tackle the disparity between Africa’s abundance of renewables, and its seemingly counter-intuitive reliance on outdated and unreliable fossil fuels. Finally, we will consider the many remaining challenges, the global response to these hurdles, and Africa’s path forward.

What can be done to champion a sustainable future of growth and prosperity in the world’s poorest continents? Is there an easy way out of these contradictions, or will Africa’s many paradoxes cloud investors’ better judgement?

LESS THAN 4% OF GLOBAL CARBON EMISSIONS, BUT BIG CLIMATE CHALLENGES

Today, Africa is responsible for less than 4% of global carbon emissions. Given its position as the second-most populous nation, these results are most impressive. In addition, the historical progression of its emissions – unlike some fast-growing nations like China – has remained remarkably stable over the previous decades². However, if Africa pursues a growth model similar to today’s most developed countries, the continent could emit between 4 and 7 giga tons of carbon emissions by 2050. To put this in perspective, these numbers amount to the combined total of China, Europe and the US’ current carbon emissions.

Still, one would expect Africa to enjoy at least some ecological benefits from its position as one of the lowest emitters in the world. However, the continent’s geographical location is inherently vulnerable to climate change, further accentuated by the weak socio-economic conditions and lacking governance bodies. A deluge of desertification, deforestation, water scarcity and mass migration will likely complicate Africa’s development in years to come. The COVID pandemic has not helped the situation either and has significantly slowed down the promising progress of countries like Ghana or Senegal.

RENEWABLE RESOURCES: UNTAPPED POTENTIAL FACING MANY HURDLES

In terms of renewable resources, the African continent is teeming with possibilities. Solar energy in particular has the potential to revolutionise Africa’s energy sector. There are also many untapped sources of wind energy, hydroelectric energy and plenty of geothermal resources, but the actual construction and implementation of the necessary equipment to capitalise on these resources is a monumental challenge. These difficulties are evident throughout the continent: Even though Africa is one of the largest reservoirs of solar energy in the world, it barely represents 1% of global installed capacity. Today, wood is the primary source of energy in sub-Saharan countries. Add to this several other issues, such as political uncertainty, inadequate infrastructure, unstable financial resources, and limited access to foreign and private financing. It quickly becomes clear that a whole slew of challenges needs to be tackled before renewables reliably energise the African continent. The international investor community could reflect on how to take up a role here.

Source: World Bank, 2015

Nonetheless, there are ample incentives for governments to act: In terms of costs, today, renewables are as competitive as fossil fuel sources. In addition, Africa’s current power infrastructure is in urgent need of revitalisation: Costs of power outages alone are estimated to be between 2 and 4% of Africa’s GDP³. Moreover, African governments need to constantly subsidise the industry to keep it operational. These fossil fuel subsidies account for nearly 5.6% of GDP in Sub-Saharan Africa , and weigh heavily on public debt. This creates a dangerous vicious circle, wasting money at the expense of sustainability pillars, such as health and education. In addition, the close involvement of governments has also created significant political interference, which is detrimental to the development of the sector. Partial privatisation could be envisaged. However, a complete liberalisation of the system could have adverse consequences on prices. As an example, South Africa accepted investments in the energy sector away from the Electricity Supply Commission, which had a monopoly on the generation of electricity. South Africa being the biggest contributor to African greenhouse gas emissions, allowing private investments could be a gamechanger in a country that has witnessed shortages (load shredding) over the last years.

Speaking of costs, African consumers face some of the highest electricity tariffs in the world. Even so, power suppliers in sub-Saharan Africa are in dire financial straits. The actual power companies can barely keep their head above water, and struggle to merely cover their network maintenance and development costs. It is little surprising that investors and governments remain painfully risk-averse when faced with capital-intensive renewable projects.

In short, Africa’s switch from fossil fuels to renewables –at least on paper- seems like a no-brainer, considering the affordable power costs and abundance of resources. An immediate reform of Africa’s public utility companies therefore speaks for itself, and any delay will only increase the financial and ecological cost. However, the actual implementation of the necessary infrastructure, the dismantling of the deeply entrenched fossil fuel network, and the unravelling of the many political ties is a formidable challenge.

THE INTERNATIONAL COMMUNITY TO FOSTER CHANGE

The good news is that most sub-Saharan countries are not submitted to international obligations for greenhouse-gas reductions, and are entitled to financial support from more developed countries. This support will be most necessary: Africa’s adaptation to climate change is lagging due to a lack of know-how, technological solutions and financial support. As these matters currently do not feature highly on Africa’s local political agendas that lack a common vision on them, the international community could be a vector of change. The COP 21 in Paris promised USD 100 billion per year to assist developing countries in their climate efforts. This commitment will be further reviewed during the upcoming COP 26. However, the last G7 and G20 summits bode poorly for Africa’s future reliance on climate support funds. The continuation of these support funds is of critical importance. In fact, the African Development Bank estimates that the continent will require about USD 715 billion to meet the objectives of the UNFCCC (United Nations Framework Convention on climate change) and the Paris Agreement by 2030.

This is where we notice a small silver lining around an otherwise stormy cloud: As of today, most African nations have signed the Paris Agreement, solidifying their commitment to a reduction in carbon emissions, and an increase in renewable energy capabilities. Countries like Morocco, Senegal, South Africa and Kenya have already shown their commitment to these goals. Kenya in particular stands far above its peers on the issue of renewable energy, even rivalling some of the most committed ecological countries in the West: Nearly 50% of Kenya’s production comes from renewables (excluding hydro energy) and its dependence on fossil fuels, particularly coal and oil, barely reached 13% in 2015.

The United Nations projects that the Sub-Saharan population will almost double by 2050, reaching nearly 2.1 billion inhabitants. This upcoming boom adds further urgency to Africa’s energy crisis. As its population continues to increase and its industry expands, it is key for Africa’s future leaders to understand and implement a clear and united path to sustainable growth.

Hidden deep within the entangled web of Africa’s many contradictions lie the seeds of a sustainable future. For now, investors are left to wonder what it will take to make this continent bloom. Perhaps the upcoming COP 27, which will take place in Africa, can shed more light on this issue…But will the climate emergency wait until then?

¹This article is based on several articles from “ HOPES AND REALITIES: A GREEN RECOVERY FOR AFRICA? » published by Istituto per gli studi di politica internazionale (ISPI)
²Source: Istituto per gli studi di politica internazionale (ISPI), How climate change affects Africa, Ruben David, 25.06.2021
³Source: When the Sun Shines, G. Schwerhoff and M. Sy, Finance and development, March 2020

DO YOU WANT TO KNOW MORE ABOUT OUR EXPERTISE?

dpamfunds.com

dpam@degroofpetercam.com

DPAM Blog

CLIMATE AND AFRICA: A CONTINENT OF PARADOXES