Comment by Abebe Aemro Selassie on the IEA Africa Ministerial Roundtable on COVID-19 Affect on Africa’s Power Sector
June 30, 2020
Thanks for the chance to offer this handle. I’ll articulate my temporary intervention round 2 foremost axes: The financial affect of COVID-19 on African economies with an emphasis on the extraordinary challenges dealing with African oil exporters; and the looming power transition within the context of Africa and its improvement.
The financial affect of COVID-19 on the African area
Though the pandemic began usually later and international locations took preventive measures, general the curves haven’t flattened but calling for vigilance and redoubled effort to include it.
The financial toll, each by means of lockdowns and exterior shocks, can have a staggering impact on African economies. Our forecast of common African actual GDP progress in 2020 was revised down from 3.eight p.c in October 2019 to -2.eight p.c at present. For African oil exporters (eight SSA oil exporters, Algeria and Libya), it was a revision from 2.5 p.c to -5.2 p.c.
The human toll can be steep particularly in African oil exporters as measured by per capita progress. Certainly, we count on common actual GDP progress per capita to achieve -4.9 p.c for the continent, and a staggering -7.Four p.c in oil exporters.
The disaster will even put authorities budgets below large stress with an estimated complete loss in fiscal revenues of $92 billion, a decline of a few quarter in comparison with our October estimate, for the continent and of about $34 billion for African oil exporters, or a lack of greater than a 3rd. This has pushed the general public debt burden to greater than 65 p.c of GDP in 2020 on common, with a very quick enhance in oil exporters.
For African oil exporters the pandemic occurred in an already troublesome context. For the reason that oil worth collapse of 2014, manufacturing and funding within the oil sector in most African oil exporters have been on a secular decline, for a mix of things together with structural points, governance and safety issues in a number of international locations (i.e., Nigeria and Libya). If this development continues, limiting volumes, and if oil worth persists within the $30-40 vary, African oil exporters must face troublesome fiscal challenges the place most projected fiscal breakeven costs are larger than $50 and, in a number of circumstances, near or larger than $100 (e.g., Algeria, Cameroon, Nigeria and Libya).
The looming power transition
Funding in power in Africa, whether or not it’s oil extraction and refining or power technology, could also be affected within the subsequent years by the conjunction of demographic tendencies, technological adjustments, the urgency of tackling local weather change and the doable accelerating impact of the pandemic.
The demographic tendencies are such that the continent can have big wants and is more likely to overtake main power customers together with India and China within the coming a long time as famous by the IEA’s Africa Power Outlook (2019). By 2050, out of the extra 1.9 billion individuals on the planet, 1.2 billion will come from Africa, with its inhabitants reaching 2.5 billion.
In the meantime, the tendencies in local weather change are such that the continent can be among the many most severely affected and as such would want to decide on a path of inexperienced improvement. Excessive climate occasions, the frequency of which has been growing because of local weather change, have been chargeable for pushing 26 million individuals unfold over 20 international locations into conditions of starvation disaster in 2019 alone in keeping with the World Report on Meals Crises (2020).
Technological developments in renewables and transportation have additionally accelerated during the last decade so it additionally makes financial sense to spend money on these sectors. Africa hosts one of many largest endowments in renewable sources together with the richest photo voltaic sources on the earth. Unsubsidized photo voltaic and wind, already aggressive in 30 international locations, is projected to turn into cheaper than coal and pure gasoline in over 60 p.c of the world within the subsequent few years (World Financial Discussion board, 2016). With a median price of auto lithium-ion batteries falling by 16 p.c per 12 months during the last decade, electrical autos might disrupt the oil market and turn into a viable choice for Africa as nicely.
African oil exporters must be proactive because the power transition might result in completely depressed oil and gasoline costs. The pandemic shocks have proven the potential impact of a large drop within the demand for oil on oil costs. As diversification takes a very long time, efforts have begin as quickly as doable to vary their progress fashions.
If the pandemic persists it might remodel profoundly the demand for power and speed up a few of the tendencies I discussed above. The shock is definitely crippling fiscal sources within the quick run, however it shouldn’t be allowed to wipe out the achievements when it comes to human improvement during the last twenty years. The restoration on the continent relies upon crucially on investing in renewable power which affords big potential when it comes to badly wanted jobs and buying new technological capabilities. It will additionally assist combat local weather change and energy the event of Africa.
IMF Communications Division
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IMF – Worldwide Financial Fund revealed this content material on 30 June 2020 and is solely chargeable for the data contained therein. Distributed by Public, unedited and unaltered, on 30 June 2020 11:53:04 UTC