• August 10th, 2020

What the AfCFTA means for the energy Sector

Dimitri Papaefstratiou

Major new opportunities for cross-border collaboration arise from the signature of the African Continental Free Trade Area (AfCFTA) agreement.

The AfCFTA agreement, which has now been signed by 54 of the 55 African Union member countries, envisages the establishment of a massive free-trade zone with the potential to generate an estimated US$3.2 trillion worth of inter-country trade across Africa. 

The African Union (AU) says that the AfCFTA will create the world’s largest free trade area estimating that its implementation will lead to around a 60 percent boost in intra-African trade by 2022.

Set to come into operation next July, the AfCFTA agreement is aimed at driving up the historically low levels of trade in Africa by reducing barriers to trade on the continent. Only 16 percent of international trade by African countries currently takes place between African countries, according to research by the African Development Bank in 2014. Yet there is widespread consensus that, in order to realise the envisaged benefits of the AfCFTA, there needs to be substantive improvement in regional infrastructure to accommodate such trade. As Terje Osmundsen, the founder of Empower New Energy, recently suggested that the agreement cannot be implemented “without massive investments in roads, ports, electricity, digitisation and other infrastructure”. 

Following the official ceremony in Niger in July launching the AfCFTA, much has been written in the press about the difficulties of agreeing “rules of origin” or the timelines for the reduction of tariffs. Yet the practical difficulties of trading across African borders can only be resolved with the creation and expansion of enabling infrastructure. It is in the arena of regional infrastructure development and investment that the implementation of the AfCFTA will succeed or fail. 

It should be noted that enabling infrastructure in this context is certainly physical, but also digital and legal, amongst others. As the Brookings Institute has recently noted in its Africa Economic Outlook 2019, there is some evidence of increasing regional collaboration towards what it describes as “regional public goods” in Africa in “several areas: (i) peace and security; (ii) hard infrastructure (roads, ports, railways, and corridors); (iii) soft infrastructure (logistics markets including regulatory policies for mining and energy).” 

Yet surely the opportunity now presents itself for the countries of the African continent to create the impetus to effect a transformation in their economies. Certainly, with respect to energy, it is notable that Africa still suffers from large-scale energy poverty. As Osmundsen notes “…the estimated average of 22 hours without electricity per month means lost sales revenues of up to 10 percent or more for a large proportion of Africa’s businesses.” 

In terms of energy resources, clearly the African continent boasts near-limitless supplies of renewable energy recourses, including solar irradiation, hydro power potential, geothermal power potential and wind resources. In addition, there have been a series of major new gas discoveries across Africa in recent years. This includes a “significant” find off South Africa’s southern coastline earlier this year, along with new discoveries in Ghana, Nigeria and Senegal, to name but a few. In Eastern Africa, Mozambique and Tanzania are well advanced towards utilising their natural gas reserves. In North Africa, it would appear that the latest gas discoveries in Egypt and the Eastern Mediterranean will soon be utilised to feed domestic growth or to be liquefied and exported using existing LNG infrastructure.

One of the fundamental problems in the region is not around the availability of fuel but rather the African continent’s ability – or inability – to utilise that fuel in a way that meaningfully contributes to regional socio-economic development. Following on from this, questions are now emerging around the future and governance structures of regional energy infrastructure, such as the West African Gas Pipeline, and how such infrastructure may be utilised more effectively in future.

Certainly, one could see fruitful ground for regional cooperation in supporting renewable energy generation in the context of a broader energy transition. These underlying trends and themes have a significant role to play in shaping the African energy market in the years to come. The AfCFTA is a tremendous opportunity to not only “turbo-charge” growth but also to create regional public goods, especially infrastructure, that will enable a prosperous and sustainable future for Africa. 
 – Africa.com

*Dimitri Papaefstratiou specialises in power and energy projects and has acted in connection with a number of international energy projects in Africa. He is currently advising, as project counsel, the company that owns the Damietta LNG plant in Egypt.

Staff Reporter
2019-10-04 08:16:48 | 10 months ago

Be the first to post a comment...