Effective governance can help Africa capitalize on energy opportunities
By Dr. Eric T. Young, Marshall Center
Africans consume little energy. Outside of South Africa, the average African consumes enough electricity to power just one light bulb for six hours. The continent’s electrical capacity is less than that of Spain. But the future is a different story. New sources of energy are coming online, and consumers in Africa’s rapidly growing economies are demanding more energy daily. It is not surprising, then, that energy security is a rapidly growing concern on the continent.
While Africa has long been a major energy exporter to the West, domestic demand has recently grown dramatically from a booming African population and rapid economic growth. Indeed, Africa’s potential as an energy producer is immense. Yet the gap between supply and demand, especially in the field of electricity, is wide and will likely remain so for the near future. This is due in part to lack of infrastructure and technology, but also due to poor governance over several decades. Governance is likely to be key to harnessing Africa’s energy potential and effectively employing it for economic growth, political development and security. In the resource-rich regions of East Africa, the Congo Basin and the Gulf of Guinea, governance and energy security are intimately linked, but also unbalanced. Correcting this imbalance will be one of Africa’s primary challenges in the decades to come.
Broadly defined, energy security concerns the relationship between national security and the availability and access to resources for energy production and consumption. Challenges arise from the often uneven distribution of energy resources and the government’s perceptions of national security. On the other hand, governance, most simply defined, refers to all processes of governing and formal or informal organization whether through laws, norms, power or language. Thus, governance in the context of energy security involves not only multiple national governments, but importantly, international organizations and the private sector. It concerns the availability of a diverse set of resources within a state and outside of the state, the ability to produce energy, and ultimately the people’s ability to consume this energy. The financial affordability of energy for the state and citizens is a vitally important part of these relationships.
Africa’s energy security landscape
In the past 15 years, the energy outlook in Africa has changed dramatically. Energy use has grown by 45 percent as new sources of energy have been discovered and made available and most African economies have grown. Historically, the focus of African energy has been the export of crude oil, mostly from the Gulf of Guinea, as well as natural gas from North Africa. Coal and hydroelectric power production ran a distant third and fourth. But the energy landscape is changing rapidly. There is huge potential for the development of African energy production, for both a rapidly growing domestic market and the continually growing export market. For example, although Africa holds 13 percent of the world’s population, the continent accounts for only 9 percent of worldwide energy consumption. Africa is struggling to keep up with demand.
With the discovery of new sources and the advent of new technologies, the diversity of energy sources in Africa has been growing rapidly in recent years. Worldwide, 30 percent of new oil and gas discoveries have been in Africa. Ghana and Côte d’Ivoire in the west and Kenya and Uganda in the east have recently begun exploiting previously untapped sources. Mozambique and Tanzania have discovered huge natural gas reserves and, fortunately for both countries, they are relatively close to growing markets in Asia. Growth in renewable resources also has great potential — from free-flowing hydropower in central Africa to untapped solar power in the Sahara and wind power along the seacoasts. New hydropower plants in the Democratic Republic of the Congo (DRC), Ethiopia, Mozambique and Guinea will soon bring down the price of electricity and reduce dependence on petroleum-powered generators. By 2040, geothermal sources in East Africa are expected to become the second-largest source of energy, while off-grid and mini-grid hydro, solar and wind systems will power many homes and businesses.
While this progress is important, both energy use and the continent’s population are changing. The United Nations projects that the African population will increase from its current 1.1 billion to 1.9 billion by 2050, and to 4.1 billion, or one-third of the global population, by 2100. Africa’s impressive recent economic growth, with a continental forecast average of 5.2 percent in 2014, is being fueled in part by new energy sources. They also are fueling new investments outside the energy sector, creating a virtuous cycle of economic growth in several African countries. Many of the fastest growing countries in Africa, including Angola, Ghana and Nigeria, are energy producers. Others such as Tanzania and Mozambique soon will be. And this growth is expected to continue and will inevitably result in growing domestic demand. According to some estimates, by 2040 African economies should quadruple, with energy demand growing by 80 percent. The positive economic outlook and prospects for development in the energy sector are offset by considerable economic challenges and resource constraints. Internal demand for energy in Africa is likely to outpace production, while many African countries will be unable to tap domestic potential and continue to rely on energy exports.
The demand for energy in Africa, particularly electricity, is greatly outpacing supply. Electrification is ongoing, but slow. By some estimates, 950 million Africans will have gained access to electricity by 2040, but due to population growth, 500 million — approximately the number without electricity today — will remain in the dark. There remains a high dependence on biomass, particularly wood and charcoal, and this will only increase with population growth. This in turn will lead to further deforestation and high incidents of health problems, particularly among women and children, who are constantly exposed to inefficient and hazardous cooking stoves.
