Africa Bets on Biofuels

Published on 20th December 2006

Unprecedented efforts are taking place in sub-Saharan Africa to find alternative sources of energy. The plan is to shift from overdependence on petroleum-based fuels into environmentally friendly biofuel.

Reduction of petroleum fuel import bill for the region, political governance, environment, rural living standards and the capacity to optimize resource utilization are emerging as major gains. Socio-development analysts however say it may be decades before biofuel becomes the alternative source of energy for Africa, though expected production will mean substantial relief for sub-Saharan economies. 

Oil import bill is one of the main expenditure by the region. In some countries like Kenya, the bill equals the monetary value of annual trade deficit. Almost similar scenarios are repeated in countries like Namibia, Ghana, and Zambia. 

"In the long run, this money will stay in the country and end up in the hands of growers and manufacturers," says Gregor  Drabich - Waechter of the Green Power East Africa Limited, a biodiesel producer in Kenya. 

"Energy is Africa's and the world’s biggest debt burden ... once we are out of this cycle ... we are in a better position," says Edward Okello of Biodiesel Technologies, another Kenyan company specializing in manufacture of automotive biodiesel. 

In Africa, the push towards biodiesel could be termed as a "quiet revolution" that does not grab media headlines. The objective, says Gregor, is not to displace petroleum fuels but rather to offer the continent an alternative that beyond improving farmers' lives, will also be environmentally friendly.

"I do not foresee any problems with the suppliers of [fossil] oil to Africa as the effect will be small in the beginning and the suppliers of petroleum-oil know themselves that only limited supplies are left. Oil can be used in many more valuable applications than just burning it and the producers are aware of this. It will increase their income in the longer run," says Gregor.

The greatest social impact that biofuel craze in Africa is likely to have is to improve living standards of predominant rural farmers. Proponents agree Africa is best suited for biofuel production because of its vast uncultivated land.

In Africa, 55 per cent of the population ekes out a living from agriculture. Agriculture contributes 40 per cent of the gross domestic product and 60 per cent of export income. The sector has however not succeeded to transform rural lives because the marketed produce is usually in unprocessed primary form, which commands lower world market prices.

Production potential has been low, averaging one tonne of produce per hectare per year, in comparison to three and five tonnes in Asia and Western Europe respectively.

According to the NEPAD’s blue print, Africa requires an investment of US$251 billion to make agriculture transform living standards in the continent.

Actis, a British investment fund operating in emerging markets, is keen to be part of the solution. The company recently announced a $1 million fund in agriculture most of which will be invested in the production of biofuel. 

Michael Turner, Actis Partner confirms that the project is targeting global biofuel consumption trends like the year 2020 move by the European Union to switch to 20 percent biofuel mix.

 "This is a great opportunity," says Turner. "EU has no vast lands to grow the required crops from which this fuel will be extracted. We believe Africa has the potential to be a major producer," he adds.

And if the Brazilian experience is to replicate in Africa, then the gains will be more. According to a United Nations Development Programme study, the ethanol production in Brazil has helped reverse migration to large urban areas and an increase to overall quality of life.

Investors like Okello say that while all these factors work in favor of Africa, there is a need for mechanism to ensure the rural population becomes an important player in the whole process. Since multinationals are already investing in the land and with their ability to influence policy, the ownership will still belong to them unless the small people are empowered to have required control of the supply and demand chain. 

The attention towards the quest for biofuels will however need to compete with an almost equal attention being directed towards finding new petroleum fuel deposits across Africa. Nigeria, Algeria, Libya, Angola and Egypt are among Africa's major oil producers accounting for 80 per cent of the continent's production, according to the Africa Development Bank. Joining them is Sudan, Uganda, Equatorial Guinea, Gabon, Chad, and Cameroon among others who are already producing or have found commercially viable deposits. But while some will enjoy their oil boom for the next 70 years like Libya,
others like Angola have less than 20 years worth of reserves.

Catholic Relief Services (CRS), a humanitarian relief organization estimates that sub-Saharan African governments will receive over $200 billion in oil revenues over the next decade.  But it says based on the history, petrodollars have not helped developing countries to reduce poverty; in many cases, they have actually exacerbated it.

Most of Africa's oil producing nations have failed to diversify their economies or prepare for a post-oil future and are characteristically petrol-authoritarian regimes. The big issue is whether biofuel, equally critical to economic growth processes could tilt this equation.

Peter Kegode an agricultural economist believes so. He says that the reality that farmers will be key raw material suppliers –and that most of African farmers are small scale – means the industry benefits will be well spread.

"Farmers will also have an option of using their harvest to boost food security or sell to energy producers, whichever pays better," he says.

"We are likely to see biofuel make a more economic sense in Africa than fossil fuels have. And because the politicians will not directly access this money to carry on their authoritarian adventures, you can expect quest for better governance from economically empowered citizens," says Rachael Achieng, a political scientist.

Other investors like the Kavango Bioenergy Ltd in Namibia are looking at a bigger picture of being part of the solution to global warming. The company plans to apply for Carbon Credits, certificates issued to countries that reduce their emission of greenhouse gases which causes global warming - which will be used until 2014 to recover the money invested.

Although burning biofuel emits carbon dioxide into the atmosphere, it is substantially lower than that of fossil fuels, and the amount released is the same as that fixed by photosynthesis when the fuel-producing plants grew.

Biofuel investors have now taken the first line in urging governments across sub-Sahara Africa to put structures that will ensure that gains expected from this industry are actualized. According to Gregor, it will be important for governments to come up with stable a tax regime including tax incentives to enable better investment plans. Investors also want governments to follow the route of other countries like Brazil or the EU by requesting that over time a certain amount of biofuel is mixed with petroleum fuels. They also want structures that will set biofuel to caution the consumers from using substandard products.

Small scale producers want better mechanisms to access investment loans so that financially stable multinationals do not take significant control of the industry.

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