ENERGY AND POVERTY IN SUB-SAHARAN AFRICAN ECONOMIES: SUPPLY SIDE ISSUES

byAkin Iwayemi

Department of EconomicsUniversity of Ibadan

Ibadanakiniwayemi@hotmail.com

1. INTRODUCTION

Sub-Sahara African (SSA) economies, with the exception of South Africa, Botswana and Mauritius, are characterized by low income and energy consumption per capita among other human development indicators.1 This unsatisfactory condition despite the region’s substantial human and natural resources has generated extensive discussions.2 A key question and the subject of much research is why most SSA countries are poor, partly captured by low comparative income and energy indicators, when they should be rich? Paradoxically, low income and energy poor Africa currently finds itself entangled in another major global economic and energy development largely defined by higher energy and food price trends3. The coincidence of higher world energy and food prices has significantly eroded the recent hard-earned economic and social gains of recent economic and social reforms in the region, and exacerbated the fragile economic and energy conditions in the region. Eliminating the income and the related energy poverty conditions has arguably posed enduring economic and political challenges for SSA countries.

There is substantial evidence that, expanded energy access, propelled by relatively inexpensive energy supply played a significant role in the large gains in productivity and rapid economic growth and poverty reduction witnessed in the world economy in the last century4. However, the era of inexpensive energy is gone caused by oil market developments of the post 1970 period. In spite of this development, increased supply and use of energy services are still regarded as an integral part of the development process. In addition, a strong correlation between energy consumption per capita on the one hand and economic growth and living standards on the other used to be conventional wisdom.5 Though correlation does not imply causality, it is widely recognized that significant expansion in supply and access to adequate and reliable energy services is fundamental to the quest of SSA economies to achieve rapid and sustained economic growth, significant poverty (income) reduction, noticeable improvement in living standards and sustainable development, as embodied in the Millennium Development Goals (MDG’s). Successful and widespread adoption of appropriate mechanized technologies that should underpin the significant increase in productivity growth that small scale industries and the informal sector need to generate large output growth to minimize income and energy poverty is contingent on expanded access to adequate and reliable energy supply. Notably, small scale industries and the informal sector

1 See UNDP (2006) World Bank (2006)2 See Collier and Gunning (1999) and Easterly and Levine (1997) for more discussion on this issue.3 See Fosu (2002).

activities provide livelihoods for the bulk of the population, and dynamic output and income changes in these sectors will impact positively poverty in the region.

The relatively fragile state of economic and social conditions in SSA, the world’s poorest region that is just recovering from almost two decades of poor economic performance and deepening poverty, provides an important perspective on the energy and poverty problem, the subject matter of this paper. Against this background, the marked and sustained rise in world market prices of energy and food products and the need to fast-track sustainable human development in the region in the context of MDG, the debate on Africa’s energy and poverty situation is bound to intensify. The dramatic increases in world energy market prices since 1999 have made Africa’s drive to achieve affordable and expanded access to energy and sustainable development as embodied in the MDG more difficult. For example, higher energy prices have pushed refined petroleum products beyond the reach of hundreds of millions of low income households in the region thereby constituting an important obstacle to significant improvement in living standards and economic wellbeing. In no other regions of the world are the adverse effects of higher world energy prices on domestic energy supply, access, economic growth and sustainable development more severe. Given the low human development indicators that characterize the SSA region, the adverse impact of higher energy prices on economic growth, improved living standards and economic wellbeing is self-evident. Poor access to modern energy services constitutes a major constraint on the exploitation of economic opportunities, and consequently sustained economic growth and achievement of higher living standards, in most African countries.

The weak though steadily improving economic conditions in most SSA countries in recent years implies that the region has limited degrees of freedom in taking offsetting actions to mitigate the impact of higher energy prices. In addition, there are the additional challenges posed by the requirements of economic globalization for the poor in the region. SSA energy supply-demand outlook and socio-economic overall development prospects present significant policy challenges, given the current low level of regional energy consumption by global development standards. For most African countries, whose population is largely impoverished with limited access to adequate quantity and quality of modern energy services, the issue of increased supply and expanded access assumes great urgency in the context of the MDG’s.6 Against this background, the response of Africa’s development partners to the challenges posed by the region’s low development and energy indicators is important in achieving a marked reduction in poverty and a noticeable increase in the well being of the poor who constitute the majority of the population. Clearly, NEPAD’s key objectives of rapid and sustainable growth and development and elimination of extreme poverty in Africa will remain a mirage until the problem of energy access is solved. The nature and content of the responses to the policy challenges will largely shape the energy and economic future of Africa.

Accordingly the current poor energy and income conditions in SSA raise several questions in Africa’s quest for achieving expanded access to affordable energy in Africa. Among these are: What do we know and what have we learnt about patterns, trend and characteristics of energy supply and demand in SSA? Can Africa achieve the objective of expanded energy supply and access elimination of duality in the energy economy which should drive its sustainable energy and development future? How can supply capacity be increased in the context of sustainable energy and human development future? What are the technical, financial, manpower challenges to a reliable and adequate energy supply to meet Africa’s energy needs for economic

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growth and development? What are the policy and institutional requirements for overcoming the persistent energy and income poverty and the establishment of efficient and sustainable energy supply?

This paper seeks to illuminate some of the issues embodied in these questions albeit in a generalized manner given its limited scope, primarily to highlight the key supply side issues in the design and implementation of coherent policy reforms and programmes for a viable energy industry. SSA remains one of the regions whose energy problems have been grossly under-researched. In addressing this research gap, this paper proceeds as follows. First is a brief review of the energy, economic and social context of the problem with focus on appraising the energy and economic growth and poverty trends, patterns and characteristics in Africa. This is followed by a brief discussion of some of the key issues, challenges and constraints to expanded supply in the region’s quest for sustainable exploitation and utilization of SSA’s energy resources and economic development. Situating Africa’s non-renewable and renewable energy exploitation in the context of sustainable energy future and the MDG goals is particularly important for a better and more precise appreciation of the challenges that confront policy makers, sector operators and other stakeholders. Finally, the paper discusses an action plan for achieving expanded energy supply. The degree of success of the strategies adopted will determine the extent to which Africa will share in the gains from increasing material prosperity associated with globalization, and more importantly, achieve the Millennium Development Goals.

2. Background to the Problem

The discussion in this section will highlight SSA’s energy (with focus on oil and gas) dependence and vulnerabilities in the context of its economic and social conditions. In addition, it seeks to provide a framework for a better appreciation and understanding of the magnitude and complexity of Africa’s energy problems in the context of Millennium Development Goals.

2.1 The Nature and Character of Africa’s Energy and Development Problems

The socio-economic context of the problem is highlight in Table 1. The poor development indicators such as per capita income, life expectancy, and mortality rate evident in the data is compelling. This is the context of SSA’s comparative energy poverty which is the subject of the following discussion.

Aggregate primary energy consumption in Africa in 1965 was 58.7 million metric tonnes of oil equivalent. This grew at an average annual rate of 4.7% to reach 73.7 million metric tonnes of oil equivalent in 1970. By 1980, energy consumption had almost doubled to reach 141.5 million metric tonnes of oil equivalent, representing an annual growth rate of almost 8%. In the 1990s consumption of commercial energy decelerated to 2.5%. In 2003 and 2004 growth of over 4% was experienced. However, this was followed in 2005 by a sharp decline in growth to 1.5%. In comparison, the increase in primary energy consumption in China was impressive at 16.2% and 15.9% in 2003 and 2004 respectively. There was a slowdown in China’s energy consumption to 9.2% in 2005. Even then, this was about six times more than the increase in the Africa region. The global consumption growth of 3.1% between 2000 and 2005 was propelled by China’s consumption growth of 10.8%. Africa’s energy consumption grew at the global rate while that for Asia was 6.6%. In the European Union and OECD there was a marginal consumption growth of 1%.

