Out-Law News 2 min. read

Energy trade cooperation is ‘untapped opportunity’ for Eastern Africa, says report

A report from the UN’s Economic Commission for Africa (UNECA) recommends boosting ‘energy trade’ in Eastern Africa by encouraging private investors to develop the energy infrastructure of individual states to maximise regional economic growth.

UNECA’s report, Energy Access and Security in Eastern Africa (278-page / 10.4 MB PDF) said energy trade is “an untapped opportunity” in the region. Countries with the capacity to generate more power “should increasingly look at regional energy trade opportunities that would mutually benefit all the economies of the region”, UNECA said.

The report said that while energy trade is “barely leveraged in the sub-region, possibilities exist for private sector participation and capital infusion”. Institutional and policy reforms can address the “pent-up demand for rapid energy development”. Energy trading can also help to cut energy costs and allow countries to “benefit from economies of scale”.

According to the report, “insufficient energy planning and growing energy demand have obliged the region to make some technology choices resulting in thermal generation, which has been increasing overtime as a contribution to total electricity generation”.

However, the report warned that a shift in energy conversion technology to thermal options “has energy security implications”, because generation is becoming increasingly based on imported fuels.

Africa’s proportion of global petroleum consumption has gradually increased from around 3.25% to about 4% over the past decade, the report said. In the same period, the Eastern African sub-regional proportion of Africa’s petroleum consumption increased from about 8% to close to 10%.

The report said that while the proportions “seem to have increased only gradually”, the comparison of absolute consumption levels of petroleum from 2000 to 2011 “shows that while consumption at the continental level increased by slightly more than 40%, the rise in the Eastern African sub-region was 67%”. This constitutes “a significant increase in exposure to global energy markets and to sources of energy insecurity”, the report said.

According to UNECA, rates of access to electricity in the region range from 1% in the new state of South Sudan, to 9% in the Democratic Republic of Congo, 14% in Tanzania, 18% in Kenya and 22.5% in Ethiopia.

The report said: “Africa, and particularly the Eastern Africa sub-region, therefore represents the most significant challenge to addressing the global energy access problem.” However, while there are “numerous challenges in the energy sector of Eastern Africa, there are also abundant opportunities”. The report said that countries in the region are “endowed with significant clean energy resources and development potentials in trans-boundary hydropower systems”.

Discoveries of oil and gas resources in the sub-region, in addition to “growing interest in biofuel development”, can help reduce energy insecurity through regional cooperation. “These and other opportunities constitute the possibility of an energy transformation and revolution in the sub-region,” the report said.

Last March, the International Monetary Fund said infrastructure development in Africa must be accompanied by structural reforms to “promote a strong private investment climate”.

The IMF said the lack of infrastructure across the continent was “a key obstacle to achieving faster growth, because higher transportation, water, and power costs are estimated to reduce private sector productivity by almost half”.

According to the African Development Bank (AfDB), strengthening energy infrastructure is a priority for regional economic communities in East Africa. In AfDB's five-year strategy for the region up to 2015 (68-page / 2 MB PDF), the bank said its strategic goal is “to create a well-connected, economically prosperous and peaceful Eastern Africa”, supported by public and private investment in projects that assist regional integration.

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