Africa’s green manufacturing crossroads: Choices for a low-carbon industrial future

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Africa is at a crossroads. As one of the most vulnerable continents to climate change and climate variability, it has a strong incentive to join global efforts to reduce greenhouse gas (GHG) emissions and bolster its adaptive capacity.12 At the same time, African governments are committed to industrializing their economies in order to meet the basic needs of growing populations and create jobs and wealth.3 If the continent is to achieve both, it cannot afford to follow the same route to economic prosperity that developed nations have pursued.

Globally, countries are setting out plans to reduce their GHG emissions by the middle of the century in order to limit a rise in global average temperatures that scientists warn will bring ever-more extreme weather events and a catastrophic rise in sea levels, fueling hunger and migration.4 Additionally, unchecked growth in emissions in Africa would likely lead to economic impacts, including reduced financing options and emissions-related export penalties, which could weigh on long-term growth and well-being.5

In finding a new path that respects planetary limits while also delivering on economic imperatives, Africa can turn the fact that its manufacturing sector is still relatively small—contributing just 3 percent to global manufacturing GHG emissions and 2 percent to global manufacturing value add (MVA)—to its advantage.6 Because half of the continent’s potential 2050 GHG-emitting industries have not yet been built, Africa has an opportunity to leapfrog more developed nations and build a low-carbon manufacturing sector from the ground up. It could therefore avoid future costs by sidestepping the expensive transition from fossil fuels to renewables that the developed world is having to navigate while creating a competitive and more resilient economy that does not rely on resources that will become increasingly more costly. Many African leaders already recognize this opportunity, as Dr. Arkebe Oqubay, Senior Minister and Special Adviser to the Prime Minister of Ethiopia, says: “Economic development that destroys the environment is no longer a viable option. As latecomers to industrialization, African countries have the opportunity to develop environmentally sound manufacturing sectors by leapfrogging historic greenhouse gas emitting technologies and adopting green industrial policies.”

However, the transition to a green manufacturing sector will be challenging. Africa already faces difficulties in attracting investments—the African Development Bank estimates a $70 billion per annum financing gap for African infrastructure. This financing challenge will be exacerbated by the capital needs of green manufacturing and by the fact that some high-emitting industrial assets could become stranded, causing further profitability and capital availability challenges. In addition, the continent will need to tackle capability and talent gaps, and address the issue that newly created jobs will often be in different regions or countries than jobs that are phased out. Identifying approaches that allow for a “just transition” will be of utmost importance.7

To help inform the planning efforts of policy makers and business leaders at this critical juncture, this report seeks to analyze and understand the continent’s manufacturing-emissions trajectory by exploring various abatement approaches for the long term. Our analysis also examines the potential costs and likely benefits and opportunities across the value chain and offers five areas for possible action to help the continent reach net zero by 2050—an international benchmark inscribed in the Paris Climate Agreement of 2015 to limit warming to 1.5°C.8

Business as usual would take Africa down an unsustainable path

Globally, manufacturing and the power it consumes is the single largest contributor to GHG emissions and, as such, has a significant role in achieving the 1.5°C pathway.9 And while Africa’s contribution to these emissions is currently small, this will inevitably rise as the continent industrializes and if no steps are taken to mitigate the effects.

African manufacturing currently emits about 440 megatons of carbon dioxide equivalent (MtCO2e)—about 30 to 40 percent of total African emissions.10 If Africa’s manufacturing sector follows the growth trajectory of developed markets over the past 20 to 30 years, it will likely double in size, and without any decarbonization efforts its emissions could nearly double as well to about 830 MtCO2e by 2050. This would not only set the world back on its overall emissions reduction targets but could put the continent at an economic disadvantage. As the rest of the world seeks to pull ahead in the race to net zero, Africa’s manufacturing sector could become uncompetitive and find itself unable to export globally. Many countries outside Africa have committed to ambitious abatement goals and are starting to pass laws and implement taxes on GHG emissions of imported goods. This could leave the continent even more dependent on international development support.