Energy demand is outpacing supply for several reasons. Most obviously, Africa’s population growth remains high; indeed it is the highest in the world, seriously hindering the capacity of energy production to keep pace. Also, somewhat paradoxically, infrastructure development has not kept pace with Africa’s recent economic surge. Power transmission and distribution systems are outdated and underdeveloped: losses in the transmission and distribution of electricity in Africa are double the world average. At the same time, tariffs on electricity in Africa are among the highest in the world. Also, few new major energy infrastructure development projects have come online and investment in renewable resources has been slow. While many African governments are now tackling regulatory and political roadblocks, these efforts have not kept pace with local demand or the demand from investors seeking access to new energy sources. Simultaneously, political instability and corruption constantly hinder energy exploitation and the ability of these countries to use resources for the greatest benefit.
Africa’s energy outlook is complicated by persistent global demand for energy. The Paris-based International Energy Agency forecasts a 37 percent increase in energy demand by 2040. This expectation has resulted in export-driven and foreign-led investment in Africa’s energy sector. Two out of every $3 invested in the energy sector in Sub-Saharan Africa have been for the development of resources for export. According to the Africa-based Standard Bank Group: “Given that it is estimated that Africa’s oil production will increase from 9.4-million barrels per day (bpd) in 2011 to 12-million bpd by 2020, one can expect massive inward FDI [foreign direct investment] flows into the continent’s oil and gas sectors over the next six years.” With countries from China to Canada and corporations from British Petroleum to Norwegian Statoil investing heavily in Africa, local investors and African governments are often unable to focus on the domestic market. Financing of resource exploitation comes mostly from an international community that seeks energy for its own use, while African countries do not have sufficient resources to meet local demand.
Improving energy security governance
Reconciling these divergent trends will be key to providing energy security to Africa. This reconciliation will likely depend upon improving energy security governance. This involves accountability and transparency in the energy sector, regulatory and judicial reform governing energy, the democratization of control over and access to energy, and in some regions of the continent, securitization of energy. Benign dictatorships using energy resources to benefit the country, and themselves, is mostly a thing of the past, and there have been great strides in governance in Africa.
Democracy and the rule of law — including free and fair elections, democratic transitions and militaries under civilian control — have become the norm in many countries and are making inroads in many others. Curbing corruption and resolving conflicts are challenges several countries are confronting head-on. However, progress has faltered in many major energy-producing countries. Several of Africa’s energy exporters and potential producers now rank among those countries with the worst governance. According to the 2014 Ibrahim Index of African Governance, several of those countries rated as having the worst governance of the continent’s 52 countries are energy producers, including oil-producers Chad at 49, the DRC at 47, Equatorial Guinea at 45, Angola at 44 and Nigeria at 37, and natural gas and oil producer Libya at 43.
Transparency and accountability
A lack of accountability and transparency in several African countries, leading to widespread corruption, furthers energy insecurity. This is particularly true in oil-producing countries, which suffer from the so-called “oil curse.” Despite having abundant oil reserves and the possibility for strong economic development, growth in these energy-rich countries is slow or nonexistent and corruption is rampant. Five African countries that are major oil producers/exporters –– Angola, Chad, Libya, Sudan and South Sudan –– are also among the 20 countries with the highest levels of perceived corruption.
Corruption in the energy sector is not confined to the oil industry, but can be pervasive throughout the life-cycle of energy development and exploitation. As Petter Matthews, director of the Construction Sector Transparency Initiative International Secretariat, told the Guardian in 2014:
“[T]he decision-making process for … large energy projects in sub-Saharan Africa is often characterised by poor project appraisal systems, a high degree of informality and an absence of effective management. They are also often subject to undue political influence for personal or political gain. Where this occurs there is a high risk for corruption.”
Greater accountability and transparency in the energy sector would likely promote resource exploitation and economic development. This is far from simple and will require comprehensive, long-term solutions including not only anti-corruption measures and new legal regimes, but also investment in government institutions and the ability to formulate and implement policy and regulations in the energy sector. There are signs of movement in this direction. International corporations, especially those in the oil sector, are realizing transparency and accountability are vital for long-term profits and are getting involved. Initiatives such as the Extractive Industries Initiative (EITI), a worldwide coalition of governments, civil society and corporations working to improve openness around revenues from natural resources, is one such example. Ghana, Guinea and Liberia publish oil, gas and mining contracts online, and 12 African countries are compliant with the Transparency Initiative Standards of the EITI.