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It is conventional wisdom that expanded access to commercial energy is a fundamental factor in achieving sustainable development in any country. The contrasting pattern in energy-economy relationship between African countries and other countries is illustrated in Table 2 which shows data on energy per capita and income per capita for selected developed and developing countries. It is evident that African countries feature mostly at the lower end of the ladder. They are characterized by low energy and income per capita. The low energy consumption-economy relationship in African countries by global development standards reveals some dimensions of the scope of the quantum increase in oil and gas consumption per capita required to catch-up with the newly industrializing economies of Asia and Latin America. Achieving vastly improved access to modern energy services on a sustainable basis in the short to medium term is fundamental to sustained and rapid growth in income and a marked increase in the well being of the population.

Table 1: Key Socio-Economic Development Indicators in Africa

Population 2004

Land Area (‘000 sq km)

2004

GNI Per Capita $ 2000-

04

Average Annual Growth Rate

2000-04

Life Expectancy at Birth (years)

2004

Under 5 Mortality Rate (per 1,000)

1996-2004Oil and Gas Exporting CountiesAngola 15.5 1247 930 4.6 41 260Algeria 32.4 995 1,250 0 71 40Cameroon 16 465 810 2.7 46 149.4Cape Verde 0.5 4 1720 40 70 36.4Chad 9.4 1259 250 3.6 44 200Congo, Dem. Rep. 55.9 2267 110 0 44 205Congo ,Rep 3.9 342 760 -0.5 52 108Cote d' lvoire 17.9 318 760 -2.4 46 193.6Egypt,Arab Rep. 72.6 995 1,250 0 70 36Equatorial Guinea 0.5 28 0 43 204Gabon 1.4 258 4,080 0.3 54 91Libya 5.7 1,760 4,400 0 74 20Nigeria 128.7 911 430 2.7 44 196.6Sao Tome and Principe 0.2 1 390 2.3 63 118Sudan 35.5 17 1,660 -0.7 57 91.4Oil and Gas Importing CountriesBenin 8.2 567 4,360 5.7 55 152Botswana 1.8 274 350 0.3 35 116Burkina Faso 12.8 26 90 0 48 192Burundi 7.3 465 810 2.7 44 190Central Africa Republic 4 623 310 0.3 39 193Comoros 0.6 2 560 -0.1 63 70Djibouti 0.8 23 0 53 125.6Eritrea 4.2 1,000 110 1.3 54 82Ethiopia 70 258 4,080 0.3 42 166.4Gambia 1.5 10 280 0.8 56 122Ghana 21.7 228 380 2.4 57 112Guinea 9.2 246 160 1 54 155Guinea Bissau 1.5 28 160 3.8 45 203Kenya 33.5 569 480 0.3 48 119.5Lesotho 1.8 30 730 1.9 36 112.2Liberia 3.2 96 120 -2.8 42 235Madagascar 18.1 582 290 -1.5 56 122.6

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Population 2004

Land Area (‘000 sq km)

2004

GNI Per Capita $ 2000-

04

Average Annual Growth Rate

2000-04

Life Expectancy at Birth (years)

2004

Under 5 Mortality Rate (per 1,000)

1996-2004Malawi 12.6 94 160 -0.3 40 175.2Mali 13.1 1,220 330 2.3 48 219Mauritania 3 1,025 530 4 53 125Mauritius 1.2 2 4,640 2.9 73 15.2Morocco 29.8 446 1,570 3 70 43Mozambique 19.4 784 270 6.2 42 151.6Namibia 2 823 2,380 3.2 47 63.4Rwanda 8.9 25 210 0.3 44 203Senegal 11.4 193 630 1.6 56 136.6Seychelles 0.1 0 8,190 -2.3 13.5Sierra Leone 5.3 72 210 5.3 41 282.8Somalia 8 627 0 47 67South Africa 45.5 1,214 3,630 2.2 45 67Swaziland 1.1 17 1660 -0.7 42 126Tanzania 37.6 884 320 4.6 46 126Togo 6 54 310 -0.7 55 139.6Tunisia 9.9 155 2,650 3.4 73 25Uganda 27.8 197 250 1.8 49 137.8Zambia 11.5 743 400 0.3 49 137.8Zimbabwe 12.9 6,736 1,784 0 37 129Sub-Saharan African 726.4 23.619 600 2 46 168.2North Africa 160.5 2,382 2,270 3 71 32.8All Africa 876.9 29,358 803 1.9 50 137.6

Source: World Bank African Development Indicators 2005.

Table 2: Per Capita Energy and Income for Selected Developed and African Countries

CountryPer capita

Energy 2004Per Capita Gross

National Income 2005Norway 424.0 59590United States 342.7 43740Sweden 257.9 41060Japan 177.7 38980United Kingdom 166.5 37600Netherlands 251.4 36620France 186.1 34810Germany 178.3 34580Italy 142.3 30010Hong Kong 159.1 27670Singapore 444.6 27490Kuwait 470.0 24040United Arab Emirates 925.4 23770Korea, South 185.5 15830Saudi Arabia 236.5 11700Seychelles 147.7 8290Libya 133.0 5530Mauritius 45.0 5260Botswana 32.6 5180Gabon 29.4 5010South Africa 115.2 4960

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CountryPer capita

Energy 2004Per Capita Gross

National Income 2005Malaysia 107.1 4960Namibia 27.5 2990Tunisia 33.4 2890

CountryPer capita

Energy 2004Per Capita Gross

National Income 2005Algeria 38.6 2730Swaziland 18.2 2280Cape Verde 5.5 1870China 45.9 1740Morocco 13.8 1730Angola 12.2 1350Indonesia 19.7 1280Egypt 33.1 1250Djibouti 55.8 1020Cameroon 5.2 1010Lesotho 2.7 960Congo Rep 4.9 950Cote d'Ivoire 6.5 840India 14.5 720Senegal 5.8 710Sudan 3.8 640Comoros 2.3 640Mauritania 16.9 560Nigeria 8.1 560Kenya 5.3 530Benin 4.0 510Zambia 11.1 490Ghana 6.6 450Burkina Faso 1.4 400Chad 0.3 400Sao Tome and Principe 8.1 390Mali 1.0 380Guinea 2.4 370Togo 6.5 350Central African Republic 1.4 350Zimbabwe 16.9 340Tanzania 2.0 340Mozambique 7.3 310Gambia, The 2.6 290Madagascar 2.1 290Uganda 1.5 280Niger 1.4 240Rwanda 1.5 230Eritrea 2.5 220Sierra Leone 2.5 220Guinea-Bissau 3.8 180Malawi 2.0 160Ethiopia 1.2 160Liberia 2.6 130Congo (Kinshasa) 1.5 120Burundi 1.0 100

Source: Energy Information Administration for Energy: and World Bank, World Development Indicators for income.

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Table 3: World Per Capita Total Primary Energy Consumption,1980-2004 (Million Btu)

