The war in Ukraine has brought about untold human and socioeconomic ramifications to the world. Whereas the end is not in sight yet, and sanctions are still being placed on Russia, emerging and developed economies are ready bearing the War’s brunt. There are varied viewpoints regarding the effectiveness of sanctions as a foreign policy tool to deter faulting countries. One school thought believes sanctions effectively achieve the intended favorable outcomes, while another thought thinks the contrary. They are just window dressing policy tools that don’t achieve the intended outcomes.
Nonetheless, sanctions already have implicit costs on the Russian economy even though their key motive for President Biden leading the charge is to make Vladimir Putin stop the War in Ukraine. The Russian Ruble is less than a penny making the economy into a deep recession.
The economy of Russia is in tartars. But, these sweeping sanctions have not led to Putin calling for a ceasefire in Ukraine. Hence the school of thought that argues against sanctions might have a compelling point. These sanctions are hitting harder on Russia than any country; the cascading impacts are on the global economy. Energy prices went above US$100 b/d for Brent and WTI and retreated to about US$99.
This depicts the importance of Russia within the global economy. Russia supplies nearly 50% of European gas, making it indispensable to the EU within the midterm and supplies about 14 percent of global crude and 60 percent of EU crude and a member of OEPC + dictating the balancing of the global crude markets. In 2021, Russian crude and condensate was about 10.4m b/d on the mean level, representing 14 % of the global supply. The EU already pays so much for gas costs at the pumps. Therefore, it can be concluded that sanctions placed on Russia have attained the aims of why sanctions are imposed, that is, to inflict costs or agony. The economic pain is on Russia but not the direct rationale for imposing the sanctions of Putin stopping the War. Sanctions, in my opinion, are reactive rather than proactive; sanctions are about shutting down the gate after the horse has bolted. Could the world have done anything better to stop Putin from invading Ukraine and not impose sanctions that might not achieve the primary reason?
Ukraine -Russia War and energy impacts on African countries
Energy access in Africa is nearly half of the 1.2 billion people; SSA, to be exact, is lagging in this aspect. Rural access is woefully inadequate, and the electrification drive has stalled in certain countries. North Africa has achieved nearly 100% access on all fronts. The War in Ukraine has implicit and explicit costs on energy access and overall development within the African continent. Most countries already have high galloping inflationary pressures that are associated with higher debt to GDP ratio. This has destabilized the macroeconomic outlook of countries. The War has even worsened the Build Back Better Plans of many countries.
Africa and Sub-Saharan Africa are equally bracing themselves for the worse impact of increased inflations rising from higher energy prices, accentuating further destruction caused by the current pandemic, promoting further inequality, and retarding sustainable development. The supply chains for goods and services have been interrupted, making countries not to get orders that are key inputs to the manufacturing process. For instance, Russia is a principal supplier of diesel, which means that diesel supplies to African traders or Importers are already destructed.
Thus, supply headwinds from the conflict have damning consequences for SSA. Perhaps the likes of African hydrocarbons exporters and producers such as Libya, Egypt, Nigeria, Angola, Equatorial Guinea can take this opportunity and increase their supplies to the European markets to ease the supply pressure and rake in some foreign exchange. Indeed, several EU countries are turning to Africa to meet their crude and gas needs. Already, Nigerian supplies a larger share of its gas to Europe, with Spain being the key destination. Of course, the West African Gas Pipeline(WAGP) can increase its frequency of supplies to the Sub-region to ease the supply constraints for electricity generation.
This Ukraine -Russia crisis can further increase electricity prices in Africa since they rely on thermal generation sources for electricity supply. The continent generates nearly 80% of electricity from thermal sources. Therefore, high hydrocarbon costs will mean that governments and Independent Power Producers(IPPs) would have to import at higher costs to generate electricity and pass on the costs to customers.
As stated earlier on, the multiplier effect will lead to higher prices of goods and services and lead to inflation and reducing the buying power of individuals, which will lower consumption and hence retards economic growth. This will result in lower government revenues, culminating in fiscal deficits.
Due to conflict-associated risks, governments on the continent cannot even borrow from the international capital markets. Their risk rating levels have increased due to poor debt management owing to governments’ inability to raise the needed revenues increasing their debts levels.
How Can African countries leverage their Energy Resources for Sustainable Develop Amidst the Conflict?
Africa can wean its off of energy supply from outside the continents if it leverages its indigenous energy resources. The continent is already feeling the Russian -Ukraine conflict’s economic costs even though it has been fought on a different continent.
To begin with, Africa has to increase intra trading of its own hydrocarbons. An instance is that about 90% of African countries import their refined petroleum products. Nigerian, for example, imports nearly 70% of the internal consumption of fuel products. Besides, Egypt, as the top producer of natural gas in Africa, Egypt has to extend and connect its pipelines to the rest of the continent.
All the regional power pools must be connected to a single pipeline to make fellow African countries use their gas. All the continents’ pipelines must be continent together, whether international pipes or intra pipeline. They have to be harmonized and integrated at a source. This will protect the continent from exogenous gas supply shocks.
Of course, the most promising and typical solution to prevent supply shock is to switch to the supply of Renewable Energy Resources(RES). Africa generates about 2% of global cumulative renewable installation. RES are local resources; they don’t need to be imported. Most African countries have excellent to good wind speed to cost-competitive produce electricity.
Northern Africa, Eastern, and Southern Africa have some of the most excellent wind speeds. For instance, the African continent has an onshore wind energy potential of 180,000Twh, per year. This potential can meet the continent’s energy needs over a double hundred and fifty-fold. Wind continues to have a strong footing on the continent, making inroads across the continent. As of Q1 in 2020, 5,581 MW of wind energy capacity was installed on the continent.
Similarly, the Levelized cost of Wind energy has fallen by 56%, and its capacity increased by 31% globally. This makes wind the fastest-growing RES in Africa, with more capacity installed than solar. Hydropower continues to lead the non-carbon sources with over 15% of the generation mix in 2019, representing 36,277MW.
Geothermal is disproportionately tilted toward the East African enclave, Ethiopia and Kenya leading the race, depicting 0.8 percent of the generation mix on the continent. Furthermore, solar is ubiquitous on the continent, with the strongest irradiation in Northern Africa. In 2019, solar installation on the continent was 2.4% representing 5,628 MW of the aggregate generation mix on the continent.
Given the preview mentioned above of RES potential on the continent, it is ideal for the continent to implement the necessary policy strategies to increase the deployment of RES. Consequently, the governments and the private sector on the continent must put their heads together to craft the right policy frameworks to make the necessary changes on renewable energy deployment on the continent, such as derisking the sector for private sector operators.
The African Renewable initiative(AREI) is one such forward-looking program. There is a need for the continent’s political strong will and commitment to wean the continent from the dependence on conventional energy sources. The IEA has already put in a Ten-Point Plan to wean the EU from Russian hydrocarbons. Africa should equally seize this opportunity to think about how to quicken the energy transition on the continent.
Regarding Africa, individual countries must allocate significant fiscal spending every year on RES deployment, just as they do for conventional energy sources. That is, they must implement their NDCs with heavy investments. The world has suffered historically from prices volatilities when shocks hit the markets. Renewables are the surest way to prevent exogenous shocks to the African economy and bring about energy security.
