SHIRLEY WEBBER: Africa’s growth a challenge and opportunity amid energy transition

In 2019 the International Energy Agency released a report highlighting that one in two people born between then and 2040 would be on the African continent, which would overtake both China and India as the most populous region in the world. This growth presents both a challenge and opportunity as stakeholders review the role of the resources and energy sector in driving sustainable and responsible growth.

While Africa has many challenges and is regularly positioned as playing second fiddle to the likes of China and India, which have dominated the Brics narrative for the past decade, we cannot ignore some of the themes playing out:

• Africa is emerging as a global force in oil and gas markets and its growth in oil and energy demand is forecast to outstrip China in the coming years.
• As African populations become more mobile, car fleets are expected to double. The “motorisation rate” estimates that the continent has 42 cars per 1,000 individuals at present, compared with the global average of 182 in developed markets. Many of these have poor fuel efficiency designs, and this increase in demand will drive the adoption of cleaner technology.
• Africa is expected to be the third largest natural gas market in the world and the emergence of the “hydrogen economy” and innovative players such as JSE-listed Renergen are likely to drive this energy shift materially.
• The Angolan Sovereign Wealth Fund is expected to benefit from its investment in a UK-based rare earths processing facility supplied by an Angolan deposit — one of three big producers outside China — and this is expected to be driven by electric vehicles and clean energy trends bringing much needed revenue into Angola.
• More than 70% of the world’s cobalt reserves are mined in the Democratic Republic of the Congo (DRC) which has been described as the “Saudi Arabia of the electric vehicle age”.
• Zimbabwe and the DRC are home to two of the 10 largest lithium deposits in the world, and with the global lithium battery market expected to grow from $41bn in 2020 to $116bn in 2030, this represents an opportunity for these countries to attract foreign investment.
• Big commodity trading houses are ramping up their investments in Africa to incorporate niche commodities including lithium, biofuels and other renewable energy spin-offs and this theme is leading to improved price discovery and interest in the African energy market as it transitions from fossil fuels to clean energy over time.

These are just a handful of the exciting themes playing out now, but the natural question is: will Africa simply be an extractive market where foreign investors reap the benefits but the local communities lose out? Based on our extensive analysis of the continent we believe the answer to this question is a resounding “no”. Local content regulations and beneficiation should be the focus for many governments to ensure inclusive economic growth for the continent.

While the mining and resources sectors are important in terms of opportunity size, they now account for a minority of foreign direct investment (FDI) coming into the continent. Long-term investors are bulking up investment in the likes of telecommunications and downstream support services, as well as other critical infrastructure such as water, energy and transport. The number of liquefied natural gas (LNG) and planned LNG projects in Mozambique, Nigeria, Ghana, Egypt, Mauritania and Senegal are evidence that Africa is preparing for the energy transition.

Research out of consulting firm EY captures this trend at a practical level, showing that extractive activities accounted for more than half of FDI each year between 2005 and 2011. But in 2011-2018 this trend had fallen every year, leading EY Africa markets leader Rod Wolfenden to say: “The big building blocks are now in place. Africans are the beneficiaries, but so are the next wave of investors, who will have an easier time developing their projects.”

These building blocks are translating into big, exciting projects that will ultimately have a transformative effect on the African continent and its energy mix. The UN sustainable development goals and the Paris climate accords are adding further impetus to these investments.

Morocco has built the world’s largest concentrated solar energy farm, and it is estimated this will reduce the country’s carbon dioxide emissions by as much as 800,000 tonnes a year. The second largest project is in Egypt, where a $4bn investment is expected to prevent 2-million tonnes of CO_² emissions each year.

Nigeria has set itself an ambitious goal of transitioning its energy mix to 30% renewables by 2030, while SA is regarded as a trailblazer in the renewable and clean energy spaces. Africa is taking its place in the global resource market.

• Webber is managing principal, coverage head: resources & energy, at Absa CIB.