1980 1985 1990 1995 2000 2004Algeria 42.6 47.6 48.5 46.4 40.7 38.6Angola 8.6 9.6 9.6 9.3 8.7 12.2Benin 1.9 2.0 1.9 2.5 3.7 4.0Botswana 16.9 17.7 26.1 29.2 34.6 32.6Burkina Faso 1.0 0.8 0.8 1.1 1.5 1.4Burundi 0.4 0.6 1.0 1.1 1.0 1.0Cameroon 5.4 6.3 6.6 5.6 5.3 5.2Cape Verde 15.3 7.4 4.2 4.4 7.7 5.5Central African Republic 1.2 1.3 1.4 1.4 1.4 1.4Chad 0.9 0.4 0.8 0.3 0.3 0.3Comoros 1.9 1.5 2.8 2.4 2.3 2.3Congo (Brazzaville) 7.1 8.9 8.5 5.5 4.2 4.9Congo (Kinshasa) 3.1 2.9 2.7 2.4 1.8 1.5Cote d'Ivoire (Ivory Coast) 8.8 7.7 6.5 5.8 8.5 6.5Djibouti 79.0 36.5 63.4 58.9 57.1 55.8Egypt 16.6 24.2 25.3 25.0 28.5 33.1Equatorial Guinea 3.3 3.7 4.7 4.4 9.1 12.1Eritrea NA NA NA 3.9 2.0 2.5Ethiopia 0.8 1.1 1.1 0.9 1.0 1.2Gabon 39.8 38.1 46.1 39.1 29.8 29.4Gambia, The 3.3 3.1 2.8 2.7 2.7 2.6Ghana 7.8 4.4 6.5 6.6 7.3 6.6Guinea 3.0 2.3 3.5 2.4 2.5 2.4Guinea-Bissau 1.6 2.0 3.9 3.8 3.8 3.8Kenya 6.0 5.3 5.4 5.2 4.8 5.3Lesotho 1.6 1.4 1.7 1.9 2.9 2.7Liberia 17.2 12.3 3.8 2.7 2.3 2.6Libya 129.7 114.6 123.0 118.7 122.9 133.0Madagascar 2.2 2.1 1.5 1.6 2.0 2.1Malawi 1.9 1.6 1.6 1.9 1.9 2.0Mali 1.0 1.1 1.0 1.1 1.0 1.0Mauritania 5.9 7.4 6.8 20.4 18.7 16.9Mauritius 14.2 14.1 25.8 31.4 41.6 45.0Morocco 11.6 10.3 12.5 13.5 14.8 13.8Mozambique 14.5 2.5 1.6 1.4 5.2 7.3Namibia NA NA 23.3 19.2 21.9 27.5Niger 1.5 1.6 1.8 1.7 1.4 1.4Nigeria 6.2 7.7 7.9 8.2 7.1 8.1Reunion 23.6 30.9 38.7 49.0 58.2 57.5Rwanda 0.7 1.9 1.7 2.0 1.6 1.5Saint Helena NA 5.4 13.3 12.7 42.9 27.7Sao Tome and Principe 5.8 5.4 8.8 8.6 8.6 8.1Senegal 6.4 6.1 4.5 6.1 6.1 5.8Seychelles 47.6 61.8 85.5 94.5 101.9 147.7Sierra Leone 3.2 3.2 3.5 2.8 2.7 2.5Somalia 2.9 2.9 2.1 1.3 1.4 1.2South Africa 90.0 99.2 91.7 98.3 103.3 115.2Sudan 2.7 2.6 2.4 2.2 2.9 3.8Swaziland 16.5 14.9 13.8 15.6 18.8 18.2

1980 1985 1990 1995 2000 2004

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Tanzania 2.1 2.0 2.2 1.7 1.8 2.0Togo 3.9 3.7 2.9 3.1 4.9 6.5Tunisia 19.9 23.2 24.6 23.6 31.4 33.4Uganda 1.3 1.0 1.1 1.2 1.4 1.5Zambia 23.3 19.2 14.0 11.3 9.5 11.1Zimbabwe 21.6 18.0 21.6 17.6 17.9 16.9Africa 14.4 15.6 15.1 15.0 15.0 15.7OTHER COUNTRIES/REGIONCanada 394.4 392.9 400.7 412.4 417.2 418.4Mexico 54.6 58.6 59.4 58.4 63.3 63.0United States 343.9 321.1 338.5 342.1 350.6 342.7North America 286.0 267.4 277.9 279.7 286.1 280.2Argentina 57.8 57.4 57.5 65.4 71.1 71.2Brazil 32.8 33.7 38.3 43.1 48.9 49.3Ecuador 23.5 24.3 24.5 26.9 27.5 29.0Venezuela 107.6 102.5 107.9 114.5 117.5 115.3Central & South America 39.6 38.2 40.8 45.3 49.8 50.8France 156.7 152.3 161.1 173.4 183.0 186.1Germany NA NA NA 175.2 173.5 178.3Italy 108.8 106.7 119.3 123.6 132.2 142.3Netherlands 226.0 207.8 221.5 231.3 238.5 251.4Norway 328.2 373.2 403.9 409.6 435.2 424.2Sweden 249.4 259.8 254.3 251.8 246.5 257.9Switzerland 177.7 174.7 171.5 172.0 177.2 172.0United Kingdom 157.0 154.3 161.4 161.7 162.6 166.5Europe 135.7 135.1 137.3 134.8 140.8 146.5Russia NA NA NA 188.2 187.1 208.8Eurasia 175.7 200.4 211.2 145.7 140.4 157.2Iran 40.0 49.5 54.3 62.0 76.2 95.5Iraq 39.6 36.1 50.5 57.7 47.7 47.5Kuwait 351.1 232.4 208.2 364.5 460.1 470.0Saudi Arabia 166.3 203.3 208.0 191.3 209.2 236.5United Arab Emirates 267.2 507.6 629.4 737.3 757.9 925.4Middle East 62.3 75.2 83.8 91.8 102.7 116.0Australia 188.8 200.0 218.4 223.6 252.2 264.5China 17.8 20.8 23.5 28.9 30.6 45.9India 6.1 7.7 9.5 12.5 13.5 14.5Indonesia 7.1 9.4 11.8 15.8 18.2 19.7Japan 130.3 130.1 148.6 165.2 177.2 177.7Korea, South 44.0 54.7 88.9 144.0 167.3 185.5Malaysia 30.4 45.0 55.9 74.8 85.9 107.1Singapore 183.0 181.1 262.7 333.7 376.0 444.6Taiwan 62.6 75.9 100.6 134.4 170.1 193.3Asia & Oceania 19.9 21.8 25.0 29.9 32.0 38.5World Total 63.7 63.6 65.8 64.2 65.7 70.1

Source: Energy Information Administration International Energy Annual 2004

2.2 African Oil Production and Consumption in Global Perspective

The trends in African oil production and consumption in comparative perspective are shown in Figure 1 and Figure 2. The generally upward trend in Africa’s share in global production is evident in the graph. Oil consumption in Africa was 531

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thousand barrels per day in 1965 compared to 3.25 million barrels per day in Asia, almost 12 million barrels per day in Europe and 13 million barrels per day in North America. Oil consumption tripled to 1.7 million barrels per day in 1985. By 2005 consumption level was about 2.8 million barrels per day. Oil consumption in North America was nine times that of Africa in 2005. Africa’s share of global consumption in 2005 was only 3.4% compared to production share of about 12%. Africa’s share in global production has been between 10 and 12 per cent. This compares disappointingly with 3 percent of global oil consumption in the past decade. In fact, prior to the 1990s the share of Africa in world oil consumption was less than 3 percent.

Source: BP Statistical Review of World Energy 2006

Source: BP Statistical Review of World Energy 2006

Most African countries are net energy importers. For most of them, the sharp increase in the cost of energy imports coupled with the increasingly scarce sources of traditional energy due to rapid depletion have created what can be called a double energy squeeze. The severe impact has eroded some of the gains in economic

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reforms in recent years and exerted strong pressure on macroeconomic stability and economic growth.

2.3 African Gas in Global Perspectives

Total gas production in Africa in 2005 was 163 billion cubic metres, 43% more than production level in 1990. Africa’s role in global gas supply has become more significant in recent years. Africa’s gas producers have not grown in size and number as the case of oil because of the more expensive nature of gas investment through pipeline or liquefaction and shipping through LNG. There is substantial regional disparity in geographical distribution of the production driven by location of reserves. West Africa (Nigeria) dominates SSA gas production.

Total gas consumption in Africa in 2005 was 6.9 billion cubic metres, 86% more than the consumption level in 1990. Natural gas consumption is low in Africa and the region’s role in global gas consumption is minimal. However there are good prospects for increased regional consumption of gas as illustrated by the West African Gas Pipeline project. The expensive nature of investment in domestic and regional gas infrastructure through pipeline is the major constraint on more significant gas consumption. More gas to power projects is the key to greater use of gas in Africa region. There is wide regional disparity in geographical distribution of the gas consumption because demand is largely driven by gas infrastructure and location of reserves in Africa.

