Digital Currencies and Future Monetary Policy in EA: How Governments can address the downside of cryptocurrency to advance financial inclusion in East Africa

In discussing the merits and de-merits of cryptocurrency reminds us of the simple high school definition of money. Money is what money does. In other words, anything that is widely acceptable as medium of exchange can become money. Most cryptoprenuers in East Africa just want regulation.

By Moses Kulaba, Governance and Economic Policy Centre

@mkulaba2000 @cryptocurrency @monetary blog @teamMonetary

In our first policy brief we explored and untangled the socio-economic and macro-economic risks associated with Crypto currencies. We concluded that the skepticisms and scrutiny of crypto currency is well deserved but noted that the underlying technology behind it could be used to drive future monetary policy and financial inclusion. In this second part of our digital economic governance and monetary policy analytical series, we explore how governments can or may navigate around these latent risks to formalize and make cryptocurrencies safe and vehicle towards inclusive digital and financial economies. We suggest that regulation is required instead of total bans which are difficult to enforce and could be denying governments potential dividends.

Evolution of Money, currency and monetary policy in East Africa

In discussing the merits and de-merits of cryptocurrency reminds us of the simple high school definition of money. Money is what money does. In other words, anything that is widely acceptable as medium of exchange can become money. In monetary history, the definition and nature of money has always evolved based on the trust and what it can do.  The emergency of crypto currencies in the 21st century perhaps unleashes yet another moment in history when money and monetary policy will be redefined for the future.

Just some few decades ago, the cowrie shell was the recognized legal tender and medium of exchange and trade along the East African coast. Europeans, Arabs and Portuguese used cowries as currency to control the valuable African trade routes and markets, along the coastline and its interior

Between 13th to the 20th century, Europeans, Arab traders and their African collaborators used Cowrie shells to buy services and precious goods such as salt, ivory, iron and gold and human beings as slaves. There are no records to show that minting machines existed and it is likely that these cowrie shells were perhaps picked along the coastline of the Indian oceans as these merchants landed to transact their business.  Clearly, the cowrie shells were not regulated by any central bank or backed up with any valuable item such as gold, as we know today yet they continued to be a means of exchange and facilitated commerce in East Africa for more than 1000 years!

Potential dividends from blockchain and crypto currencies

There are many downsides to cryptocurrencies and the experience has so far not been good always but behind any technological innovation there could be some opportunity.

According to technology experts some of the rapidly evolving technology behind crypto, however, may ultimately hold greater promise. A new kind of multilateral platform driven by blockchain and crypto could improve cross-border payments, leveraging technological innovations for public policy objectives.  

According to Forbes, the advantages of cryptocurrencies include cheaper and faster money transfers and decentralized systems that do not collapse at a single point of failure. Investors just need a computer or a smartphone with an internet connection to use cryptocurrency. There’s no identification verification, credit check, or background to open a cryptocurrency wallet. It is way faster and easier compared to old financial institutions. It also allows individuals to effortlessly make internet transactions or send funds to someone.[1]

With these advances, new payment technologies including tokenization, encryption, and programmability could define the future of monetary policy and public financial transactions.

Moreover, the private sector keeps innovating and customizing financial services. The public sector too just needs to match this pace by leveraging this available technology to upgrade its payment infrastructure and ensure interoperability, safety, and efficiency in digital finance.  

Just a few years ago, the mobile money transfer and payment system-MPESA was none existent.  When it was introduced by Safaricom, there was skepticism on the use of MPESA as money transfer and payment platform in Kenya and in East Africa yet over the last 20 years the MPESA mobile payment system has become the biggest financial technological innovation of the 21st century.

Today, MPESA is the largest mobile money platform, transacting billions of shillings per day and reaching millions of people across the continent.  The system has been expanded to other service sectors such as health, education and food.  They key takeaway from this technological breakthrough is that financial evolution is a continuous process and the concept of money will evolve for many years to come.

Is the imperative for crypto and a new monetary policy inevitable?

According to Amb Prof Ndemo Bitange[2], a renowned economist and Kenya’s Ambassador to Belgium & EU, contrary to the beliefs of sceptics, the penetration of crypto, development and adoption of Central Bank Digital Currencies (CBDCs) is an inevitable shift already underway.

This transformation is driven by changing business models and the increasing preference for alternative modes of payment over traditional cash. Reports from the Bank for International Settlements (BIS) affirm this trend and shed light on the ongoing efforts to shape the future of monetary policy and finance.

A CBDC is a digital or virtual form of a country fiat currency (such as USD, EUR and TZS) issued and regulated by a central bank. Their value is based on the government’s ability to maintain its value by controlling supply and demand, are used as a medium of exchange in transactions, and are considered legal tender within their respective countries.

Therefore, when issued, CBDC becomes a legal tender, analogous to physical notes and coins. Based on the literature, CBDC is thought to offer a range of benefits to the economy.

Central banks from various countries, including Canada, the European Union, Japan, Switzerland, England, Sweden, the Board of Governors of the Federal Reserve, and the Bank for International Settlements, play a crucial role in developing the foundational principles and core feature of CBDCs.

These institutions have conducted extensive research and produced valuable reports on key aspects of CBDC implementation. They acknowledge that the evolution of money is inevitable given the increasing digitalization of economies, rapidly changing user needs and the transformative impact of innovation on financial services.

Furthermore, the use of cash for transactions is declining in many jurisdictions, while non-bank private sector entities are introducing new forms of digital money, such as stablecoins. These developments highlight the need for central banks to adapt and explore how they can fulfil their public policy objectives in a rapidly changing financial landscape.

Prof Ndemo cautions however cautions that while preparations for CBDCs are underway in the global north, discussions and plans for adopting digital currencies in the south are still frozen. This disparity could lead to capacity issues and challenges for countries in the south as they try to catch up with the rest of the world during CBDC adoption.

Trends towards crypto regulation and future monetary policy in EAC

Regulation and regularization of cryptocurrencies in East Africa has been a basket of mixed goods, ranging from caution, total bans to a move towards regulation and potential new monetary policy covering digital currencies.

Tanzania currently does not have specific regulations or legislation governing digital currencies. The use of cryptocurrencies is still relatively banned, and the only accepted legal tender is the Tanzanian Shillings.

However, in January 2023, the Bank of Tanzania adopted a phased, cautious and risk-based approach to adoption of CBDCs, [3] setting in motion a potential road towards a new monetary policy terrain in the country.

This followed among others recognition despite the restrictions, mining and transacting in crypto currencies was popular widely used amongst many youths in Tanzania. The Bank of Tanzania had been researching and exploring potentiality of issuance of its CBDC. At this research stage, the Bank of Tanzania had formed a multidisciplinary technical team to examine practical aspects of CBDC and building capacity to the team in various ways.

The key considerations during this research stage involved choosing a suitable approach to CBDC adoption based on Tanzania context. This included type of CBDC to be issued (wholesale, retail or both), models for issuance and management (direct, indirect, or hybrid), form of CBDC (token-based or account-based), instrument design (remunerated or non-remunerated) and degree of anonymity or traceability.

 A particular attention was paid on risks and controls associated with issuance, distribution, counterfeit and usage of currencies. The outcome of the research at this point revealed that more than 100 countries in the world are at different stages of the CBDC adoption journey with 88 at research, 20 proof of concept, 13 pilot and 3 at launch. Analysis of these findings indicate that majority of central bankers across the world had taken a cautionary approach in the CBDC implementation roadmap, in order to avoid any potential risks that can disrupt financial stability of their economies.

Further, it was observed that, 6 countries had cancelled their CBDC adoption mainly due to structural and technological challenges in the implementation phase. The structural challenges included dominance of cash in making transactions and existence of inefficient payment systems, high implementation cost and risk of disrupting existing ecosystem.

Accordingly, to the government, the Bank of Tanzania would continue to monitor, research and collaborate with stakeholders, including other central banks, in the efforts to arrive at a suitable and appropriate use and technology for issuance of Tanzanian shillings in digital form.

Tanzania’s announcement was a pioneering move in a region whose governments have remained both non-committal but largely hostile in equal measures towards digital currencies.

In Kenya, cryptocurrency is technically legal, with no specific laws or regulations prohibiting its use or possession. However, it is not recognized as legal tender or an asset. The Central Bank of Kenya has issued warnings without specified penalties and has expressly forbidden financial institutions and payment service providers from doing business with Web3 businesses that ‘trade cryptocurrencies.’ Existing regulations are not well-communicated, and a clear legal framework is lacking.

Despite the warnings, transacting in crypto thrives and there is appetite amongst young people and online investors. Media reports suggest that overall, there are an estimated 2.7 million to 4 million cryptocurrency owners in Kenya, representing approximately 5% to 9% of the country’s populations.

On Umoja Lab’s BRAF (Blockchain Regulatory Assessment Framework), Kenya is rated a 40.63 out of 100, indicating that it is a “Developing Regulatory Environment” that is becoming clearer on where blockchain technology and cryptocurrency should go with regards to the need for regulation and expected compliance measures for crypto companies.

In 2023, the government found difficulties in prosecuting the directors of an online cryptocurrency company called One Coin. OneCoin company was accused of transacting illegally millions of Kenya shillings and duping Kenyans with a pay of Ksh7000 in exchange for their eye iris scan and biodata.

The company promised participants, among others, opportunities for making a fortune thereafter in crypto assets, a promise that never was. According to the Central Bank of Kenya, Onecoin was never registered to operate in Kenya yet it registered thousands and transacted millions without detection. 

Its co-founder, Karl Sebastian Green Wood also known as the ‘Cryptoqueen,” was arrested and sentenced to 20 years in prison for his orchestration of the massive OneCoin fraud scheme in the US and globally. Her co-founder Ruja Imatova disappeared since 2017 and it is not clear whether she is dead or alive. The Kenyan Onecoin case is not fully settled yet, bringing to light the importance of proper regulation.

