Africa has supplied raw commodities to the global economy for ages. Investors still come to the continent to exploit its natural resources, rarely to tap its industrial potential. The 20th century’s energy transition, the biggest economic shift, could support/disrupt this paradigm.
Africa will be crucial to the energy transition due to its energy and raw minerals. The continent has 39% of global renewable energy. Africa, especially the Sahara, has some of the best solar power conditions. Multiple projects are underway to build undersea electrical lines from Africa to Europe to power European industries with North African electrons.
Africa has abundant resources like cobalt, copper, iron ore, bauxite, and others underground. Thus, the continent is becoming important in global supply systems, especially electric vehicle supply chains. African minerals are largely processed outside the continent, especially in China.
At the start of the energy shift, Africa can expand its value-added businesses. Nations in this part of the world can manufacture green hydrogen utilising renewable energy electrolysis. Green hydrogen might be exported as green ammonia, but using it locally as a fuel for heavy industries has several benefits.
Green Potential
Green industrialisation is essential to Africa’s renewable energy potential. Due to low demand, connecting renewable energy resources to a national electrical system is often uneconomical. When an industrial plant offtakes power, the equation changes.
“To unlock that renewable energy potential, you do require anchor demand, you do require the heavy energy industry and the consuming industry that makes it bankable to invest in renewable energy,” says Jack Kimani, CEO of CAP-A, which promotes green industries in Africa.
If renewables are fully utilised, African businesses can gain a competitive edge through decreased electricity prices. An electricity system including solar, wind, and battery storage would cost 50% more in Spain (Europe’s leading renewable energy site) than Kenya and 17% more in Nigeria, according to CAP-A. Solar energy provides reliable power across huge regions of Africa, requiring less battery storage.
Of course, green industrial expansion supports Africa’s overall development.
Hydrogen Rush
Green hydrogen can power hard-to-electrify sectors without carbon. These include steel, chemicals, fertilisers, and polymers. Green hydrogen can fuel aircraft, shipping, and trucks.
African solar radiation is significant; thus, the continent should be the most competitive producer of green hydrogen, says Amal-Lee Amin, head of climate, diversity, and advising at British International Investment, the UK’s development finance agency.
“There’s been much talk about exporting hydrogen, but I think – and many are starting to realise – it should incentivise more value-add,” the official stated further.
Whether governments prioritise green hydrogen for industrial development is unknown. Namibia is a green hydrogen leader in Africa. The government has partnered with Hyphen Hydrogen Energy, a German-owned enterprise, to create a USD 10 billion green ammonia project in the country, largely for export to Germany and other markets.
Green ammonia is made from atmospheric nitrogen and green hydrogen. It is easier to convey than hydrogen gas and can be divided into green hydrogen and nitrogen when it arrives.
While programmes like this benefit Namibia economically, they may lose an opportunity to employ green hydrogen to make higher-value commodities locally.
Amin believes green hydrogen may start continental green manufacturing.
“I’m a believer that it can happen at scale in Africa,” she says, but “both political leadership and targeted support for investment, particularly from the development finance community” are needed.
Amin also observes that the European Union’s ‘Carbon Border Adjustment Mechanism’ could give African green sectors a “competitive advantage”. This rule mandates EU importers to disclose their products’ carbon emissions and pay a “border tax” based on their “carbon intensity” from 2026.
Companies that export low- or zero-carbon products to the EU will have an edge over their higher-emitting competitors. Iron, steel, aluminium, and cement are among the first sectors regulated. By 2034, CBAM may raise the price of Indian steel imported into the EU by 56% and Chinese steel by 49%, according to energy consultancy Wood Mackenzie.
Jack Kimani said CBAM may represent a “complete game changer” for Africa’s green sectors with a favourable path to the EU market for low-carbon goods. “We have an opening to go green from the start,” he says.
World-leading industries include steel. Due to its widespread use, a strong steel industry supports a nation’s industrial growth.
But steelmaking pollutes heavily. Industrial emissions account for 7-9% of global greenhouse gas emissions.
Green hydrogen is essential for sector decarbonisation. Direct reduction iron uses green hydrogen to reduce oxygen from iron oxide ore. For smelting, blast furnaces consume metallurgical coal, while electric arc furnaces, which use renewable energy, are greener.
Kimani noted that some African countries had green hydrogen potential, iron ore reserves, and bauxite (aluminium ore) reserves to make green steel or aluminium. He was, however, unaware of any businesses “in a serious way” investing in these African industries.
This is mainly because green steel and aluminium production technologies are still developing. However, Kimani cautioned that Africa is not a “default destination” for green metal investors. He says considerable work remains to build an “enabling environment” to attract multi-billion investors to green metal production on the continent.
Simon Nicholas, lead energy finance analyst for the steel sector at the Institute for Energy Economics and Financial Analysis, says Africa has an advantage because several of its iron ore deposits, including the giant Simandou project in Guinea, contain high-grade DRI iron ore.
However, Africa may be better at creating “green iron” than green steel. This would involve using green hydrogen to directly reduce iron near mining sites and shipping it to electric arc furnaces abroad.
Nicholas believes “now seems to be quite seriously emerging as a future trade commodity”. This method would also lower global iron ore shipping costs.
Window Of Opportunity
It appears that policymakers are beginning to recognise Africa’s potential. The September 2023 ‘Nairobi Declaration’ at the ‘Africa Climate Summit’ called on governments to “advance green industrialisation across the continent by prioritising energy-intense industries to trigger a virtuous cycle of renewable energy deployment and economic activity, with a special emphasis on adding value to Africa’s natural endowments.”