2.4 Electricity Consumption

Electricity consumption and production data reveal another dimension of SSA energy conditions. Tables 4 and 5 present useful information to highlight the low level of energy consumption in SSA. The low level of electricity consumption per capita is an indicator of energy poverty in the region.

Table 4: Electric Power Consumption (Kwh Per Capita) in African Countries 1970 to 2001

Country 1970 1975 1980 1985 1990 1995 2000 2001Algeria 115.25 182.37 288.41 405.00 492.53 526.33 637.72 662.16Angola 91.02 64.73 64.87 65.80 64.65 61.81 100.96 108.60Benin 11.56 20.52 34.29 33.05 38.90 48.13 68.12 76.01Botswana .. .. .. .. .. .. .. ..Burkina Faso .. .. .. .. .. .. .. ..Burundi .. .. .. .. .. .. .. ..Cameroon 149.91 163.31 195.65 209.25 194.31 168.23 170.34 160.88Cape Verde .. .. .. .. .. .. .. ..Central African Republic .. .. .. .. .. .. .. ..Chad .. .. .. .. .. .. .. ..Comoros .. .. .. .. .. .. .. ..Congo, Dem. Rep. 172.35 146.56 127.69 139.17 58.14 44.45 46.57 43.16Congo, Rep. 53.52 65.31 51.03 162.39 150.54 114.76 75.15 82.32Cote d'Ivoire .. .. .. .. .. .. .. ..Djibouti .. .. .. .. .. .. .. ..Egypt, Arab Rep. 204.71 274.65 414.32 597.79 707.05 781.20 1024.15 1072.51Equatorial Guinea .. .. .. .. .. .. .. ..Eritrea .. .. .. .. .. .. .. ..

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Country 1970 1975 1980 1985 1990 1995 2000 2001Ethiopia 17.84 15.10 17.00 18.00 17.66 22.29 22.03 25.32Gabon 167.78 430.54 750.34 1004.82 789.78 752.60 790.45 804.31Gambia, The .. .. .. .. .. .. .. ..Ghana 307.67 382.41 403.43 245.01 303.02 355.97 340.72 297.21Guinea .. .. .. .. .. .. .. ..Guinea-Bissau .. .. .. .. .. .. .. ..Kenya 65.96 80.81 96.36 104.25 117.47 128.09 116.77 120.31Lesotho .. .. .. .. .. .. .. ..Liberia .. .. .. .. .. .. .. ..Libya 164.37 596.91 1058.29 1209.79 1703.71 1834.87 2300.01 2250.27Madagascar .. .. .. .. .. .. .. ..Malawi .. .. .. .. .. .. .. ..Mali .. .. .. .. .. .. .. ..Mauritania .. .. .. .. .. .. .. ..Mauritius .. .. .. .. .. .. .. ..Morocco 121.29 163.91 233.00 288.93 355.41 408.45 461.16 475.19Mozambique 47.17 57.05 33.49 33.05 48.34 40.73 266.06 341.19Namibia .. .. .. .. .. .. .. ..Niger .. .. .. .. .. .. .. ..Nigeria 28.99 51.39 47.73 86.04 83.77 79.06 69.49 68.17Rwanda .. .. .. .. .. .. .. ..Sao Tome and Principe .. .. .. .. .. .. .. ..Senegal 69.65 82.51 99.71 95.63 98.45 108.09 132.68 135.11Seychelles .. .. .. .. .. .. .. ..Sierra Leone .. .. .. .. .. .. .. ..Somalia .. .. .. .. .. .. .. ..South Africa 2062.04 2724.78 3288.59 3511.78 3618.20 3715.03 3774.51 3860.14Sudan 23.67 36.47 31.60 50.84 48.87 48.45 67.00 74.17Swaziland .. .. .. .. .. .. .. ..Tanzania 30.05 35.07 37.75 40.45 54.38 59.99 58.49 62.14Togo .. .. .. .. .. .. .. ..Tunisia 145.54 227.43 398.46 502.23 617.32 744.83 992.81 1018.91Uganda .. .. .. .. .. .. .. ..Zambia 1015.84 1160.62 1053.52 895.95 730.50 678.25 537.04 583.05Zimbabwe 662.29 1034.56 965.16 893.97 789.86 858.78 809.97 831.40

Source: World Bank WDI

Table 5: Electric Power Transmission and Distribution Losses (% of Output) in African Countries 1970 - 2001

Country 1970 1975 1980 1985 1990 1995 2000 2001Algeria 10.7 11.1 11.7 14.3 15.1 18.5 16.3 15.7Angola 25.1 25.0 25.0 25.1 28.6 28.4 14.5 14.5Benin .. 25.0 .. .. .. .. .. ..Botswana .. .. .. .. .. .. .. ..Burkina Faso .. .. .. .. .. .. .. ..Burundi .. .. .. .. .. .. .. ..Cameroon 5.2 4.1 7.6 12.6 13.9 20.2 25.7 23.1Cape Verde .. .. .. .. .. .. .. ..Central African Republic .. .. .. .. .. .. .. ..Chad .. .. .. .. .. .. .. ..Comoros .. .. .. .. .. .. .. ..

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Country 1970 1975 1980 1985 1990 1995 2000 2001Congo, Dem. Rep. 5.1 5.9 12.7 11.1 13.7 3.0 3.8 3.5Congo, Rep. 4.5 6.1 31.0 9.6 18.8 26.9 65.3 69.5Cote d'Ivoire .. .. .. .. .. .. .. ..Djibouti .. .. .. .. .. .. .. ..Egypt, Arab Rep. 9.8 11.5 12.9 10.7 10.1 12.5 13.4 13.4Equatorial Guinea .. .. .. .. .. .. .. ..Eritrea .. .. .. .. .. .. .. ..Ethiopia 6.9 7.8 5.4 8.7 10.0 10.0 10.0 10.0Gabon 1.8 1.2 0.8 1.1 10.2 22.2 17.8 17.8Gambia, The .. .. .. .. .. .. .. ..Ghana 6.1 3.5 4.7 7.7 8.6 1.0 14.7 24.0Guinea .. .. .. .. .. .. .. ..Guinea-Bissau .. .. .. .. .. .. .. ..Kenya 17.9 14.7 14.6 14.5 15.7 16.7 21.3 21.0Lesotho .. .. .. .. .. .. .. ..Liberia .. .. .. .. .. .. .. ..Libya 33.1 33.0 35.0 30.5 28.4 25.5 20.1 20.1Madagascar .. .. .. .. .. .. .. ..Malawi .. .. .. .. .. .. .. ..Mali .. .. .. .. .. .. .. ..Mauritania .. .. .. .. .. .. .. ..Mauritius .. .. .. .. .. .. .. ..Morocco 10.6 9.8 11.1 9.1 5.0 3.8 6.4 6.5Mozambique 29.7 38.8 78.4 19.0 6.4 72.1 3.0 8.3Namibia .. .. .. .. .. .. .. ..Niger .. .. .. .. .. .. .. ..Nigeria 13.2 18.1 49.3 27.6 37.6 41.5 38.7 37.8Rwanda .. .. .. .. .. .. .. ..Sao Tome and Principe .. .. .. .. .. .. .. ..Senegal 6.1 7.6 9.5 10.7 13.9 15.1 17.3 7.4Seychelles .. .. .. .. .. .. .. ..Sierra Leone .. .. .. .. .. .. .. ..Somalia .. .. .. .. .. .. .. ..South Africa 7.1 7.2 7.1 4.2 6.5 7.7 7.7 7.8Sudan 24.6 12.8 20.1 10.5 23.9 31.5 15.3 15.3Swaziland .. .. .. .. .. .. .. ..Tanzania 13.6 13.7 12.1 20.7 21.6 8.0 25.0 23.5Togo .. .. .. .. .. .. .. ..Tunisia 13.3 13.2 12.6 11.8 10.4 10.1 11.1 10.6Uganda .. .. .. .. .. .. .. ..Zambia 19.3 4.8 5.5 5.0 3.7 1.9 2.9 2.9Zimbabwe 6.1 6.2 10.3 9.5 7.1 10.3 21.3 21.4

Source: World Bank WDI

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2.5 Dimensions of Energy Problem in Africa: Duality in the Energy Economy

Energy access is widely recognized as a key factor in achieving sustainable human development and significant improvement in human well-being across the globe. Historically, this was the case for the current developed countries during their growth process. In the discussion that follows we shall use access to electricity to illustrate the scope of Africa’s energy access problem. The relatively low level is clear when compared with other parts of the world. Even in SSA countries with relatively higher level of economic development also consume more electricity per capita.