Kenya Case law as cited by Justice M.W Mungai under the case of Wiseman Talent Ventures vs. Capital Markets Authority of Kenya (2019) has placed regulation of crypto currencies by the Capital Markets Authority under the ambits of  Section 2 & 11 of Capital Markets Act

Uganda does not recognize crypto-currency as a legal tender and in October 2019 the Minister of Finance, Planning and Economic Development issued a public statement to that effect.

However, in recent years there has been increasing calls from stakeholders for the country to regulate digital currencies. According to a USAID funded research by the Collaboration on International ICT Policy for East and Southern Africa (CIPESA), as technology continues to reposition itself around societal needs, at a fast pace, more countries around the globe are embracing and creating avenues for the use of cryptocurrencies within their local environments. Uganda should not be caught at the tail end of this drive and neither should it wait out the process of strategically positioning itself in the electronic commerce domain[4].

While back in 2011, Cyber-related legislation was passed to cater for the emerging digital landscape in Uganda. This failed to cater for crypto-currencies, despite recognizing a huge volume of online financial transactions.

CSO demand for clarity on the government position on use of cryptocurrencies; and suggests that Uganda should work with regional and international partners on establishment of an international treaty, as well as international collaborative measures in addressing cryptocurrencies.

In Rwanda, the government has banned banks from facilitating crypto transactions, however many locals are hopeful that Rwanda’s crypto scene will blossom on the back of a digitalizing economy.

Despite the bans, many young Rwandese are still cracking the webs to mine the crypto dimes and the appeal for regulation instead of criminalization and total ban is equally on.

Generally, we are yet to see some shifts towards regulation or regularization of cryptocurrencies in the other East Africa countries such the DRC and Somalia. Both policy and regulation are still blurred, exposing many to the risks but equally government missing out on the potential dividends that come with crypto and block chain-based technologies. It is for this reasons that a new monetary policy and regulation is required across the EAC.

Key policy recommendations to address cryptocurrency risks and future monetary policy

# Governments through Ministries of Finance and Central Banks must map existing crypto platforms and extent of penetration.  Kenya and Tanzania are so far reported as having the largest number of crypto entrepreneurs and transaction volumes in East Africa. These statistics are however not official. Like in Uganda and Rwanda, governments are yet to determine the detailed extent of penetration and impact in the form of self-employed jobs.

# Governments must assess the potential economic contributions to the economy in the form of financial inclusion, employment and facilitation of investment. Nigeria was the first to launch the e-naira but so far, no concrete assessment has been done to establish its success and why it failed. Government let studies on the potential economic benefits from crypto are non-publicly existent.

# Set up clear regulation (Policy and legislative)-To avoid ambiguities, fraud, money laundering for criminal enterprise, tax evasion and disruption of the formal financial systems. In our (Governance and Economic Policy Centre) interviews with crypto entrepreneurs, genuine traders who transact legitimate business exist, and just want to be regulated not banned.  The IMF and other institutions can offer support to EAC governments on building secure platforms while governments build their capacities to regulate and monitor transactions.

# Institutionalization of CBDC trading and clearing houses for crypto currencies. Tanzania may have taken a positive stride; however, this has to be followed with other supportive infrastructure such as a policy ambit and platforms for trading and exchange. A concomitant supportive monetary policy can go a long way in addressing some of the challenges and lacunas currently faced by both government and digital currency entrepreneurs.

# Explore, scaleup and leverage the opportunities that blockchain and crypto technology can offer in other sectors such as health, education and governance. In Kenya, it was reported that blockchain technology was used to secure the 2022 general elections voting and election results systems.

As global reports show, the penetration of cryptocurrency continues to take shape and without regulation the risks and exposure to the criminal abuse could increase. It is imperative that the public and private sectors work together to ensure that users can transact safely, and that criminals can’t abuse these new assets. So far the regulatory framework exists that can be used as a basis towards a new monetary policy and proper regulation and regularization.

With surging unemployment rates and a bulging tech-savy and connected youth population, online financial trading in digital currencies could increase financial inclusion, cause a digital economic revolution and penetration in the EAC countries, producing dividends in the form of jobs, employment and incomes. That is why future monetary policy must be aligned to the current and future technology and currency trends.

 

[1] https://www.forbes.com/advisor/in/investing/cryptocurrency/advantages-of-cryptocurrency/

[2]  Amb Prof Ndemo Bitange; Exploring the future of banking with CBDCs,  a blog post on his personal Linkedin page, July 15, 2023

 

[3] https://www.bot.go.tz/Adverts/PressRelease/en/2023011413181519.pdf

[4] https://cipesa.org/wp-content/files/briefs/Crypto_Currency_Regulation_and_Implications_on_CSOs_in_Uganda_Policy_Brief.pdf

Solar and Energy Transition: Good policy intentions but less progress: Assessing Tanzania and EAC’s Utility scale solar energy potential and policy gaps to fix

Governments are struggling with little success to attract and retain utility scale solar projects and many have died in their nascent stages. Yet utility scale solar projects could be a significant contributor to resolving the regions power shortages and increased energy access by sizeable proportions. So, what is holding back utility scale solar projects and how can governments maneuver to attract and retain more investors. 

By Moses Kulaba, Governance and Economic Policy Centre

@energypolicy @cleanenergy @solarafrica @energytransition

Multiple studies have concluded that the Eastern Africa region has the highest technical potential for solar power technologies, with estimates of 175 PWh and 220 PWh annually for Concentrated Solar Power (CSP) and Photovoltaics (PV) respectively. African countries with the highest CSP and PV potentials are Algeria, Egypt, Namibia, South Africa, Sudan, and Tanzania.  The annual technical solar power potential in Tanzania is estimated to be 31,482 TWh for CSP technology and 38,804 TWh for PV technology. Despite this potential, Tanzania and EAC lags behind its peers such as South Africa, Algeria and Egypt. Besides the technical aspects as earlier discussed, the policy terrain in East Africa has been largely zig zag and therefore not coherent enough to support investment.

In this second part of our analytical series on solar as a clean energy source, we attempt to shade some light on the policy terrain in Tanzania and East Africa generally and how this is contributing towards holding back large-scale investment and utility scale solar penetration.

Policy and investment terrain

Generally, the policy and investment landscape in East Africa has been evolving at a snail pace. Both Tanzania, Kenya and Uganda have renewable energy policies in place however these are not backed up by adequate promotion, implementation and funding. The regulatory terrain has also been discordant.  For the region to benefit, the policy and investment trajectory will have to align and move faster, catching up with the global trends and the drive to clean energy.

Tanzania’s policy terrain.

The government passed a National Energy Policy (NEP) in 2015 with a commitment to increase the share of renewables in its energy mix. The NEP 2015 seeks to facilitate improvement of investment environment to promote and support private sector participation. The policy further commits to scaling up utilization of renewable energy source by among others introducing a.. feed-in-tariffs for renewable energy technologies and structure power purchase agreements for renewable energy.  

It further commits to facilitate integration of renewable energy technologies in buildings and industrial designs and establish frameworks for renewable energy integration into the national and isolated grids; an Promote sustainable biofuel production and usage.

However, actualization of this has been slow. To date contribution of renewables to Tanzania’s energy mix remains low at 1.2 %. By 2021 Tanzania’s electricity generation came mostly from natural gas (48%), followed by hydro (31%), petrol (18%) with solar and biofuels contributing a mere 1% each. The National energy consumption balance is still dominated with biomas (charcoal and firewood) use at around 85%.

Tanzania government admits that that solar utilization is constrained by high initial costs, poor after sales services, insufficient awareness on its potential and economic benefits offered by solar technologies plus inappropriate credit financing mechanisms.

Previous policies, particularly the 2003 was successful in the establishment and operationalization of Energy and Water utilities regulatory authorities, the Rural Energy Agency (REA) and the Rural Energy Fund, However, it fell short of making advancements on the renewable energy, particularly by not creating a designated and operational Renewable Energy Fund. By design it is implied that funding of the renewable sector would come directly from the consolidated Energy Fund. However, with conflicting priorities and government’s focus on increasing energy access to hydro and gas fired electricity, much of the available funding was channeled towards rural electrification.

In 2012 Tanzania was one of the pilot countries selected to prepare the Scaling Up Renewable Energy Program (SREP). The chief objective of this plan was to transform the energy sector of Tanzania from one that is more dependent on fossil fuels to one that is more diversified with a greater share of renewable sources contributing to the energy mix through catalyzing the large–scale development of renewable energy.

The SREP–Tanzania Investment Plan was prepared by the Government of Tanzania, through a National Task Force led by the Ministry of Energy and Minerals (MEM) with support from the Multilateral Development Banks (MDBs). However much of this plan is yet to fully takeoff and its translation into actual deliverables yet to materialise

Cognizant of the significant gaps that exist, in 2023 the Minister of energy at time, Hon January Makamba revealed that the government was developing a new Renewable Energy Policy to further enhance investments in renewable energy. This policy would capitalize on the substantial financial resources, capital markets, and advancements in new technologies dedicated to renewable energy globally. He also announced ongoing efforts to identify areas with renewable energy resources and prioritize native investments in wind and solar projects. The government would provide support in this regard and establish guidelines for project implementation.

In 2023 Tanzania entered into an agreement to construct the Country’s first-ever solar photovoltaic power station to feed into the national electricity grid. According to the Ministry of Energy, the project is part of a larger initiative of installing 150 MW of solar energy in the Kishapu district of the Shinyanga region. The first phase of the project to be constructed by Sinohydro Corporation from China was estimated at TZS 109 billion and was scheduled for completion before end of 2024.

According to the Minister, the implementation of the solar project reflected the government’s commitment to establishing a diverse mix of electricity sources in the national grid, incorporating water, gas, wind, and solar power. This approach aims to ensure a continuous supply of electricity, even in the event of a failure in one source.

There are also several large-scale solar power projects under development, including the 30 MW Singida project and the 50 MW Nyumba ya Mungu project. In addition to government efforts, there are also private companies and organizations working to develop renewable energy projects in Tanzania.

