Can Africa Help Power a Greener World?

To avert a climate disaster, the world must undertake a large-scale transition to clean energy. Achieving this will necessitate that low carbon energy technologies (solar PV, wind, etc.) make up over half of the total power generation by 2040, according to the International Energy Agency (IEA). 

So far, China has taken the lead in the transition. In 2014, manufacturing value added for clean energy amounted to $38 billion in China compared to $7.1 billion and $6.2 billion in Japan and the United States respectively. And in areas such as Solar PV, China’s cumulative installed capacity represented 38% of the global total in 2018 and is expected to grow by 1 TW over the next 10 years. 

Image of solar panels and wind turbines

But this early lead may dissipate as multinationals in the developed world look to shore up their supply chains and reduce their reliance on China for manufacturing. COVID-19 will only provide a renewed urgency to this rising shift to localize and diversify supply chains away from China.  

The electric vehicle battery market is a case in point. Of the 70 or so “gigafactories” present globally, 46 are currently based in China. But as the market for electric vehicles continues to grow—by 2040 70% of all vehicles sold across Europe are expected to be electric— European and American car manufacturers will likely need to localize and diversify their supply chains to ensure adequate capacity and competitivity in the global market.

Electric vehicle charging station.

Credit: Menno de Jong

Moving further upstream in the value chain, the supply of raw materials will become even more important to manufacturers as renewable energy technologies are more mineral intensive than fossil fuel technologies. In the electric vehicle market for example, rising demand for lithium-ion batteries is expected to dramatically increase the demand for lithium, which in 2017 alone witnessed a 98% increase in production. Production of certain metals such as graphite, lithium and cobalt could also increase by 500% by 2050 to meet the growing demand for clean energy technologies. 

Indeed, as noted by the World Bank’s “Minerals for Climate Action” report, realizing a low carbon future will require a responsible and sustainable approach to mining on the behalf of multinationals and resource-rich developing countries alike. 

Can Africa move from Minerals to Manufacturing?

Given the current trends and the enormous potential for the renewables market, the question turns to what extent Africa will feature in this story. In particular, how can Africa leverage its large reserves of precious metals to its advantage? 

Structural change, the process of labor moving out of agriculture and into more productive sectors such as manufacturing, has had a muted impact on economy wide productivity across most of Africa to date. Indeed, while structural change led to a manufacturing revolution in countries across East Asia in the 1980s, in Africa it has often led labor to move into more unproductive sectors such as informal trade, or highly productive but low employment generating sectors such as mining. 

A glance at manufacturing’s share of GDP in Sub-Saharan Africa’s says it all. In 2018, manufacturing made up just over 10% of GDP and has historically lagged behind GDP growth in the majority of markets across the continent. Should we expect more of the same for the future?

Source: World Development Indicators

Source: World Development Indicators

In the climate smart value chain, Africa unsurprisingly represents a huge market for the supply of minerals. The region has a strategic advantage in key metals such as cobalt, platinum, manganese, bauxite and chromium. Mozambique for one, boasts a whopping 20-40% of global reserves of graphite, a key mineral in the production of lithium-ion batteries. In fact, Mozambique’s Cabo Delgado province is home to the world’s largest operational graphite mine, the world’s largest reserves of rubies, and is the site for Total’s ambitious $25 billion gas project, which is expected to commence production in 2025. 

Africa is also heavily underexplored region, meaning its future minerals capacity could be more significant than estimated. 

Domestic demand will drive moves upstream in the climate smart value chain

African governments have historically focused on “quick win” strategies to maximize the local value that can be extracted from minerals prior to export. While promising in theory, such a strategy has failed to take into account the enormous difficulty of competing with vertically integrated manufacturers on the global market for processed metals. As a result, the push to expand primary processing manufacturing has been limited at best.  

To fully capitalise on their reserves of strategic metals, African governments should look instead to develop value chains around domestic industries that are already primed for growth. One example is solar PV, which the IEA anticipates can generate 533 TWh of power by 2040, representing about 20% of the total energy mix in Africa. Abundant mineral resources, coupled with rising local demand for PV deployments, makes the region an attractive destination for manufacturers looking to set up shop. 

In South Africa, Sepharim solar systems, a Chinese manufacturer, is planning to setup the first 500 MW PV cell manufacturing plant in the country after having successfully setup a 300MW module assembly a plant there a couple years earlier—Sepharim plans to supply both local and international markets with this new capacity. And in Kenya, the government recently released a tender for the development of a 10MW plant. As the rate of installed capacity increases across the continent, this trend will only continue. 

This is not to say that African governments should ignore industries that primarily serve the export market. Indeed, Africa’s proximity to key minerals provide it with a strategic advantage in the development of refined materials that can be sold to manufacturers in China, Japan, Europe and United States. Rather governments should prioritize policy and investment in manufacturing capacity that can serve the development of burgeoning sectors in regional markets, while planning for the development of future industries such as electric mobility. 

Playing a bigger role in the manufacturing value chain will of course not be easy. It requires strong planning and co-operation between governments, multi-laterals and investors. It requires politicians and investors who are committed to the long-term sustainable development of the continent. And more importantly, it requires a reduction in regional trade bottlenecks, from high tariffs to poor transportation infrastructure. 

Victoria falls.

Credit: Simon Matzinger

At ThirdWay Africa we are confident that Africa can serve as a critical hub for the development of climate smart technology to drive a cleaner world. And we understand that a bold mission requires patience and continued investment. 

In short, we believe that Africa can power growth, sustainably.