Most African countries exhibit poor access to electricity. Access is less than 25% for the total population for the period 2000 to 2004. The countries in North Africa region have very high access rate. In fact, these countries have almost full access in both urban and rural areas. The problem of access is more acute in rural areas in the other parts of Africa Figures 5.1 to 5.4. Yet the bulk of the population live in the rural areas and the problem of poverty is often more acute in the rural areas. Notably, wide access to electricity is fundamental to sustainable development and poverty reduction in the region.

Figure 5.1: Access to Electricity in African Countries by Total Population

Access to Electricity Total % of Total population 2000-2004

0

20

40

60

80

100

120

Access to Electricity%

Source: World Bank: African Development Indicator 2006

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Figure 5.2: Urban Access to Electricity in African Countries

Urban Access % of Urban Population and Rural Access % of Rural population 2000-2004

0

20

40

60

80

100

120

Urban Access% Rural Access%

Source: World Bank: African Development Indicator 2006

Figure 5.3: Rural Access to Electricity in African Countries

Rural Access %of Total Rural population 2000-2004

0

20

40

60

80

100

120

Rural Access% Share of rural population

Source: World Bank: African Development Indicator 2006

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Figure 5.4: Access to Electricity in African Countries by all Groups

Access to Electricity (2000-2004) %

0

20

40

60

80

100

120

Access to Electricity% Urban Access% Rural Access%

Source: World Bank: African Development Indicator 2006

2.5 Energy Import Dependence in African countries

The degree of energy import dependence in African economies in recent years is shown in Table 6. Although the ratio of oil imports to total imports ranges from less than 1 in a few countries, to over 25% in several other countries, the information reveals substantial dependence on oil imports in many countries.

Table 7 shows African countries in terms of their share in oil imported into the region. Although, most African countries are net oil importers, South Africa is the leading oil importer in the region. She imports almost one in every four barrels of oil imported in the region. Its level of economic development is a major factor in this occurrence.

Table 6: Energy Imports (% of Commercial Energy Use in African Countries 1970 to 2001

YEAR 1970 1975 1980 1985 1990 1995 2000 2001

Algeria-

1034.7 -778.1-

415.8-

303.9 -326.1 -368.1 -390.9 -387.2

Angola -132.1 -170.0-

118.4-

237.0 -370.9 -465.2 -413.5 -484.8Benin 9.7 8.5 -6.7 -12.9 -5.9 11.5 29.1 30.7Botswana .. .. .. .. .. .. .. ..Burkina Faso .. .. .. .. .. .. .. ..Burundi .. .. .. .. .. .. .. ..

Cameroon 10.9 11.3-

107.5-

171.6 -127.2 -105.2 -93.7 -82.7Cape Verde .. .. .. .. .. .. .. ..Central African Republic .. .. .. .. .. .. .. ..Chad .. .. .. .. .. .. .. ..Comoros .. .. .. .. .. .. .. ..Congo, Dem. Rep. 12.4 -5.0 0.7 -6.2 -0.6 -4.1 -5.4 -4.8Congo, Rep. 25.6 -232.5 - - -736.2 -1328.7 -1294.7 -1330.0

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YEAR 1970 1975 1980 1985 1990 1995 2000 2001448.7 573.9

Cote d'Ivoire 34.4 39.9 22.1 8.7 23.9 11.4 5.6 0.4Djibouti .. .. .. .. .. .. .. ..

Egypt, Arab Rep. -108.8 -59.9-

103.4 -75.2 -71.0 -55.9 -17.9 -14.1Equatorial Guinea .. .. .. .. .. .. .. ..Eritrea .. .. .. .. .. .. .. ..Ethiopia 5.8 4.6 5.3 5.4 6.4 6.2 7.4 7.5

Gabon -498.1 -838.6-

433.0-

536.8 -1151.5 -1225.9 -788.4 -698.1Gambia, The .. .. .. .. .. .. .. ..Ghana 23.1 21.4 20.4 16.6 15.8 19.9 26.7 28.4Guinea .. .. .. .. .. .. .. ..Guinea-Bissau .. .. .. .. .. .. .. ..Kenya 17.3 18.9 18.6 17.9 16.7 16.0 18.4 16.0Lesotho .. .. .. .. .. .. .. ..Liberia .. .. .. .. .. .. .. ..

Libya-

8184.0-

2813.4-

728.7-

446.8 -492.2 -364.1 -297.1 -271.7Madagascar .. .. .. .. .. .. .. ..Malawi .. .. .. .. .. .. .. ..Mali .. .. .. .. .. .. .. ..Mauritania .. .. .. .. .. .. .. ..Mauritius .. .. .. .. .. .. .. ..Morocco 74.6 78.3 82.9 84.1 88.1 90.1 94.5 94.5Mozambique 9.3 4.5 5.8 6.8 4.6 5.6 1.7 0.0Namibia .. .. .. .. 66.6 76.5 74.6 74.7Niger .. .. .. .. .. .. .. ..

Nigeria -208.4 -226.6-

115.0-

104.8 -111.1 -122.7 -126.2 -101.4Rwanda .. .. .. .. .. .. .. ..Sao Tome and Principe .. .. .. .. .. .. .. ..Senegal 38.6 42.0 42.9 41.1 37.5 37.9 44.2 43.4Seychelles .. .. .. .. .. .. .. ..Sierra Leone .. .. .. .. .. .. .. ..Somalia .. .. .. .. .. .. .. ..South Africa 16.7 12.3 -12.3 -24.4 -22.6 -26.6 -31.7 -29.1Sudan 18.5 15.9 15.1 14.9 15.9 10.4 -56.7 -57.8Swaziland .. .. .. .. .. .. .. ..Tanzania 9.7 10.0 8.9 8.0 7.4 8.5 6.6 7.3Togo 18.1 16.0 19.0 20.8 20.3 26.5 27.9 29.8Tunisia -140.4 -71.4 -76.1 -47.5 -24.3 6.1 16.4 16.1Uganda .. .. .. .. .. .. .. ..Zambia 21.4 17.0 10.0 6.9 8.9 7.8 4.0 4.9Zimbabwe 6.9 9.3 14.7 14.4 10.2 16.9 13.7 13.2

Source: World Bank World Development Indicators 2005

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Table 7: Share of Fuel in Merchandise Imports 2000-2004

Angola n.aBenin 17.4Botswana 6.5Burkina Faso 24.4Burundi 16.5Cameroon 17.8Cape Verde 13.1Central African Republic 11Chad n.aComoros 4.1Congo, Dem Rep. n.a.Congo Rep n.a.Cote d'Ivoire 17.1Djibouti n.aEquatorial Guinea n.a.Eritrea n.aEthiopia 12Gabon 3.2Gambia 10.6Ghana 1.6Guinea 21.7Guinea Bissau n.aKenya 24.3Lesotho n.aLiberia n.aMadagascar 23.3Malawi 2.7Mali 21.9Mauritania n.a.Mauritius 13.2Mozambique 11.7Namibia 10.4Niger 16.9Nigeria 16Rwanda 15.6Sao Tome and Principe n.a.Senegal 18.3Seychelles 26.3Sierra Leone 39.7South Africa 14.5Sudan 3.1Swaziland 12.6Tanzania 16.5Togo 23Uganda 10Zambia 11.2Zimbabwe 13.7Algeria 0.9Egypt 8.3Libya 0.7Morocco 16.7Tunisia 10.3Source: World Bank: African Development Indicator 2006.