Similarly, Zanzibar, the semi-autonomous Island of Tanzania, also signed in 2023 an agreement with a Mauritius-based Generation Capital Ltd and Tanzania’s Taifa Energy to build its first large-scale 30MW solar PV power plant, as it seeks to become energy independent. The plant will cost $140 million. The Power Purchase Agreement (PPA) between the state-owned Zanzibar Electricity Corporation (Zeco) and the two companies to develop the 180 megawatts plant will be implemented in phases, according to Zanzibar’s Ministry of Energy and Minerals.

Kenya’s solar terrain

Garissa Solar Farm

So far, Kenya is leading in large solar projects.  There are at least 10 large solar farms in Kenya. The Garisa solar farm, is the largest in East and Central Africa, with 55 MW generation capacity. The solar farm sits on85 hectares (210 acres) and consists of 206,272 265Wp solar panels and 1,172 42kW inverters owned and operated by Rural Electrification and Renewable Energy Corporation. Others already operational or proposed include; Malindi Solar (52MW), Alten Kasses (52 MW), Kopere Solar Project (50MW), Eldosol Solar Project (48MW), Radiant (50MW), Rumuruti (40 MW), Nakuru Solar project (40MW), Witu (40MW) and Makindu (40MW).

Kenya has buttressed its renewable energy credentials with a new Energy Transition and Investment Plan (ETIP) launched in 2023. The ETIP spells out Kenya’s road map to delivering a 100% clean energy driven economy by 2050. The country is however yet to figure out how it will fund this ambitious plan. Over the past recent years Kenya has been facing significant budgetary constraints affecting funding of its major national development plans. Even when the government has committed to achieving 100% clean energy by 2030, it bets heavily on funding from external donors. With the recent trend in aid inflows and if they remain unchanged in the short and medium term, it will be a tall order Kenya to meet this target.

Uganda’s solar uptake

Uganda has been slowly catching up with its peers. Uganda’s policy commits to make modern renewable energy a substantial part of the national energy consumption. To increase the use of modern renewable energy, from the current 4% to 61% of the total energy consumption by the year 2017[i].

The policy terrain has been zigzagging and investment in renewables is still low but the government has blended its focus on hydropower generation with small investments in solar projects as back up for its hydropower. There was a big growth in 2021, reaching 92 MW, followed by a significant increase of around 6.9 MW, reaching a total of 98.9 MW Uganda’s installed solar energy capacity in 2022.

Some of the projects contributing to this growth include Kabulasoke Solar PV Park is a 20MW solar PV power project, located in Central, Uganda, Bufulubi solar project in Tororo and Access solar plants in Soroti.  New pipeline projects include the Amea West Nile Solar PV Park, a ground-mounted solar project, whose construction was expected to commence from 2024 and subsequently enter into commercial operation in 2025. The power generated from the project will be sold to Uganda Electricity Transmission under a power purchase agreement. 

This however falls short of achieving the targets as stipulated in Uganda’s Renewable Energy policy. Uganda’s renewable energy policy commits to establish and maintain a responsive legislative, appropriate financing and fiscal policy framework for investments in renewable energy technologies. It mentions forms of financing such as strengthening the Credit Support Facility and Smart Subsidies which are intended to scale up investments in renewable energy and rural electrification.

Moreover, a special financial mechanism, a credit support facility known as the Uganda Energy Capitalisation Trust, was instituted to help realise the policy but this expired in 2012 and had never been renewed[ii]. Uganda lags in meeting its policy targets as only 10 solar projects had been completed by 2022[iii].

What is the current market and investment size?

According to global energy reports, there is a substantive market size of solar photovoltaic (PV) in East Africa and Africa generally. The Middle East & Africa solar photovoltaic (PV) market size was valued at USD 5.00 billion in 2022. The market was projected to grow from USD 6.93 billion in 2023 to USD 37.71 billion by 2030, exhibiting a cumulative Average growth rate (CAGR) of 27.4% during the forecast period.

Despite its immense solar power potential, East Africa and Africa generally continues to lag behind other continents when it comes to building up utility scale grid and off-grid solar capacity, in part due to a stagnant policy regime, overlapping institutional roles, limited research, technical capacity and lack of appropriate financing facilities for investment.  Some proposed projects have failed to take off.  As a consequence, the total investment share of utility scale projects into East Africa remains comparable low.  

So, what can EAC governments do to make utility scale solar markets attractive?

Recommendations

# Governments must make policy switches from paper to aggressive attracting of investment into the solar PV East African markets. The policies may exist but the implementation gap is too big. Policy interventions and a national course-correction is urgently needed to effectively overcome structural barriers and create local value in the emerging solar market many of which is still left behind in this progress.

# Decentralization of energy generation away from vertically integrated power monopolies such as TANESCO and Kenya power could be a game changer.  De regulation and introduction of net metering by independent Solar PV power producers to directly generate and sell to customers could improve profitability of solar projects and attract new investments.

# Financing institutions must scale up project financing of renewable energy projects.  Solar projects are still expensive and funding is difficult to come by. Kenya’s Garisa solar project required an investment of KSh13. 7 billion ($135.7 million) and was funded by the Exim Bank of China. Other projects have required substantive investment with funds generated from private developers and energy venture capitalists. The existing financial institutions are yet to master tailing project financing to utility scale solar projects.

# Addressing land rights and underlying injustices. Large solar farms require large tracts of land and these can be a source of land grabbing, land deprivation and injustice, generating conflicts and endless litigation between potential investors and the communities. The renewable policies and investments have to sit well with land rights, guaranteeing free prior informed consent, fair compensation and equity,

# Socio-economic: Identifying and prioritizing suitable areas for building large-scale solar power plants is a complex problem. In contrast with the simplistic view, identifying appropriate geographical areas for solar power installation is not only linked with the amount of received solar radiation, but there are many other technical, economic, environmental, and social factors that should be considered like: alternative land uses, topographical characteristics of the land, conserving protected areas, potential environmental impacts, water availability, potential urban expansion, proximity to demand centers, roads proximity, and potential for grid connectivity.

# Solar technology firms must address intermittence and storage of renewable energy. Solar power is generally reliant on the availability of sunshine. Depending on the weather and hours of the day and night. Unfortunately, the technology has not advanced far enough and made cheaply available to East for storage of solar power. For solar power users the days are hot and the nights are cold.

# Government leaders must have a unified political will to support renewables as part of the master energy mix and regional energy power pool. So far there is a divided political opinion on what solar power can do in helping the governments to meet their national energy demands. While Kenya is a front runner, other countries are still focused on hydro and gas. The future of distributed solar therefore depends largely on good political will driving favorable polices and changing mindset to embrace solar power as a new source of energy. This could be reflected in new generation policy drivers such as requirement for solar considerations in building designs and integrated power systems.

[i] Renewable Policy for Uganda; https://s3-eu-west-1.amazonaws.com/s3.sourceafrica.net/documents/118159/Uganda-Renewable-Energy-Policy.pdf

 

[ii]

[iii]

Energy Transition: Understanding basics of solar energy and why it has failed to peak in East Africa

 

East Africa has abundant hot sunshine around the year yet harvesting this for large utility scale electricity has remained small. Partially, it is because the technical aspects of solar power make it a complicated energy source system than it may appear. Understanding is important in helping to shape policy and accelerated solarisation.

By Moses Kulaba, Governance and Economic Policy Center

@energy transition @solarenergy @solarafrica  @energypolicy

Early in March 2024 a heat wave hit South Sudan with temperatures soaring between 41 to 47 degrees Celsius. The temperature and its accompanying heat were too high that the South Sudanese Ministry of Health closed schools, advised the public to stay indoors and drink a lot of water to remain hydrated.  

The images of South Sudanese baking eggs under the open sun on the streets of Juba went viral rekindling the debate on the potential of harnessing solar energy to generate power. In a two part articles and policy briefs we discuss the technical aspects of solar power and the policy terrain undermining the utility scale investment levels in East Africa.

East Africa has abundant hot sunshine around the year yet harvesting this for large utility scale electricity has remained small. With about 50 MW generation, the Garissa Solar Plant is the largest grid connected solar power plant in East & Central Africa.

So far Egypt has the largest solar park in Africa. It spans 37 kilometers and has a total generation capacity of around 1.8 gigawatts, which is enough to power hundreds of thousands of homes and towns. The question is therefore asked why have we not seen large uptake of utility scale solar projects in East Africa? The answer zeros down to technology, political will and mindset.

The technical aspects of solar power make it a complicated energy source system than it may appear.  The mechanics behind solar power and how it can be harnessed with impact on a larger scale can/ is more complicated than it may appear. Harnessing solar for electricity generation requires technical expertise, political will and investment.  This brief dissects the basics of solar power and its potentials as a Peaker clean power source for East Africa.

What is solar power

According to scientists, solar energy comes from nuclear reactions which happen deep in the sun’s core. The sun is a giant hot glowing mass of hydrogen and helium at the center of our solar system.

Every second the sun burns and loses about 4 million tons of mass in a continuous complex nuclear fusion reaction. That mass when converted into energy is what drives solar energy outwards from the sun radiating into the solar system. Solar energy radiates from the sun as electromagnetic waves of different frequencies and energies which can be trapped and transformed into solar electricity.

The solar panel collects energy from the sun, this energy goes into an inverter, which is a key component of a solar PV installation. The inverter converts the steady electric power coming into the inverter into alternating current (AC) which is the predominant form of power used in an electric grid or connected to a service panel at a house.

Role of solar in global power systems

Globally the role of solar is still small although it has been increasing over the years. Solar power contributes about 10% of all renewable energy and 1% of total world energy. Bioenergy, hydro power and wind contribute the bulk (90%) of the total renewable energy of about 900 Mtoe, accounting for 10.5% of total energy use. Solar photovoltaic and solar thermal provide 5% each of renewable energy. These statistics are growing as the world constantly moves towards clean energy solutions by 2030.

