5.2 Prospects and requirements evolving renewable energy regional value chains

In summary, the AfCFTA holds substantial promise for addressing Africa’s dual-energy problem of poor energy access and fossil-dependent energy system. It is worth emphasizing, however, that not all of the outlined benefits are guaranteed or assured as they depend on the successful implementation of AfCFTA. In effect, the green energy transition implies that the possible momentum and support that can be gained through AfCFTA are dependent on the concerted implementation of the agreement by member countries (Apiko, et al., 2020).

The development of green industries can be a core part of energy transition efforts in Africa, driving structural economic transformation and reducing various forms of (structural, technological and single commodity trade-related) dependencies (IRENA, 2015). In fact, to realise the full socio-economic benefits of the energy transition, far-sighted policies will be necessary to broaden and strengthen Africa’s currently limited industrial base as part of a broader effort to diversify economies and reduce dependence on the export of unprocessed commodities (IRENA, 2022).

Africa is home to many of the mineral resources that are critical in driving global energy transitions – including manganese, copper, lithium, cobalt, chromium and platinum. The Democratic Republic of the Congo, for instance, is one of the world’s largest cobalt producers, accounting for two-thirds of global cobalt production, while South Africa is the world’s largest producer of platinum and manganese – producing 70% of the world’s platinum (IEA, 2019; IRENA, 2022). Box 3:Africa’s reserves and production of RE technology-relevant minerals

Bauxite: Guinea Copper: DRC, Zambia Cobalt: DRC, Madagascar, South Africa Graphite: Mozambique, Tanzania, Madagascar Iron ore: South Africa Lithium: Zimbabwe Manganese: South Africa, Gabon Nickel: South Africa, Zimbabwe, Botswana Phosphate rock: Morocco, Algeria, South Africa, Egypt Titanium: South Africa, Mozambique, Madagascar

Global demand for these essential components of renewable energy technologies is already rising fast and will soon snowball, but the degree to which African countries will benefit from this emerging demand will depend on the extent to which countries can develop processing capacity further up the value chain. It is only when economic activity moves from the mere export of raw materials to higher-value products that countries can maximise the potential for local job creation and improved livelihoods.

Currently, local manufacturing of equipment like wind turbines and solar panels is less prominent on the continent and will continue to be so. African countries can develop suitable industrial policies, support skill-building and find ways to localise value creation domestically or regionally. In fact, considering the limited domestic market of most African economies, regional value chains will be required to achieve needed economies of scale in renewable energy and associated industries. As the African Development Bank notes, the continent’s industrialisation does not only depend on its capacity to produce efficiently and in large volumes but also on its trade linkages within the region and with other regions of the world (AfDB, 2015). For instance, the SADC region, despite being rich in a vast array of energy resources, has failed to fast-track progress towards electricity sustainability and regional industrialisation mainly due to a lack of regional integration (TIPS, 2017; as cited in TIPS, 2019).

The Covid-19 crisis, which severely disrupted cross-border supply chains, has underscored the importance of diversifying and regionalising renewable energy supply chains to

build the long-term resilience of renewable energy deployment against exogenous shocks. Integrating local suppliers in regional supply chains can enhance their productivity and avoid fragmented industries. Regional coordination is needed to foster synergies among various countries and regions, expand economies of scale, and promote the development of resilient regional supply chains. The creation of regional clusters and supply chains in the renewable energy sector offers the potential of leveraging local capabilities and setting local firms on a competitive path through economies of scale and cost reductions. Integrating local suppliers into regional or other supranational supply chains can enhance their productivity (UNCTAD 2021; IRENA, 2022). Promoting industrial complementarity can prevent duplication of efforts in the same activities, and avoid the fallacy of assuming that something which is true in one country is also true in neighbouring countries operating in the same regional markets (IRENA, 2022).

The existing regional initiatives structure around regional power pools notably provides the necessary building blocks for regional integration to meaningfully help countries meet their energy challenges. However, this cannot be left to utilities and regulatory bodies alone. In the context of the AfCFTA, several avenues exist for regional institutions to play a driving and supporting role to achieve inclusive governance of the sector and leveraging countries’ resources and capabilities to evolve regional production networks (TIPS, 2019).

At the national level, what is required are industrial policies – a set of incentives and rules, business incubation initiatives, supplier-development programmes, support measures for small and medium enterprises, and promotion of industrial clusters that bundle innovation. Together, they can create the structural underpinnings for viable local supply chains. This will require infrastructure spending (for basic public goods such as electricity, roads, and telecommunications), programmes to bolster local firms’ access to finance and information and boost their capacities along the value chain, and finely tuned local content incentives and requirements (to facilitate spill-over effects and support local value creation).

Industrial policy design must be based on better data and empirical analysis of each country’s economic structures. The first step is to understand how existing capabilities can be leveraged and enhanced. In the longer term, the objective shifts to creating new capabilities in industries related to renewable energy with the help of well-crafted technology transfer policies aligned with education and training strategies.

Local content policies might be more effective if formulated in the context of intra-regional trade and industrial strategy in Africa. Intra-regional specialisation in different segments of the renewable energy value chain can exploit the complementarity of assets across the region. African regions have complementary strengths, from critical minerals abundance to manufacturing capacity, as well as proximity to important trade routes. Such an approach would support the acquisition of new comparative advantages and provide opportunities for economic diversification across Africa.