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2.7 Biomass Energy Use in SSA

The final indicator of energy poverty is share of biomass energy in total energy consumption in the region. It is the highest in the world. There is a strong correlation between the level of economic development and the share of biomass in energy production and demand.

The current energy situation illustrates some dimension of Africa’s effort required to achieve widespread access to adequate and reliable commercial energy at affordable prices for the millions of its low income people. Without vastly improved access to affordable energy services, of which oil and gas constitute the dominant input in providing these services, sustainable development and improved living standards in the Africa region would be difficult to achieve.

Table 8: Biomass Energy Consumption (% of total energy) in African Countries for Selected Years 1970 to 2001

Country 1970 1975 1980 1985 1990 1995 2000 2001Algeria 0.2 0.1 0.1 0.1 0.1 0.2 0.3 0.2Angola 81.2 81.1 77.6 73.2 69.5 71.4 68.4 67.8Benin 90.3 91.5 90.6 89.3 94.1 84.7 70.9 69.3Botswana .. .. .. .. .. .. .. ..Burkina Faso .. .. .. .. .. .. .. ..Burundi .. .. .. .. .. .. .. ..Cameroon 85.8 85.2 78.3 75.3 77.3 79.0 78.8 79.2Cape Verde .. .. .. .. .. .. .. ..Central African Republic .. .. .. .. .. .. .. ..Chad .. .. .. .. .. .. .. ..Comoros .. .. .. .. .. .. .. ..Congo, Dem. Rep. 82.2 83.4 82.7 85.2 85.0 89.0 93.5 93.6Congo, Rep. 71.1 66.6 67.8 65.8 69.5 69.4 61.6 67.3Cote d'Ivoire 65.1 59.2 63.1 65.9 72.4 65.6 65.8 66.0Djibouti .. .. .. .. .. .. .. ..Egypt, Arab Rep. 8.3 6.1 4.5 3.4 3.5 3.2 2.7 2.6Equatorial Guinea .. .. .. .. .. .. .. ..Eritrea .. .. .. .. .. .. .. ..Ethiopia 93.9 95.0 94.4 94.2 93.1 93.1 91.7 91.7Gabon 45.0 43.2 38.6 46.9 60.5 56.5 60.6 61.9Gambia, The .. .. .. .. .. .. .. ..Ghana 68.7 69.0 68.8 75.1 74.6 71.7 66.3 66.4Guinea .. .. .. .. .. .. .. ..Guinea-Bissau .. .. .. .. .. .. .. ..Kenya 82.3 80.5 80.2 78.1 79.4 79.4 77.6 80.1Lesotho .. .. .. .. .. .. .. ..Liberia .. .. .. .. .. .. .. ..Libya 5.8 3.4 1.6 1.2 0.9 0.8 0.8 0.8Madagascar .. .. .. .. .. .. .. ..Malawi .. .. .. .. .. .. .. ..Mali .. .. .. .. .. .. .. ..Mauritania .. .. .. .. .. .. .. ..Mauritius .. .. .. .. .. .. .. ..Morocco 5.2 5.6 5.1 5.4 5.4 4.6 4.1 4.2Mozambique 88.1 90.7 91.7 93.0 94.7 93.7 88.3 86.1

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Country 1970 1975 1980 1985 1990 1995 2000 2001Namibia .. .. .. .. 16.0 16.0 15.2 15.2Niger .. .. .. .. .. .. .. ..Nigeria 93.9 87.4 79.9 81.5 78.2 81.6 79.8 79.1Rwanda .. .. .. .. .. .. .. ..Sao Tome and Principe .. .. .. .. .. .. .. ..Senegal 61.4 58.0 57.1 58.9 62.2 60.7 55.8 56.6Seychelles .. .. .. .. .. .. .. ..Sierra Leone .. .. .. .. .. .. .. ..Somalia .. .. .. .. .. .. .. ..South Africa 10.4 10.3 9.7 9.3 11.1 11.0 11.5 11.2Sudan 81.2 83.4 84.3 84.3 83.3 88.2 83.6 79.8Swaziland .. .. .. .. .. .. .. ..Tanzania 90.0 89.4 90.3 91.0 91.1 89.8 91.5 90.7Togo 81.8 83.9 80.8 79.2 79.7 73.5 72.1 70.2Tunisia 33.0 26.4 21.7 20.9 19.5 17.2 15.2 15.3Uganda .. .. .. .. .. .. .. ..Zambia 64.1 59.7 66.0 71.0 73.7 80.4 81.9 81.3Zimbabwe 55.7 53.1 56.3 54.0 48.0 52.6 57.4 59.0Algeria 4.0 5.4 10.0 15.2 27.7 87.5 104.2 105.7

Source: World Bank, WDI 2005

3 SUSTAINABLE ENERGY AND DEVELOPMENT FUTURE IN AFRICA: SUPPLY SIDE ISSUES

The considerable interest in the provision of adequate, reliable and efficient energy infrastructure services derives from its essential role in achieving rapid economic growth and sustainable development. Arguably, the lack of adequate growth-promoting energy infrastructure systems is one of the major factors explaining the elusive quest for sustained economic growth and prosperity in SSA.

3.1 Policy Issues and Challenges

Figure 6 provides an overview of the interlocking nature and complexity of the issues associated with energy supply in SSA. For the purpose of this discussion we shall categorize the issues and challenges into three sets. Set A denotes complex energy issues that need specialized analysis by experts. Widely acceptable solutions can be found for such issues. Set B encompasses difficult issues where there is wide divergence of objectives and premises on which decisions are made. Set C consists of politically controversial issues. The intersection of Sets A, B and C yields the subset labelled VII, which indicates the complex, difficult and controversial nature of the interaction between politics, economics, law, environment and engineering associated with tackling SSA’s sustainable energy and development questions.

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Figure 6: Interlocking issues in sustainable energy supply in SSA

The scope of the investment problem and enormity of the policy challenges associated with electricity crisis is provided three stylized facts: the current low level of electricity and energy consumption per capita by global development standards; the dismal state of socio-economic conditions in an economy just recovering from almost two decades of poor performance and deepening poverty; and the low human development indicators. Clearly, anything short of energy poverty elimination given that wider access to regular and reliable electricity is a key element of this strategy would be unacceptable. The investment and capacity expansion needed to achieve energy poverty elimination is large. Coping with SSA’s future energy supply challenges involves complex economic, political, technological, institutional and environmental factors that would involve the interactions of the three principal actors involved in the energy markets namely, consumers, producers, investors and the government. But, the scope of this paper limits our discussion to supply issues.

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One of the basic factors in securing the electricity future is the energy mix over the next several decades. Table 9 provides some estimates of reserves of fossil fuel. There are also significant alternative renewable energy resources, consisting of large and small scale hydro, solar, wind, geothermal and bio-fuel potentials. The abundance of primary energy resources compared to the energy needs of the economy and society is incontrovertible. While both energy resources will be used in the future, the continued dominance of fossil fuels supplemented by hydroelectricity is envisaged for the foreseeable future. Coal, hydro, solar, biomass, wind and nuclear energy technologies are alternative electricity generation options under consideration.

Table 9: Energy Resources in Africa

Energy Type Reserves EstimatesCrude oil 117.2 billion barrels

Natural gas 14.08 trillion cubic metres

Coal 50.34 billion metric tons

Source: Source: BP Statistical Review of World Energy 2006

However, developing and deploying cleaner energy should be part of the medium term investment strategy. The focus however should be to progressively adopt cleaner fossil fuels and with increasing focus on renewable energy sources to meet rural electricity demand. Of interest is the intention of some countries in the region to achieve 10% of electricity supply to be derived from renewable resources by 2025. Coal and nuclear energy are also on the options list.