According to Renewable Capacity Statistics 2024 report released by the International Renewable Energy Agency (IRENA) shows that 2023 set a new record in renewables deployment in the power sector by reaching a total capacity of 3, 870 Gigawatts (GW) globally.

With solar energy continuing to dominate renewable generation capacity expansion, the report underscores that the growth disparity did not only affect geographical distribution but also the deployment of technologies. Solar accounted for 73% of the renewable growth last year, reaching 1 419 GW, followed by wind power with 24% share of renewable expansion.

Renewables accounted for 86% of capacity additions; however, this growth is unevenly distributed across the world, indicating a trend far from the tripling renewable power target by 2030.

The 473 GW of renewables expansion was led once again by Asia with a 69% share (326 GW). This growth was driven by China, whose capacity increased by 63%, reaching 297.6 GW. This reflects a glaring gap with other regions, leaving a vast majority of developing countries behind, despite massive economic and development needs. Even though Africa has seen some growth, it paled in comparison with an increase of 4.6%, reaching a total capacity of 62 GW. Clearly, the room for solar as a new form of energy is still available.

Determinants of solar power and characteristics

The amount of solar received on the earth is determined by a number of factors such as what is technically called irradiance and irradiation. Solar Irradiance is the term generally used to measure the solar flax at a given location and is usually quoted in units of Watts per square meter. Solar Irradiation is used to measure the long-term average solar flax at a given location and usually quoted in Kwh per square meter.

This can further be categorized as Direct Normal Irradiation (DNI) which is the solar power measured at the surface of the earth at a given location with a surface element perpendicular to the sun’s rays. Diffused Horizontal Irradiance/irradiation (DHI) measuring the radiation at the earth’s surface from light scattered by the atmosphere and Global Horizontal Irradiation (GHI) which is the total irradiance from the sun measured at the earth surface on a horizontal plane.

Africa is often considered and referred to as the “Sun continent” or the continent where the Sun’s influence is the greatest.  According to the “World Sunshine Map”, Africa receives many more hours of bright sunshine during the course of the year than any other continent of the Earth and many of the sunniest places on the planet lie here.  This has also been. recognized by the international council of science who confidently pointed out that Africa has the best resources when it comes to solar power availability. This resource is usually measured in form of solar irradiance.

The amount of solar irradiation and irradiance are further determined by factors such as

  1. Geographical location and proximity to the equator, whereby close proximity to the equator provides short distance to the sun with the sun rays having a direct strike to the earth’s surface and therefore higher temperatures optimal for solar energy.
  2. Elevation above, where by the higher you go, the more exposure to sunlight and amount of sunshine received
  3. Seasonality of weather, cloud cover and precipitation, which determine how much sunshine is recorded at a given location.

Strategically located along the equator, East Africa receives between 500-3500 hours of sunshine per year, therefore making it a perfect site for harnessing solar energy throughout the year.

Trends of Solar installations and future of utility scale solar power

Solar Photo Voltaic (PV) installations have been increasing beyond expected projections, however the rate is still too low to pace the required demand.  The costs of solar PVs have been dropping constantly by around 20% for every doubling of cumulative shipped volume. At the present rates the costs could have about every 10 years.

Solar panels are made from semi-conductor materials which conduct photovoltaic cells through a complex process of doping and bonding as energy moves through different bands to release electricity. This harnessed for domestic use or as Concentrated Solar Power (CSP) for Utility scale electricity generation. According to statistics CSP is expected to grow by nearly 90% over the next 5 years and nearly tripling the rate of the past 5 years.

Solar and Socio-economic effects

Utility scale solar projects require large tracts of land to set up. For example, the 1,547 MW China Great Wall Project in the Tegger Desert occupies 1200 square kilometers of land with an installed solar field of 43 square kilometers. The US Star 1 and 2 project sits on a large piece of land with1,720,000 panels field generating 1,664 MW enough to power 255,000 homes.  This requirement for size to pave way for their establishments, can lead to land grabbing, mass evictions and displacements escalating socio-economic conflicts between the local residents and the investors. East Africa is already awash with land-based conflicts, displacement from ancestral lands and unfair compensation of victims.

Solar and the environment

Because of its low penetration, the environmental impacts of solar energy are still minimal.  These could increase as the uptake expands however the following can be noted

  • Land use and eco system. Solar farms at utility scale electricity generation requires large areas of land and this can cause disturbances to the land vegetation and sensitive eco-systems. The thousands of solar panels spread across hundreds of square meters can be an eye sore and environmental nuisance
  • Impacts on birds (avian): Solar can have adverse impacts to birds through distraction inflight eye sights and incineration. According to a study by the USGs estimated that its Ivanpah CSP plant in Nevada was incinerating about 6000 birds per year. Globally it was estimated that between 40,000 to 140,000 birds died due to large utility scale solar projects.
  • Toxic materials used; Solar panels are produced using toxic materials such as silicon which reacts and decomposes to produce tetrachloride, a toxic substance must be well disposed as an industrial waste.

Generally, solar is not carbon free based on a 30-year life cycle analysis but has a very low carbon foot print. This carbon foot print could increase as solar penetration expands matching the global drive towards a clean energy future. However, for now it remains one of cleanest source of energy.

Please read our next article on Tanzania and EAC’s potential and the policy terrain and regulation

Tanzania’s offshore wind and tidal energy potential: How Tanzania can become a wind and tidal power giant

 

Tanzania faces acute electricity energy supply yet with investments in offshore wind and tidal waves projects, the country can turn fortune by generating extra electricity supply and ridding a straight path into a clean energy future.

By Moses Kulaba, Governance and Economic policy center

@climate change , energy transition and COP28 series

According to Global Information Systems (GIS) reports Tanzania has strong offshore winds capable of generating up to 17Gwh and estimated tidal stream power of 133 kW/m.  Yet this potential lies idle and unexploited.

At least 60 % (2/3) of Tanzanians lack access to power and in recent years and months, power rations have worsened, lasting for over 12 hours as the national grid suffers from acute shortages due to overloads and deteriorating infrastructure. The situation is worse in 2023 compared to five years ago and has affected Tanzania’s economic production and growth substantively. According to the world bank the cost of power outages in Tanzania cost businesses about 15% of annual sales and millions of dollars to the national economy.

The energy shortage also affects the semi-autonomous territory and tourist hotspot Zanzibar, which is heavily reliant on the mainland Tanzania for its electricity generation and supply. Both Unguja and Pemba are completely reliant on power purchased from TANESCO through submarine cables of 100 MW and 25 MW capacity, respectively.

Zanzibar lacks its own power generation facilities, and electricity is supplied from mainland Tanzania by the 132kV undersea cable.  The cable has reliability and maintenance challenges sometimes plunging the entire Island into a total power blackout. As a partial mitigation against this risk, Zanzibar Electricity Company (ZECO) maintains 25MW of grid-connected high-speed back-up diesel generators. Most hotels, offices, industries, and various private sector consumers have their own captive emergency diesel generators to supplement in situations of power outage. However, the cost of maintaining these is high and their constant emission of poisonous fumes during operation is dangerous to the environment. Offshore wind and tidal electricity would help Zanzibar wean itself from over reliance on the mainland’s Tanzania National Electricity Supply Company (TANESCO) as the National grid has been perpetually facing power shortages.

As of the year 2021 Tanzania’s total electricity supply was 1605.86 MW. Peak electricity demand in the country is expected to roughly quadruple by 2025 to 4,000 MW. To help meet this demand, Tanzania is targeting installed capacity of 10 GW by 2025. However, maintenance issues and climate change-induced water shortages have caused a 400-megawatt electricity shortfall in Tanzania, triggering power rationing across the country. For many Tanzanians, it is repetitive cycle of darkness. The sun rises and there is no power. It sets and it’s pitch black – in fact, according to government data at least two-thirds of Tanzanians don’t have access to electricity.

Developing of wind shore and tidal waves electricity generation capacity would be a win-win situation for both Zanzibar and Mainland, as it would supplement the much-needed electricity during peak hours and reduce on the heavy burden imposed on the national grid, providing power to many customers who need it.

Moreover, these projects if developed, would be a game changer for the Country’s  energy sector. They would catapult the country long steps ahead of its peers in achieving its energy access goals, and meeting its Nationally Determined Contribution (NDC) Goals on the road to clean energy transition. For this to happen, some deliberate political and policy choices have to be taken.

Why offshore wind and tidal power is important

There are questions about intermittency and whether technology exists to support investment into Tanzania’s offshore wind and tidal wave potential. Our basic analysis suggests that projects of this nature would be viable and worth giving a try.

The United Republic of Tanzania (URT) is the largest country in East Africa, located between longitude 290 and 410 East and Latitude 10 and 120 South. URT has a Territorial Sea of 64,000 km2 and an Exclusive Economic Zone (EEZ) of 223,000 km2, which is about 24 percent of the land area. Tanzania has a total coastline of 1,424 km running along the Indian Ocean, with an average wave energy potential of 7.5KW/m and theoretical potential of 94TWh/y. The coastal population is estimated at 30% of the total population, providing a huge potential for the generated electricity.

Tanzania has both shallow waters close to its coastline which would allow offshore wind projects development under the current technology and an extensive Exclusive Economic Zone (EEZ) off Zanzibar’s shorelines ideal for anchoring deep water floating platforms to allow it to access wind resources at much deeper water depths across its entire EEZ. The government is open and has been encouraging investment in its current EEZ. However its current investment drive has targeted the fisheries sector. With an extended offshore coastline and Exclusive Economic Zone (EEZ) running off Zanzibar, Tanzania has unique advantage compared to its regional neighbors.

From a cost perspective, offshore wind and tidal wave projects are viable. There is much more wind on the shoreline than on land, with an average of speed of more than 50m. Evolution of turbine technology, installation experience has allowed economies of scale and costs of wind power generation has gone down significantly. It is further projected to reduce by 40% over the next decade.

