How Russia's war spills into African energy
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The commodity surge from Russia's invasion of Ukraine will burden Africa with higher costs and could create headwinds for the continent's clean energy transition.
Driving the news: A new International Monetary Fund report calls the war a "severe and exogenous shock" for sub-Saharan Africa due to surging food and fuel prices.
Zoom in: "Around 85 percent of the region’s wheat supplies are imported. Higher fuel and fertilizer prices also affect domestic food production," the report notes.
- This hits the region's poor, especially in cities, the hardest. And higher prices will raise the cost of oil for the region's importers by $19 billion, they estimate. But Africa's oil-and-gas exporters will benefit.
- "Rising oil prices also represent a direct fiscal cost for countries through fuel subsidies, while inflation will make reducing these subsidies unpopular," they note.
- The IMF now sees sub-Saharan Africa's growth slowing to 3.5% this year from 4.5% in 2021, with inflation estimated at 12.2% in 2022 and 9.6% next year.
Why it matters: "The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances," the report states.
The intrigue: A separate analysis looks at the nexus between Russia's invasion, climate policy and renewables development. Analysts with the nonprofit Energy for Growth Hub look at seven impacts, both positive and negative.
- The push for higher LNG exports to Europe from the U.S. and elsewhere will stoke African frustration with "climate hypocrisy" as western nations also back development finance restrictions on fossil fuels.
- While higher fossil fuel prices should boost renewables, "adverse market conditions and rising interest rates will hit them hard too—particularly in lower-income, higher-risk markets."
- Europe's push to ditch Russian oil and gas could bring new opportunities for African energy exporters, while countries with sizable offshore gas reserves could see new investor interest.
- They also foresee a rush of new investment in African mining projects to supply critical minerals used in clean energy tech as nations including the U.S. look for resources outside Russia and China.
What's next: Both analyses have policy recommendations.
- For instance, while the Energy for Growth Hub endorses development finance for clean energy, they also call for "clear and consistent ways to evaluate projects that allow development finance to support downstream gas where it is needed."
- The IMF report calls for "careful" responses that provide targeted relief to the vulnerable while avoiding piling on more debt. They also note that "the international community must step up to ease the food security crisis."