We shall now discuss some of the emerging issues in the design of a strategy to propel SSA to a new energy level in the search for eliminating energy and income poverty.

First, is the shift to a new institutional arrangement where much of modern energy service would be driven by the private sector is apparent in recent reforms. Public provision of electricity service has been an abysmal failure in SSA as evident from the earlier discussion. So, what should be done given the resource endowment, the political, economic, technological, environmental constraints in the region? Two ECOWAS initiatives, the West African Power Pool (WAPP) and West African Gas Pipeline (WAGP) and the South African Power Pool suggest new and attractive investment and supply directions in the region. However, meeting the challenges of providing adequate, reliable and widely accessible energy service involves more than summing up numbers (the mega-watts, barrels, cubic metres and investment figures) and getting other technical issues right.

Second, there is the investment challenge has several dimensions, namely, size, source, plant mix, security of investment and input supply, human resource requirements, investor/ producer incentives e.g. electricity tariff level and structure, regulatory framework and macroeconomic environment. The current level of demand underestimates the true level of interruptions given the high level of suppressed electricity demand. The estimation of potential level and growth in demand must incorporate these factors for greater forecasting accuracy. Based on these factors and the current decay in the energy system grid, the numbers look staggering by

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historical standard. For example generating capacity approaching 6000 GW may be required by 2030 to eliminate current electricity poverty and raise electricity per capita from the current extremely low level. The investment challenge must be appropriately situated in the context of a constrained multi-objective incentive compatible regional optimization problem.

The mobilization of the financial resources to support transforming these natural resources to `energize’ the economy on its path of sustainable human development is a major issue that would pose significant challenge. A dramatic scaling up of investment in energy infrastructure capacity is required in the next three decades. The amount of investment to meet the region’s energy system expansion could exceed US $1 trillion in the next few decades. This financing requirement will be huge by regional standards. Besides, the capital requirement must be situated within the context of the global capital market competitiveness and risks in the industry. This investment is enormous given the antecedent of the industry in the past several decades. While the investment scale is daunting it is not insurmountable. The right institutional framework, policy consistency, appropriate incentive structure and security of investment and input would guarantee the flow of required investment. The example of the telecommunication industry provides strong support for this position. The success achieved in turning around moribund public telecommunication systems to a vibrant industry with one of the fastest system growth rates in the world has been due to the combination of right institutional framework, policy consistency and appropriate incentive structure. Both domestic and foreign investors and producers have important roles to play in achieving sustainable energy future in SSA. A supply system underpinned by full deregulation and privatization and anchored on price competition is now the conventional wisdom. The region has little choice in following this policy direction. However, there is no universal one-fits-all model though most energy systems are private sector driven. A public-private sector mix can also be a viable option. This may be particularly pertinent in the development of pro-poor and environmentally clean renewable energy resources such as solar, wind, wave and other clean energy forms.

Third is the pricing of energy services, especially, oil and gas and electricity from both conventional and non-conventional sources. There has been a tendency for Independent Power Producers (IPP) which are mostly private sector owned to lock in high tariff into their power purchase agreement (PPA) for unnecessarily long periods notwithstanding production from more efficient plants in the future. They prey on the difficult domestic environment to extract high monopoly profits from PPA. The key principle should be energy pricing that guarantees attractive rate of return to investors adjusted for industry risk and security of investment.

A fourth consideration concerns risks associated with investment to strengthen energy supply. There are in four dimensions: economic, socio-political, technological and environmental (methane leaks, post-Kyoto protocol requirements and climate change compatibility, nuclear accidents spills). Optimal sharing of these risks among the three principal actors in the electricity market, namely, consumers, investor/producers and the government is essential efficient allocation of resources in the industry sustainable electricity future in SSA.

A fifth issue is the human resource requirements of robust and reliable energy supply system which is fundamental to sustainable electricity future in SSA. The demand on local and foreign skilled workers will be immense. However, as in the telecom industry, having the appropriate incentive structure is essential given the globalized, regional and national demand for electrical, mechanical, computer

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engineering and other skills needed to support a vibrant industry at the centre of the African energy map.

In summary, several policy challenges emerge from the foregoing discussion. The creation of an efficient, reliable and environmentally sustainable energy industry that efficiently meets the demand will rise substantially in the next decade requires the construction of more power plants and substantial expansion the transmission and distribution systems in the next decade. The economic and political environment must be conducive to make the goal of sustainable and secure electricity future affordable. Market-responsive pricing of energy services is central to securing sustainable energy future in SSA. Given the nature of the additional capacity expansion, the large amount of investment required must be private sector driven. Energy sector reforms based on market competitiveness should provide sufficient new opportunities for domestic and foreign investors who should align their investment objectives to the needs of Africa. Domestic demand must be integrated into a regional energy framework and supply policies in the region must be mutually consistent and coordinated.

4 Energizing the Human Development Process in Africa: Outline of an Action Plan

The policy agenda to support a sustainable energy future anchored on market competition would be shaped by a number of considerations:

The current initial economic and energy conditions highlighted by low human development indicators and energy access pose significant challenges to achieving sustainable energy future in a relatively short time.

Oil and gas supply will remain a central factor in the quest for sustainable energy future in which expanded energy access is a key goal.

World energy markets will be characterized by market price uncertainty in the near future.

A large amount of investment is required to rationalize and make SSA energy industry more globally competitive.

The political, economic and institutional framework for pro-active sub-regional and regional approaches to economic and energy development is relatively weak. Membership overlaps in several regional economic organizations is a reflection of this problem.

Finally, there is the greater competition for the increasingly scarce private capital in the world economy.

Can Africa achieve the objectives of expanded energy supply and access eliminating duality in the energy economy that should drive its sustainable energy future plan given the multi-dimensional challenges described above? The answer lies in the design and implementation of appropriate policy strategies embodied in an action plan. Before elaborating on the action plan it is important to identify a number of principles that should underpin such a plan.

First, the plan must be based on deepening current economic, social and political reforms. The importance of this for the twin objectives derives from the role of sound economic and social policies for sustainable development. Second is an improved alignment of economic and energy development policies at the country, sub-regional and regional levels. The central role of expanded energy access in achieving the MDGs strengthens the argument for this principle. Third is the promotion of

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increased domestic value added to oil and gas in Africa through expansion of downstream activities to meet both regional and export demand. This must go beyond refineries to petrochemical industries and other higher end value products in the sector. Fourth is deepening integration efforts to create dynamic inter- and intra-regional markets for goods including energy. This must address the issue of competitiveness. Openness and transparency in oil and gas that minimizes transaction costs in domestic, sub-regional and regional energy markets is fourth principle that should guide the action plan. Fifth is convergence of the fiscal and legal framework for energy market operations and regulation in the region. The sixth principle concerns the need to be aware of the moral hazard problem associated with providing financial resources for countries affected by higher energy prices. Such resources have the potential to reduce the incentives of beneficiaries from taking the required policy measures for the emergence of a more efficient domestic energy market that helps to reduce vulnerability to external oil market shocks. Seven, there should be defined roles for key stakeholders in the region among which are the African Union, the AUC, ADB, UNDP and other development banking institutions such as the World Bank, OPEC Fund, the EU and other development stakeholders. Finally, and perhaps the most important, is long term and credible regional and sub-regional commitment to a sustainable energy vision anchored on the emergence of efficient oil and gas markets in the next few decades.

4.1 Outline of an Action PlanImportant elements of an action plan based on short and medium term measures

can be sketched around the following imperatives.

Short Term Establishment of appropriate institutional infrastructure to support the

mobilization of financial, human and institutional resources that will help to mitigate the short term impact of energy price shocks.