Regulatory reform and regional cooperation
In addition to increasing accountability and transparency, regulatory reform will also be required to improve regional cooperation. Most states have realized the need for legal harmonization in other areas of security, such as terrorism and transnational crime, but in energy security, realization has been slower. Demand-driven regulatory reform will also be key to ensuring African energy security. As mentioned, tariffs in Africa’s electrical sector are high, while inefficient state control over the energy sector is the norm. Regulatory regimes governing the energy sector in many African countries are outdated and cumbersome, inhibiting FDI and slowing infrastructure development.
Regional economic communities are progressively taking steps to open borders, enable trade by breaking down state-unique regulations, and enable legal cooperation between countries. Such regional cooperation in the energy sector is equally vital because many energy resources straddle regions and national boundaries. For oil-rich landlocked countries such as South Sudan and Uganda, access to foreign markets via the sea necessitates good relations with coastal neighbors. Hydropower in one country may have considerable downstream effects in one or more other countries — consider Ethiopia’s Grand Ethiopian Renaissance Dam and its impact on South Sudan, Sudan and particularly Egypt. Improving governance in regional cooperation on energy security is also about democratizing control of and access to Africa’s energy resources.
Democratization of control and access
The democratization of energy control and access will affect energy security into the future. Access to power is vital for development and prosperity. In Africa, uninterrupted power supply has increasingly become the expectation rather than the exception, even if it is not always realized in practice. In South Africa, where electrical access and consumption far exceed that of the rest of the continent, “load shedding,” or intentional interruption of the power supply, has become common and a critical political issue. Urban areas are easier to electrify and supply, and continued urbanization aids this trend; however, there is a risk that the rural populace will be left behind. At the same time, greater access to power promotes business and facilitates development. African companies view the lack of an uninterrupted power supply as the greatest impediment to growth.
Democratization is also about control and equitable distribution of benefits, particularly with respect to oil proceeds. After years of frequent inequity in the distribution of the proceeds from oil exports, local and international pressure on governments and international petroleum corporations is beginning to change this. For example, the Uganda-based nongovernmental organization African Institute for Energy Governance is involved in government capacity building, research and lobbying for equal access to and sustainable development of Uganda’s petroleum wealth. New oil exporters such as Ghana and Côte d’Ivoire and new gas exporters such as Tanzania and Mozambique are moving cautiously in the exploitation of their reserves to better ensure that earnings are used for the greater good and national development. A few countries are also looking to the future. In October 2012, Angola created a sovereign wealth fund, like those in Norway and some Arab countries, with startup capital of $5 billion, to ensure future economic prosperity. The more Africans have access to energy and the more this control is democratic, the more likely energy security governance will take hold.
The impact of energy insecurity
In many countries, energy production, processing and distribution are considered part of the nation’s critical infrastructure and are afforded state protection, whether by soft security, such as creating redundancies and assuring financial health, or hard security, such as providing physical security or virtual protection. If raw materials such as oil and gas are the prime, or nearly sole, export earner, the state is likely to become even more involved in providing security. Nowhere is the latter more evident than in Africa, where national militaries often protect dams, processing plants and oil rigs.
However, the growing diversity of transnational threats — from piracy to cyber threats to terrorism — has strained many African security forces and lessened their ability to protect expanding energy infrastructure and sources. There are few other regions where such hard security issues in the energy sector have such an impact. Even a relatively minor event can have considerable long-term negative impacts. Take the January 2013 attack on the in-Amenas gas facility in Algeria. Ninety-eight percent of Algeria’s export earnings came from hydrocarbons, and the plant accounted for 6 to 7 percent of its gas and condensate. The attack by a splinter group of al-Qaida in the Islamic Maghreb, which killed about 40 international and Algerian workers, took the plant offline for over a year and forced the Algerian government to invest more in its military presence in the desert.
The impact of insecurity in the energy sector also impedes long-term development. Nigeria may be an extreme case, but is nevertheless instructive. Nigeria, Africa’s largest economy and oil producer, loses 150,000 barrels of oil each day, at a value of $5 billion annually, to theft by a variety of Niger Delta militant groups. Such a loss is staggering. If Nigeria could invest $5 billion over the next 15 years, all Nigerians could enjoy electricity. As important as it is to protect critical infrastructure such as energy facilities, this must be done within the framework of the rule of law. Security forces that are corrupt, abusive and politicized lose popular support and increasingly forfeit international assistance, reducing growth and prosperity. Thus, where energy security is securitized, the governance of security is vital.
Ensuring that recent economic progress continues will depend on more Africans receiving uninterrupted power and the wealth from energy resources equitably shared by all Africans. The challenges are significant, given the need for infrastructure development. Yet more important is the need for regulatory and legal reform and political will to ensure accountability and transparency, the further democratization of energy access, and, where needed, the securitization of energy in Africa.