Moreover, the levelized cost of selling power on the market has gone down significantly as economies of scale for wind turbines have grown. The cost of selling electricity has come down to approximately $50/Mwh. Therefore, wind energy now is one of the cheapest generated powers compared to gas combines cycle, coal and considerably cheaper than solar PVs.

Globally, wind generated power is projected to grow as countries ramp up their clean energy generation in line with the road towards net-zero by 2050. This a trend that offshore wind technology will rapidly become cost effective renewable energy technology and a good option that developing countries can consider when developing pathways towards decarbonizing their electricity supply-system.

Tidal energy will also be a good option. Ocean tides are generated by tidal raising forces associated with gravity and centrifugal forces and the earth’s orbiting system or position  relative to the sun and moon. When these two bodies are in balance there are unbalanced forces on the surface of the earth that can push the ocean water left and right, causing tides. Tidal energy is taken from the kinetic energy of these orbiting forces to generate power. The orbits systems and tidal movements can  be predictable years in advance and for this reason, it would be possible to estimate ahead when and how large the tides would be and the possible amount of electrical energy generated would be.

The offshores of Zanzibar lie in the belt with high M2 tides with 1-2-meter-high tidal amplitudes capable of generating a lot of power. Combined wind and tidal power could serve as a major Peaker, supplying offshore wind and tidal generated electricity during the peak hours. Evidence from the United States, United Kingdom and Canada suggests that an integrated energy system of this nature can be a game changer in addressing energy shortages, and driving the country towards a cleaner energy generation

What is required to make it happen?

  1. National Energy Policy and Strategy review and orientation towards offshore wind and tidal wave energy development. This would mean placing offshore wind and tidal wave power generation as part of the national energy systems power mix plan.
  1. Supporting institutional framework by breaking up TANESCO and ZESCO to curve out an independent agency responsible for offshore wind and tidal power. An agency similar to the US Bureau of Ocean Energy Management (BOEM) would be given a focused mandate to develop offshore wind and tidal wave power sector by mobilizing resources (technical and financial), attracting private sector investment and regulation, decreasing developer risks and encouraging inter-agency and stakeholder cooperation.
  1. Another policy direction would require the government to purchase at least given minimum amount of offshore wind and tidal wave capacity. The new agency would be tasked with delivery of such an amount to the National or Zanzibar power grid. This would provide a room for long-term off take Power Purchasing Agreements (PPA), decreasing major sources of uncertainty for project developers.
  1. Government to conduct necessary further research to support offshore and tidal wind projects. This would include update data collection to determine the costs benefit of offshore wind and electric systems configurations, site characterization, and dissemination would be required. Tanzania lacks marketable data.
  1. Political will and determination to explore new energy frontiers and commitments to a clean future. Although there could be some political sensitivities between the mainland and Zanzibar as towards having projects of this kind because the Union matters political configuration, the economic benefits from this potential outweigh the political undertones. To counterbalance, strategic project of this nature could be anchored under the current governments (Union and Zanzibar) blue economy development plans.

 

 

Evaluating East Africa’s economic trends and outlook 2024: What should EAC governments do to reduce further hardships?

The East Africa Community is so far the largest economic block, with 7 members states with a vast territory straddling from the Indian ocean coast to the Atlantic Coast, with a staggering population of estimated 283.7 million citizens, 4.8 million square kilometers of land area and a combined Gross Domestic Product of US$ 305.3 billion[1], the EAC region is a big silent economic giant.  As of November, the UNDP estimated the EAC had 489,766,467 million people (6% of the total world population)[2], making it one of the fastest growing regional economic blocs in the world and number 1 in Africa among subregions ranked by population. Despite this potential, the region faces multiple economic and political setbacks.

In 2023, the EAC faced significant economic meltdown, with depreciating currencies, rising costs of living and political unrests, tainting the prospects for 2024. The rising cost of fuel, high costs of transportation and production, exerted high pressure on the cost of living, with inflation hoovering above 6% and reduced the region’s economic growth to around to about 3.3% in 2023. Already, the tight economic hardship has caused general anxiety across the East Africa region and social-political unrests in some countries such as Kenya.  Governments have experienced a crunch on revenue collections and significant reductions in external aid. They have resorted increasing taxation to shelter the governments against adverse effects of depreciating shilling against the dollar and heavy costs of borrowing which have surged over the past one year.

The latest World Economic Outlook report released in October predicts that the world’s economy will remain on a downward trajectory for the rest of 2023 and 2024, with the rate of growth decelerating to 2.9 percent next year, from this year’s 3.0 percent. Although the World Bank has predicted a positive outlook for East Africa, with a projected growth of 5.7%, amongst ordinary citizens, life is difficult and questions are everywhere. Where have governments gone wrong.

The purpose of this webinar is to facilitate public discussion assessing the current economic trend and government economic performance, with a view of influencing policy priorities, and practical economic choices that governments should make now to cushion its citizen against the rising cost of living and future hardships in 2024.  During this webinar our experts will paint an economic slate of the region and the extent to which socio-economic interventions such the Parish Development Model in Uganda and heavy taxation, can be a solution to the current and future economic quagmire facing the region. Most significantly, they will try to answer whether Kenya is headed to lose its economic mantra and Tanzania could emerge as new economic giant in the region

Expert Speakers

Dr Kasirye Ibrahim, Executive Director, Economic Policy Research Centre (EPRC), Makerere University, Kampala: Uganda’s experience: Are government social interventions such as PDM working to shelter the poor and vulnerable against poverty?

Expert perspectives on Uganda’s economy, the government interventions through projects such as the PDM and a quick glimpse of what 2024 could look like and what practical measures the government should take to avert the increasing economic hardships.

 

Mr Kwame Owino, Chief Executive Officer, Institute of Economic Affairs (IEA), Kenya: Can taxation be a solution and should we expect more taxes moving forward?

Perspectives on Kenya’s economy, the government’s economic hardship interventions and a quick glimpse of what 2024 could look like. With a depreciating shilling, dwindling FDI and choking debt are we likely to see more taxation in Kenya and this gradually snowballing across East Africa? Is there a significant risk that Kenya is or could fall from its pedestal as a major economic hub in the near future?  What practical measures should the government take to avert the increasing economic hardships across the country and the East African region.

Dr Mugisha Rweyemamu, Research Fellow, Economic Social Research Foundation, ESRF-Tanzania: Could Tanzania overtake its regional peers as the new regional economic giant?

Expert perspectives on Tanzania’s economy, the government’s economic hardship interventions and a quick glimpse of what 2024 could look like. With major strides made in attracting tourism, FDI and having a significant cache of valuable Minerals such as gold and green or critical minerals such as Nickel, Tungsten etc., could Tanzania overtake its East African peers to become a major economic hub in the near future?  What practical measures should the government take to avert the increasing economic hardships across the country and the East African region.

Hon: Zittto Kabwe, Economist and President of AcT-Wazalendo Political Party, Tanzania:  What is totally wrong-Could we expect economic-political unrest amongst the youth-What should political actors do to avert a near economic catastrophe and social uprising (Azania Spring) similar to the famous Arab Spring. Is an economic inspired Azania Spring inevitable if things don’t change?

Professional perspectives on the current economic hardships and what governments could do to avert further hardships in 2024. What are governments not getting politically or fundamentally right. In some countries such as Kenya we have seen some socio-political unrests over economic times, are we likely to see this ‘Azania economic springs’ in more countries in 2024?

Moses Kulaba, Convener, Governance and Economic Policy Centre

Can the EAC escape the current global economic meltdown, evade social-economic disruptions to remain soaring above its peers as the strongest economic subregion in Africa. What political-economic choices will make it maintain a comparative and competitive advantage against the tide

 

 

 Date: Thursday, 30th November, 2023

Time:  11AM-12:30 PM EAT

Registration and participation link: https://zoom.us/j/94699182519 

Meeting ID: 946 9918 2519

Passcode:  yJC673

 

[1] https://www.eac.int/overview-of-eac

[2] https://www.worldometers.info/world-population/eastern-africa-population/

Energy Transition: Why Africa must focus on Energy Aggregation and Consolidation

Historically, energy transitions have never meant one energy system completely replacing another rather one system reducing quantitatively amount of use in favour of another. The rise of coal ,the steam engine and petroleum did not end the use of traditional sources of energy such as firewood and horsepower.

By Moses Kulaba, Governance and Economic Policy Center

Delivering Charcoal in Uganda (Rod Waddington/CC BY-SA 2.0)

Globally, there is an increasing focus on climate change and energy transition. There is debate on the risks that these portend and an emerging view/ consensus that energy systems must transit gradually to achieve a net zero carbon emission   by 2050. Africa is at a dilemma, caught up in its realities and a myriad of contesting advice on which policy direction it should take.

This article attempts to deconstruct this increasing popular narrative on climate change and energy transition by arguing that it is unrealistic to achieve net zero by 2050 and a complete energy transition for Africa is impossible. Climate change may be real but achieving total decarbornisation by 2050 may be farfetched. I take this posture by looking historically at how previous changes in energy systems happened and Africa’s realities.

Chronologically, energy transitions are not new. They have happened before. Perhaps what make this possible transition quite significant is that it has been linked with the catastrophic climate change and global warming. This transition therefore is viewed as one of the remaining silver bullet to save the planet.  However, an analysis of historical trends and the manner in which the road to decarbonisation is framed and the narrative/view that energy systems must transit by 2050 is therefore problematic.

Historically, energy transitions have never meant one energy system completely replacing another but rather one system reducing quantitatively amount of use in favour of another. The rise of coal and the steam engine did not end the use of traditional sources of energy such as firewood and horsepower.

Between 1780’s to 1860’s whale sperm oil was a dominant source of energy for lighting before being replaced with the discovery of petroleum. This can be considered as the first energy transition after man discovered fire.  However, the two energy sources co-existed into the next century before petroleum became the dominant source. Whale oil did not disappear but retained value as a resource after the discovery of petroleum. In the 20th Century, Whale sperm oil was used for new purposes, including margarine, lubricants soaps, detergents, vitamins D and nitroglycerine, which is still in use today. 