Establishment of quick disbursing funds to provide disadvantaged countries relief through grants and loans to purchase oil imports as emergency strategy to mitigate the adverse balance of payment effects of price shocks. We propose an African Energy Fund. This Fund would be a central element of the strategy to mitigate the short term impact of energy price shocks in African energy supply. However, one must be aware of the moral hazard problem associated with providing financial resources for countries affected by higher oil and gas prices. Such resources have the potential to reduce the incentives of beneficiaries from taking the required policy measures for the emergence of a more efficient domestic energy market that helps to reduce vulnerability to external energy market shocks

Promoting the use of financial market instruments through the spot and futures markets to hedge against price volatility and its impact on supply which occur from time to time. Developing the capacity to use this sophisticated instrument demands resource pooling possibly on a sub-regional basis.

Promoting price-shock mitigating mechanisms that will minimize the moral hazard problem associated with providing financial resources for countries that are severely affected by higher oil and gas prices. This will help to promote and strengthen the incentives for such countries to take the

24

necessary policy for the emergence of a more efficient domestic energy market that helps to reduce their vulnerability to oil price shocks.

Medium to Long Term

Establishment of appropriate institutional infrastructure to support the medium term dimensions of expanded energy supply and access and their sustainability;

Development of human resources and institutional and financial assistance to support a viable and competitive energy industry;

Encouraging extensive sharing of knowledge and technology on upstream and downstream activities in the energy industry in the region;

Promoting the harmonization of economic and energy policies with sustainable energy future integrated into the development processes and policies at the country, sub-regional and regional levels;

Promoting the fast-tracking and strengthening of energy integration initiatives to create dynamic inter and intra regional markets for energy and other energy goods;

Revamping of policies and practices in the production, procurement, trade and distribution of imported energy;

Promoting the rationalization of the supply and distribution of oil products at country and sub-regional levels to ensure industry revitalization in contrast to the current industry state characterized by poorly maintained and utilized production capacity producing sub-optimal product mix;

Elimination of the fragmentation in energy markets across countries and regions in Africa with the focus on the establishment of a competitive African energy market;

Adding more value to energy resources in Africa through expansion of production and export of refined oil and gas products and petrochemicals to meet domestic, regional and export demand;

Sustaining improved governance in the energy industry especially the hydrocarbon industry based on openness and transparency further strengthening the current Extractive Industry Transparency Initiative (EITI) to which many oil producing countries have subscribed to. This will help to minimize transaction costs in domestic, sub-regional and regional energy markets;

Creation of an environment where doing business will be attractive in contrast to the current situation where the region is identified as among the most difficult for business to operate;

Alignment of the fiscal and legal framework for energy market operations and regulations at the sub-regional and eventually at the regional level;

Promoting price-shock mitigating and other mechanisms that will help to promote and strengthen the incentives for the emergence of a more efficient domestic energy market that helps to reduce their vulnerability to external oil market shocks;

Promoting an environmentally responsible development of energy resources; Promoting research and information collection and dissemination required on

energy demand and supply by end use, prices, costs, inventory movement management, investment and regional and international energy trade flows on

25

timely and consistent basis. The economics of the downstream segment of the oil and gas industry needs in-depth analysis; and

Promoting the development of alternative energy with focus on renewable energy including bio-fuels.

Certainly, a new partnership between the public and private sectors would have to be forged to meet these challenges. In any case, the substantial reduction in public sector resource availability forecloses a high profile government participation in the provision of the economic infrastructure services. Half-hearted policy measures can only compound the enormous problems in the sector at escalating social cost.

5. Concluding Remarks

There is plenty of catching up to do for African countries. The region’s current development crisis suggests the economic growth rates that far exceed its historical experience if it must get close to the Millennium Development Goals (MDG). Annual per capita GDP growth of 4 percent might have been acceptable a decade back and 2 percent long run growth half a century ago. However, achieving an annual per capita GDP of less than 4 per cent will be grossly inadequate to match the growth of human aspirations in the region. In fact, achieving MDG implies an exponential growth at 7 percent yearly. Clearly, increased energy supply and demand anchored on a more efficient utilization of resources backed up by market-driven incentive structure is essential to achieving sustainable energy and human development.

Success in achieving sustainable energy and economic future in Africa must be based on the design and implementation of appropriate and harmonized regional and national policies backed up by adequate financial, technical and other support from the international community. The international community must view the regional effort as an important element in the global strategy for achieving sustainable human development. Hence, identifying and finding innovative ways of tackling the constraints to efficient, environmentally responsive, affordable and expanded access to energy services must be seen as a regional and global initiative by policy makers and development partners in the SSA region in the next few decades. The degree of success of the strategies adopted will determine the extent to which Africa will share in the gains from the material prosperity associated with globalization, and more importantly, achieving the Millennium Development Goals.

Obviously, no issue is more pressing at this very early but critical juncture of the 21st century, than a solid understanding of the multi-faceted nature of Africa’s oil and gas problem, given the central role oil and eventually natural gas will play in advancing human well-being and economic development in the foreseeable future. Besides, in a multi-ethnic and often polarized and impoverished society, the use or misuse of this non-renewable natural resource would remain an important factor in the existence (or lack) of social harmony and political stability in the medium term. Understandingly, efficient and effective management of Africa’s oil wealth to serve as a strong anchor for achieving sustainable economic freedom and livelihoods in an environment currently defined by serious oil and gas-induced environmental degradation, poverty and low living standards, large scale unemployment and numerous social conflicts, will be the prime challenge of the first half of this century.

The main conclusion of this paper is that Africa can eliminate the substandard state of modern energy services and ensure the supply of the large investment required to support sustainable energy development that underpins significant

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reduction in poverty. However, sustainable energy development that underpins significant reduction in poverty is contingent on several conditions. There must be a strengthening of the institutional infrastructure, governance structure and accountability to support allocative and technical efficiency, restrain arbitrary rent seeking government interventions in the economy. In addition, the creation and sustenance of an incentive-based competitive market system underpinned by market responsive energy pricing that guarantees adequate risk-adjusted rate of return for investors but that minimizes deadweight loss associated with market monopoly power is of utmost importance. The establishment of a well-targeted support system (partly in the form of subsidies) to drive expanded supply of clean energy based on renewable energy resources is a key policy issue. Finally, there is need to foster a strategic public-private partnership to drive a new energy paradigm that is anchored on renewable energy sources that will minimize carbon emission and climate change. The emergence of sustainable energy and human development in SSA goes beyond delivering adequate and reliable energy services to end-users. It also involves giving the population wide accessibility to environmentally friendly and reliable energy supply.

In conclusion, a number of observations are necessary. First, energy development must be integrated into sustainable development in which sustained improvement in the general well being of the people and enlarging their social choices are key elements. Second, the enlarging of social and economic opportunities based on energy resource wealth must take cognizance of the natural and social environment of the wealth creation. The environmental consequences of extracting and using energy should be incorporated in economic planning and public policy. Third, sustainable development is also about economic, social and political freedom. Fourth, the well being of the poor and disadvantaged people is of utmost importance and must be explicitly factored into the process of development of energy resources. It is clear that ‘Africa’s energy question’ is not only complex and difficult, but also politically controversial as it involves a set of economic, social, political and environmental goals that are not necessarily mutually reinforcing. Finally, sustainable development is about a better world for all citizens underpinned by advances in skills, knowledge, capability and choice. Africa’s energy wealth must be used to achieve rising income per capita, better education, better health, higher life expectancy, full employment and social stability achievable in the shortest time possible. The ADB and AU aided by international financial institutions such as the OPEC Fund have complementary strategic roles to play in making a success of Africa’s energy and development future.

Africa faces immense multi-dimensional challenges in achieving a sustainable energy and economic future embodied in the twin objectives of elimination of income and energy poverty and expanded energy access. However, the alternatives are few considering the current development divide that Africa has to bridge. The key message is that success or failure depends critically on the political will of the leadership to permanently erase the ghost of economic and political marginalization that has characterized the region in the past.

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4 For further discussion see Jorgensen (1984) and Toman and Jemelkova (2003) 5 However after a threshold e.g. advanced level of economic development the correlation weakens as energy use per unit of output declines over time. 6 The importance of energy in achieving MDG is UNDP (2005)

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