According to Yale Professor, Paul Sabin, the discovery of petroleum is often cited as an example of an energy transition, where one fuel completely displaced another.  Yet this argument is totally flawed because the discovery of petroleum actually made it possible to hunt whales at a massive scale. The fossil driven ships could travel and conquer deep seas than before and stay their longer as merchant anglers trapped, caught and killed and stored whales in their thousands.[1]  There could not have been modern whaling before fossil fuels were readily available.

While the demand for whale oil declined after the discovery of petroleum, its demand continued to rise. By the 20th Century, sperm whale catch peaked in the 1960s to over 250,000 tones before declining in the 1970s and 1980s. Numerically, it took almost over 100 years between 1850 and 1980 for this gradual decline to happen.

Indeed, recognizing the pace at which the whales were fished for their sperms and other products to near extinction, in 1986, the International Whaling Commission (IWC), established in the 1940s,  banned commercial whaling because of the extreme depletion of most of the whale stocks. Even with the IWC ban in place, to date whales are still-hunted and killed for their sperms and other products, as was the practice during those mediaeval times. Japan left the IWC in 2019 and now hunts whales without any international restriction.

Moreover, historical data shows that the advent of both coal and petroleum as new energy sources  did not take animal powered energy systems out of the market. When goods carried by the coal fired steam engine train locomotive at the station, one needed horses to haul it to the final destination.  In the United States animal power increased with the number of horses and mules rising from 4.3 mln in 1840 to 27.3mln in 1920.

To date animal power continues to exist and still forms a major source of motorization in many parts of the world. Even with the advent of the advanced petroleum, based engines, in some parts of Africa, when goods arrive by bus, truck or lorry at the nearby road terminal one requires animal power (cow, horses, mules or camels to carry them the next mile to next village destination.

This suggests that different forms of energy systems are complementary to each other rather than antagonistic. One fuel has always added to another expanding both the energy supply and energy mix. The fossil-based systems will therefore continue to serve side by side with the clean energy systems.

In my Country, the two-wheeler petroleum powered motor cycle (Boda Boda) is slowly replacing the cow and donkey horsepower as major form of transportation linking the main road to the rural interior.  However, the cow, donkey and horse power are not going away too soon. In some areas the human power is still largely used with people carrying their heavy loads on their head or pulled carts.  The electric car is yet to arrive and will take long to dominate our major roads in the city and perhaps another 100 years to make it to the final mile into our villages. For Africa, therefore energy shift from animal and human-based power to fossil-based energy is just midway. It will therefore take many decades to leapfrog to a total clean energy system.

 Since the Paris Declaration, there has been an upscale in clean energy sources compared to the previous years. However, the pace at which clean energy is being deployed is too low to overtake fossil-based sources by 2050.There is evidence that not only Africa is doing badly on this front.

In its 2023 report, the IPPC experts warned that we have already reached the catastrophic point of no return (keeping global temperatures under 1.5 degrees and on a clear path to miss the net zero target by 2050. Green House gas emissions continued to increase. Policies and laws addressing mitigation have consistently expanded since  the Paris declaration but theses are yet to cause a dent in global carbon emissions . Global GHG emissions in 2030 implied by Nationally Determined Contributions (NDCs) announced by October 2021 make it likely that warming will exceed 1.5°C during the 21st century and make it harder to limit warming below 2°C. There are gaps between projected emissions from implemented policies and those from NDCs and finance flows fall short of the levels needed to meet climate goals across all sectors and regions, the IPCC report states.

Since the climate problem is defined as too much greenhouse gas emissions, rather than too little energy, this historically suggests that only a solution that actually limits carbon dioxide emissions will work. However, when the climate problem and decarbonisation is defined with targets this way, there is a serious problem.

Factually, Africa is energy poor. The IEA World Energy Outlook, however, shows that close to 600 million people remain without access to electricity in sub-Saharan Africa. Over 80% of Africa’s population depends on biomass as a source of fuel.  The electrification stands at around 40% and use of clean sources such as solar stands at a mere 4%. The net zero is barely 30 years from now and how Africa can turn these statistics around is quite impossible.

With the current statistics and demographics, decarborization (or net zero) is in many ways unprecedented as it means or suggests eliminating the use of a currently viable and profitable fuels and replacing this with another.

Globally, fossils are too dominant and producing countries are too reluctant to let them go without proper substitutes to replace them.  Yet dominant fuels have major characteristics that make them difficult to be easily replaced. These include; having large market share, economic dominance/ascendance, political dominance, established institutional structures to support and cultural influence on the users.  All these take time to be built and embedded into the energy system. Yet an energy transition reflects a change in the balance between fuels and a shift in their characteristics.  That clean energy system will take over the characteristics of the current fossil-based systems in the next 27 years is quite an uphill task.

The recent global events have shown that the world can reach a net zero emission in 2050 is over exaggerated and practically impossible to achieve. The simple disruption in petroleum supply chains by the Russia-Ukraine war in 2022 showed us this realty. Barely two months into the war, had developed countries such as German turn around on fossils to fire up their coal-based plants to generate energy.

Indeed, one EU leader remarked that all along Europe was wrong on coal as source of energy and that European economies could survive without fossil-based energy. German, Austria, France, and the Netherlands fired up their coal plants to save gas. Coal exports from Africa to Europe boomed and new coal investments in the US increased. The energy transition even in developed countries is happening but not without significant setbacks.

Since the 2015 Paris agreement, the 2050 net zero deadline has been a moving target.  India has said it would turn net zero only by 2070, while China has set a target of 2060. Russia and Saudi Arabia amongst major economies, have also set 2060 as their net zero targets. Some African governments such as Ghana have suggested 2060 as their deadline. The reality is that this net zero target, where the world is so clean and devoid of any carbon emissions may never be reached.

For Africa, therefore the answer to this conundrum of what direction the continent should take lies in energy aggregation and consolidation. This is where by new energy systems are layered on to existing systems and gradually scaled up as, they become technologically advanced, cheaply available and affordable,  to meet the continent’s sustainable energy needs. There has to be no rush for Africa to transit by 2050! Africa does not have to pay heavily to secure a net zero and a just transition by 2050.

 Africa’s future  is safe by developing hybrid energy systems that can at the same time sustain the fossil based systems, while clean energy systems are aggregated and consolidated on an incremental basis for the next long-term future.  What is required for now therefore is;

  1. Research and developing technologies that can reduce the toxic levels and carbon intensity in the petroleum based sources of energy so they can continue to be used in a clean future.
  1. Developing alternative products that could continue to be useful in support of the fossil industry, even with its diminished existence in the next 100 years. As earlier mentioned, while whale sperm oil stopped its usefulness as a dominant source for lighting, it continues as a key ingredient used to produce other high valued products.
  1. Developed countries appreciate that the journey will be a long one before our energy systems can significantly decarbonize. Even with the increased uptake in solarisation and other cleaner systems, biomass will continue to play a dominant portion as a source of energy to the bigger population in Africa.
  1. Our policies have to be pragmatic but less ambitious to avoid pitfalls in implementation and application, achievement of their intended objectives. Africa is not devoid of policies. It is a graveyard of policy implementation.
  1. Africa has to define its own energy transition pathway that is aligned to its practical realities and deficiencies. It is likely that fossils will continue driving Africa’s energy system past 2050.

In the climate justice space, perhaps Africa should be advocating for a Just Energy Aggregation and not a mere Just Energy Transition!

[1] Richard York: Why Petroleum did not save the whale; socus sociological research for a dynamic world , December 2017

 Disclaimer: This blog article is produced as part of our ongoing policy discussion series on climate change political economics and energy transition.  The discussions and briefs  therefrom are intended to share dissenting views and provoke intelligent debates ahead of major climate spaces such as COP28. The views contained herein may not necessarily fully represent those of the Governance and Economic Policy Centre (GEPC) but aired in support of intellectual democracy and geared towards securing a continental consensus.

Financing of the Green Economy and prospects for Africa-Can Green Banks offer a viable alternative?

Achieving Green Economies and a just energy transition for Africa cannot be achieved without financing. It is said there is sufficient liquidity and capital to finance climate change and green economic revolution in Africa. Unfortunately, much is not reaching the African continent. In East Africa, access to financing of clean renewable energy such as solar is limited and expensive for many rural communities and poor households. There is potential for solar energy but the existing government policy, legal and financing have gaps limiting cheap financing and solar uptake for rural communities.

The US experience show successful green and clean energy financing models through Green Banks which can be adopted and replicated in East Africa.  Large and small financial institutions on the African continent have leveraged instruments and facilities towards financing the green economy, but these are largely unknown. Governments such as Tanzania are considering carbon trading mechanisms while others look towards imposing carbon taxes to raise the necessary financing for the next green economy. What are the viable options?

The problem

African countries still face significant challenges in financing their climate transition. While investment needs resulting from NDCs are estimated at $2.8 trillion by 2030, funds invested on the continent still represent a limited share of global green finance flows, and the share covered by the private sector remains limited[1] Governments, local financial institutions and communities find it difficult to mobilise or access financing. Large private sector players are reluctant to invest due to the high cost of capital, small scale of projects and inhibiting policy terrains that make it difficult to attract capital and financing into the green economies. Much of the available financing is not yet reaching the communities and thus scantly creating lasting change.

Viable options?

Green banks have been so far lauded as one of the most innovative policy developments that can be used to support and deployment of clean energy[2]. Green banks are financial institutions established primarily to use innovative financing to accelerate the transition to clean energy and fight climate change[3]. They mix commercial, public, and philanthropic approach to capital making it cheaper to finance new clean energy projects that otherwise couldn’t be built. They are a good vehicle for leveraging finance and directing investment to areas which are needed to scale up the green economy.  They are good tools for driving or achieving public policy with a social enterprise angle[4].

An assessment by the African Development Bank and the Climate Investment Funds revealed the potential of Green Banks in six African countries, namely Benin, Ghana, Mozambique, Tunisia, Uganda, and Zambia.

“The assessment revealed that green banks have significant potential for attracting new sources of catalytic funds when supporting low-carbon, climate-resilient development through blending capital and mobilising local private investment for green investments in Africa,” the AfDB reported.

Multilateral development banks and international financial institutions had a crucial role in enabling local financial institutions to develop a green pipeline of projects and ease their access to resources. It is for this reason that the AfDB has established the Africa Green Bank Initiative (ABI).

The AfDB’s Green Bank Initiative (AGBI) is described as a powerful tool for reducing financing costs and mobilising private sector investments in climate action in Africa. The African Green Bank Initiative will be backed up next year by a $1.5 billion trust fund due to close in 2025. The initiative will bolster the capacity of local financial institutions to build a robust pipeline of bankable green projects, while de-risking investments and entrenching long-term investor confidence toward climate-resilient and low-carbon projects in Africa.  “It will do so through investing in sectors such as energy efficiency and renewable energy, climate-smart agriculture, resilient infrastructure, and nature-based solutions, AfDB states.

According to Akinwumi Adesina, the AfDB President, the establishment of a green finance ecosystem could generate $3 trillion in climate finance opportunities on the continent, while over the period 2020-2030, the financing gap to address climate change is estimated at between $100 billion and $130 billion per year.

Moreover, there are other financing options that are or can be pursued. These include green bonds, green loans, and carbon trading mechanisms.

Coincidentally, all these financing mechanisms have upsides and downsides, which  upon evaluation climate financing justice advocates such as  the CSO network, Pan African Climate Justice Association (PACJA) and government officials like Ms Isatou  Camara of the Gambia are now calling out financial institutions  for a total re-engineering and redesign  of climate financing to ensure that more is structured in the form of grants than loans and that at least 70% of this funding reaches the communities. The loans are expensive, Africa is over indebted and yet investment in renewable energy is an expensive affair for African governments to pursue alone[5]

At national level access to green finance should be relatively cheap, driven by a combination of less profit maximisation goals and more social enterprise imperatives and back by enabling legislative and regulatory framework.

Purpose of the webinar

This webinar is the second in a series of the different webinars that GEPC plans to conduct this year on the different elements on economic governance and climate economics, with anticipation that we can contribute towards expanding knowledge, public discussion, and engagement in these spaces.

But more significantly creating opportunities for business economic opportunity in country, including space for youth and women led young businesses to benefit from the emerging context.

Our distinguished speakers will dissect this subject and help us understand Financing of Green Economy in the context of climate change and transition to clean energy: Prospects for Green banks and other financing mechanisms in East Africa with a view of

Objectives

  1. Increase awareness and knowledge about the current Climate Economics and Financing the Green Economy in Africa
  2. Provide an opportunity for stakeholders to interrogate financing structures, national policy terrains, initiative potential opportunities and inhibitors to success.
  3. Influence key stakeholders such finance institutions and potentially state parties to hasten reforms for success.
  4. Generate a potential opportunity for non-state actors, communities, and small entrepreneurs to benefit from existing financing plans.

Our distinguished speakers will be:

1. Ms Isatou F. Camara, Ministry of Finance and Economic Affairs, The Gambia, Least Developed Countries Group Climate Finance coordinator:  Restructuring of the global financing architecture for green economies-what financial institutions must do.

2. Ms Audrey Cynthia Yamadjako, Africa Green Banks Cordinator, African Development Bank (AfDB)

3.Ms Grace Mdemu, Capital Markets FSD Africa, former Business Development Officer at Africa Guarantee Fund (AGF): Leveraging of capital and opportunities to finance Green Economies in East Africa

4.    Dr Elifuraha Laltaika, Senior Lecturer of Natural Resources Law, Faculty of Law, Tumaini University Makumira, Tanzania:   Leveraging financing to poor and indigenous communities in Tanzania

5. Ms Cynthia Opakas,  Senior Legal Counsel, Green Max Capital , Kenya: Practical experiences on financing the green economy in Kenya and global best practices

6. Moses Kulaba, Convenor

Date and Time:  Wednesday, June 14, 2023 12:00 PM Nairobi , 11 AM CET and 9AM ACCRA Time

Pass Code:059752

Registration Link:  https://zoom.us/j/94532314396 

[1] https://www.afdb.org/en/news-and-events/african-development-bank-launches-model-deploying-green-financing-across-continent-56903

[2] Richard Kauffman, Yale School of Management, Financing Clean Energy Technology

[3] http://coalitionforgreencapital.com/wp-content/uploads/2019/07/GreenBanksintheUS-2018AnnualIndustryReport.pdf

[4]https://gepc.or.tz/make-it-happen-how-green-banks-acceleration-can-light-up-rural-hamlets-in-uganda/

[5] Her Excellence Dr Samia Suluhu Hassan, President of United Republic of Tanzania during her address to African leaders at a side event on the Southern Africa Power Pool (SAPP) organised during the CoP27 in Egypt

AfCFTA: Dissecting the world’s largest Free Trade Area: Challenges and Opportunities for East Africa. Is AfCFTA a window of opportunity or a fallacy?

The AfCFTA entered into force on May 30, 2019. Despite the speed at which this new Africa continental trading block is unloading, there is very limited knowledge amongst ordinary citizens, particularly youth, women, and small business.  There is a fear that AfCFTA may be built on a weak ground, set itself for an uphill task and potential failure

The Africa Continental Free Trade Area (AfCFTA) is so far the world’s largest Free Trade Area bringing together the 55 countries of the African Union (AU) and eight (8) Regional Economic Communities (RECs). The overall mandate of the AfCFTA is to create a single continental market with a population of about 1.3 billion people and a combined GDP of approximately US$ 3.4 trillion. The AfCFTA is one of the flagship projects of Agenda 2063: The Africa We Want, the African Union’s long-term development strategy for transforming the continent into a global powerhouse[1].

As part of its mandate, the AfCFTA is to eliminate trade barriers and boost intra-Africa trade. It is to advance trade in value-added production across all service sectors of the African Economy. The AfCFTA is expected to contribute to establishing regional value chains in Africa, enabling investment and job creation. The practical implementation of the AfCFTA has the potential to foster industrialisation, job creation, and investment, thus enhancing the competitiveness of Africa in the medium to long term.

The AfCFTA entered into force on May 30, 2019, after 24 Member States deposited their Instruments of Ratification following a series of continuous continental engagements spanning since 2012. By end of February 2023, 54 member states had signed up and 46 already deposited their ratification instruments, paving way for effective implementation of AfCFTA.

The problem

Despite the speed at which this new Africa continental trading block is unloading, there is very limited knowledge amongst ordinary citizens, particularly youth, women, and small business.  There is a fear that AfCFTA may be built on a weak ground, set itself for an uphill task and potential failure.   AfCFTA aims to create a supra regional economic block in an environment where previous efforts to trade and economic  integration  under frameworks such as the Economic Cooperation of West Africa States (ECOWAS), Preferential Trade Area and Common Market for Eastern and Southern Africa (PTA- COMESA), Southern Africa Development Cooperation (SADC) and East Africa Community (EAC)  have struggled to survive and fully benefit member states , particularly in expanding opportunities for small businesses, jobs and free movement of labour. Trade barriers still exits and overlapping regional configurations, with multiple membership of states to more than one block have exacerbated problems in implementation and held back member states and citizens from enjoying the benefits of regional economic integration.

From an academic perspective, there is a continuous debate on the role of regional integration and commercial diplomacy as instruments of economic diplomacy on trade export flows among African states. A study by the European University in 2016 show that bilateral diplomatic exchange is a relatively more significant determinant of bilateral exports among African states compared to regional integration. The study found a nuanced interaction between these two instruments of economic diplomacy: the trade-stimulating effect of diplomatic exchange was less pronounced among African countries that shared membership of the same regional block. Generally, this could mean that there exists a trade-off between regional integration and commercial diplomacy in facilitating exports or a lack of complementarity between these two instruments of economic diplomacy[2].

AfCFTA is therefore viewed in some analytical circles as potentially counterproductive, as may potentially open the continent to stiff external competition.  Further, cynics view AfCFTA as a potentially well-orchestrated tactical move suitable for developed economies, to open up Africa as a single market. With AfCFTA in place, its alleged, it will be cheap for large RECs such as the European Union (EU) to easily access Africa’s markets with minimal hinderance, as it may now be easy for large and well-established trading blocs such as the EU to negotiate preferential trade deals with one major African block and not with independent states. This had proven problematic in the past negotiations for trade deals such as the controversial Economic Partnership Agreements (EPAs).

Window of opportunity?

None the less, the AfCFTA is here, providing potentially a land shade moment for Africa to reclaim itself, unlock its trade potential and to take its well-deserved position in the community of nations as an economic giant.

The whole existence of the AfCFTA is to create a single continental market for the free movement of goods, services and investments. The AfCFTA Agreement covers goods and services, intellectual property rights, investments, digital trade and Women and Youth in Trade among other areas. The Secretariat, therefore, works with State Parties to negotiate trade rules and frameworks for eliminating trade barriers while putting in place a Dispute Settlement Mechanism, thereby levelling the ground for increased intra-Africa trade. Could this be a reclaimed window of opportunity for Africa?.

Purpose of the webinar

The purpose of this webinar is to dissect AfCFTA create a space for sensitisation and public dialogue with key stakeholders such as Civil Society Organizations, Africa’s economic diplomats, the Private Sector, Government Officials and Agencies, Partners, and other interest groups; in a bid to create awareness about the AfCFTA Agreement and the potential opportunities it offers, thus, securing their active support in the implementation of the Agreement.

This webinar is a first in a series of the different webinars that GEPC plans to conduct on the different elements of AfCFTA, with anticipation that we can contribute towards expanding knowledge and engagement with AfCFTA in the region and propelling its effective implementation.  But more significantly creating opportunities for business economic opportunity in country, including space for youth and women led young businesses to benefit from this new continental arrangement.

This webinar will be held ahead of marking the 4th Anniversary since the AfCTA came into force on 30th May 2023. The webinar will therefore be a major point for reflection on the aspirations and progress made and in generating views and which can potentially influence its future direction.

Our distinguished panelist speakers

  1. Ms Treasure Maphanga, Chief Operating Officer (COO), Africa E-Trade Group and Former AU Director Trade and Industry
  2. Mr Deus  M. Kibamba, Lecture Tanzania Centre for Foreign Relations
  3. Mr Elibarik Shammy, Programs Manager, Trade Mark  Africa
  4. Ms Jane Nalunga, Executive Director, Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI)
  5. Mr Robert Ssuna,  Tax and Trade Expert and Consultant
  6. Mr Moses Kulaba, Tax Law expert and Economic Diplomat (Convenor)

Tentative Dates: Wednesday, 10th May 2023

Time: 12-13:30 Hrs-EAT/ 11AM CET and 9:00 am Accra Time

To participate please register via: https://zoom.us/meeting/register/tJIsc-ispjwiGdVn1y4w9Jks-h-zs5i9QEzV

Meeting ID: 96141487831. Passcode: 391843

[1] https://au-afcfta.org/

[2] Afesorgbor Sylvanus Kwaku (2016) Economic Diplomacy in Africa: The Impact of Regional Integration versus Bilateral Diplomacy on Bilateral Trade, European University Institute, EUI Working Paper MWP 2016/18

Tanzania’s Transition Minerals potential opportunities, risks, and dilemma in context of Climate Change and Energy Transition

 

While critical minerals offer potential opportunities, there are also latent risks for countries such as Tanzania. These risks range from policy gaps, supply chain governance risks, geopolitics of consumer nations, investment and revenue management risks

By Moses Kulaba, Governance Analysis Centre

Critical Minerals and Energy Transition: Tanzania’s potential

Globally, the zeal to mitigate climate change and keep global warming under 1.5 degrees Celsius by reducing net carbon emissions from fossils by 2030 and transition clean energy by 2050, has picked momentum. According to scoping study report by the Natural Resources Governance Institute (NRGI)[1] , based on data from various geological surveys and government reports show that Tanzania has a wide variety of critical or transition minerals deposits relevant to the future technological transition to clean energy.  Critical mineral deposits found in Tanzania include Graphite, Rare Earth, Cobalt, Copper, Iron, Nobium, Lead, Lithium, Manganese, Diamond, Nickel, Titanium, Uranium, Vanadium, Tungstein, Lead, Bauxite and other gaseous minerals such as helium. Over 18 million tons of graphite reserves (estimated to be the 5th largest reserve in the world) are present in mostly in Lindi, Morogoro and Tanga Regions. An estimated 1.52 million tons of nickel deposits have been discovered in Kagera region and about 138 billion cubic feet of helium is present at Lake Rukwa Basin. This is said to be the second largest helium deposit in the world.

The discussion on energy transition and its implications to the Country has not picked momentum within Tanzania. The potential contribution that these minerals could make to Tanzania’s economic development in the context of energy transition may be known in some circles but not widely discussed.

There has not yet been a specific categorisation of these minerals as critical or strategic. To date minerals in Tanzania are still largely classified as metallic minerals, industrial minerals, and energy minerals. Perhaps, this is due to the limited public understanding of the strategic and critical nature and role some of these minerals will play in defining the global future.

Energy Transition Opportunities for Critical Minerals

Globally, there is a surge in interest in critical or transitional minerals as a pathway to meeting Net zero targets The World Bank estimates that overall demand for at least some critical minerals vital for industrial energy transition will increase significantly over the next 30 years (by 2050).  For instance, copper and aluminum are cornerstone minerals for all electricity-related technologies, since electrical equipment such as motors, transformers and cables use copper to conduct electricity and heat.  Copper, nickel, lithium and cobalt are key elements for batteries used in many of the new technologies. An electric vehicle, for instance, typically contains lithium-ion batteries, which requires lithium, nickel, manganese and cobalt-bearing minerals. Solar panels and wind turbines are made with nickel, graphite and copper. Telecommunication devices we use, such as phones and laptops, require a wealth of minerals, including tantalite, wolframite, graphite, bauxite, etc.

World economic powers and foreign companies have already picked interest and acquired stakes in Tanzania’s Critical Minerals, significantly highlighting what may potentially be a race to control the supply chain into future. So far companies from Australia, China, Canada, Europe and US are known to have interests in Tanzania’s critical minerals. This provides Tanzania with a potential opportunity to leverage its extractive sector (particularly critical Minerals) to benefit from the forthcoming energy transition. With deposits of critical minerals, such as graphite and Helium, Tanzania’s critical minerals subsector could be a game changer.

Energy transition risks in critical minerals

While critical minerals offer potential opportunities, there are also latent risks for countries such as Tanzania. These risks range from policy gaps, supply chain governance risks, geopolitics of consumer nations, investment and revenue management risks

The future of Foreign Direct Investment in mining risks

The investment boom in critical minerals will affect the future of foreign direct investment in Tanzania’ s other major mineral resources such as gold and gemstones. This is already felt in the type of mineral licenses that are being granted. According to NRGI critical mineral scoping study report, 90% of the total exploration licenses in 2005 were granted for gold. By 2020, 70% of exploration licenses granted were for critical minerals. Clearly, investors’ interest for critical minerals is currently surpassing that for gold and other major minerals.

Tax and revenue risks

 Over the past years Tanzania has tried to increase its domestic revenue mobilisation efforts from the mining sector. Tanzania’s DRM efforts, among others, focused on tax reforms to curb tax evasion and maximising benefits from the minerals sector through value addition.  Currently, the mining sector contributes 547 trillion[2] to the total government revenue collections. Between 2018/19 mining companies contributed around 421 trillion TZS (183 billion U.S. dollars) to the revenue collected by the government, while oil and gas companies contributed approximately 177 trillion TZS (77 billion U.S. dollars)[3].

However, the NRGI scoping study found there are gaps in the current Tanzania Development Strategies and Mineral Policies. An independent or separate policy on critical or strategic minerals may not be necessary but aligning the current framework to tap in the energy transition opportunities is essential. Government can benefit more from encouraging/investing in processing of the critical minerals at home, thus capturing and retaining high values from the resource extraction of the value chain. Where the local volumes cannot economic viably support, Tanzania can explore partnering with other Countries in the region. The potential revenue contribution from the critical mineral’s subsector is largely unknown. Critical Minerals are just minerals. If the government doesn’t strategize, the windfall benefits from the energy transition could be missed. There are also significant governance (corruption) risks in critical minerals supply chain which could undermine government’s efforts to maximise revenues[4].

To realize the opportunities offered by this resource wealth, Tanzania needs to take a deeper look at its policy and legal frameworks to ensure proper governance of the sector and a clear identification of its position through a well-tailored strategy on critical minerals. If not well managed, the interest in controlling the critical mineral’s supply chain could benefit more the developed (user) Countries than the supplier countries such as Tanzania.  The new search for critical minerals could also mean more new marginal lands opened up for exploration and mining (large scale and artisanal), sparking off a new wave of land-based conflicts. The boom could also be short lived new alternatives to critical minerals emerge to support clean energy technologies emerge.

 

[1] NRGI: Critical Minerals and Energy Transition: Findings from Tanzania’s Scoping Study of Critical Minerals Potential and implications for Tanzania, 2021

[2] https://allafrica.com/stories/202104300627.html

[3] https://www.statista.com/statistics/1272116/contribution-of-mining-oil-and-gas-to-government-revenue-in-tanzania/

[4] https://eiti.org/events/critical-raw-materials-times-uncertainty-why-good-governance-matters-energy-security

Uganda-Tanzania East Africa Oil Pipeline: signed deal yes, but hurdles lie ahead.

Samia, Museveni witness pipeline project final actsThe East African Oil Pipeline project received significant boots in April 2021 with Uganda with a series of key oil infrastructure related agreements signed between the government of Uganda and Tanzania and the oil companies for the East Africa Crude Oil Pipeline (EACOP) project to transport crude from Uganda to the Tanzania port of Tanga.

According to the government communications, these agreements signal Final Investment Decision (FID) which could be announced soon with production, expected around 2025. There has been already significant work going on at the oil sites in Hoima and as one of the Company officials remarked, work has started. The project is very important to the East Africa region as it promises great economic benefits to the governments and their citizens in the form of jobs, revenues, and other associated economic linkages.

Despite this rekindled hope, shortly after the signing of these agreements, it was evident that multiple uncertainties still lie ahead.

The details of the signed agreements remained undisclosed and technical experts involved in the negotiations remained secret on essential information on key fiscal terms surrounding the tariffs.

The project financing arrangement remains a quagmire.  Few days after signing of the agreements, several banks in France where the lead investor Total is based announced that they were staying away from the financing of the pipeline. The French banks included, BNP Paribas, Société’ Générale and Credit Agricole, Credit Suisse of Switzerland, ANZ of Australia and New Zealand and Barclays.

According to earlier government reports, The Standard Bank of South Africa, China’s ICBC and SMBC of Japan are lead advisors of the EACOP financing. These were under immense pressure from their counterparts Bank Track, Reclaim Finance and Energy Voice for what they described as pushing responsible financing of projects worldwide. According to these banks and activists EACOP’s environmental credentials were failing.

The Uganda government announced that it was not bothered by announcement, describing it as not new. However, the announcement by the banks signalled that the project could be still facing serious negative diplomacy from environmental activists and other political interested actors regionally and globally.

President Museveni described the project and the agreement signing occasion as an act economic liberation. This followed the political liberation which in his view happened some decades ago when Tanzania helped exiled Uganda political groups to take power in Uganda and change the course of history. With the hurdles still to overcome, it was evident that perhaps the financial, environmental, and political woes were not over, and the project was yet to fully get on track.