To remain competitive, our analysis shows the sector would likely need to reduce its scope 1 and 2 manufacturing emissions by about 90 percent relative to 2018 levels as part of the international effort to reach net-zero emissions by 2050 where an overall balance is achieved between emissions produced and emissions taken out of the atmosphere.11 The remaining 10 percent could be compensated using additional technologies and tactics such as carbon capture and storage, and reforestation.

The bulk of Africa’s manufacturing emissions—75 percent—comes from four economies (South Africa, 37 percent; Egypt, 20 percent; Algeria, 10 percent; and Nigeria, 7 percent) driven by factors including their level of development, population size, high concentration of high-emitting sectors such as cement and refining, and share of manufacturing in GDP. Furthermore, about 80 percent of scope 1 emissions are concentrated in five high-emitting industries: cement (32 percent of total manufacturing emissions); coal-to-liquids, a technology that produces liquid fuels and petrochemicals from coal (13 percent); petroleum refining (5 percent); iron and steel (6 percent); and ammonia, which is primarily used in the production of fertilizers (4 percent). Scope 2 emissions from the power consumed across the manufacturing sector contribute about 27 percent to total manufacturing emissions. (Exhibit 1).

Africa's manufacturing emissions are low at 445 MtCO2e, concentrated in just five sectors.

Targeting power decarbonization, along with these five high-emitting sectors, is therefore likely to yield the greatest abatement—and there is increasing pressure on these sectors to act now to “grow green.” As a result, many global companies that operate in Africa are starting to commit to a net-zero pathway.12

An all-out abatement effort could see the manufacturing sector cut emissions by 90 percent to reach net zero by 2050

In this article, we summarize three possible scenarios we modeled to help illustrate the potential of green manufacturing in Africa (Exhibit 2). More detail is available in our report: Africa’s green manufacturing crossroads: Choices for a low-carbon industrial future. In each scenario, we explore a selected set of levers and industry actions that could result in a reduction of scope 1 emissions and highlight power decarbonization scenarios to reduce scope 2 emissions.

The path to net-zero manufacturing in Africa will be hard to achieve but offers significant benefits.

Our base-case scenario assumes African countries meet their current National Determined Contributions (NDC) commitments under the Paris Agreement but make no additional efforts to decarbonize. This would see emissions from African manufacturing grow by about 70 percent by 2050 to 755 MtCO2e, a marginal improvement on a business-as-usual path where no efforts are made to decarbonize. Our second scenario, the global NDC-guided scenario, assumes that Africa’s NDC commitments are increased in line with the global average. This pathway would see emissions peak by around 2025 and drop back to 2018 levels in 2030. By 2050, overall emissions could be reduced by about 25 percent relative to 2018 levels to 330 MtCO2e. This is equivalent to a 56 percent reduction versus the base case.

Both these scenarios largely track the current situation, and most of the actions available to industry to reach these targets would involve relatively inexpensive brownfield improvements with some greenfield investment for new capacity using technologies that are already available or likely to become available at industrial scale in the short to medium term.

However, if the continent wants to keep pace with the commitments being made in the rest of the world, which are necessary to keep global temperature rises below the 1.5°C target, it would have to pursue a much more rigorous abatement strategy as outlined in our third net-zero scenario. This scenario assumes that African manufacturing would be using all available levers to drive a steep decline in emissions, leading to emissions amounting to just 47 MtCO2e by 2050.

These gains would be driven primarily by the aggressive adoption of low-carbon technologies to ensure that new investments across manufacturing, but especially in high-emitting sectors, do not add GHG emissions. A significant transition to renewables in the power sector, along with a marked reduction of demand in specific sectors as low-carbon alternatives become available, would also play a vital role in reaching the net-zero target.

The economic implications of decarbonizing African manufacturing

Decarbonizing Africa’s manufacturing and power sectors and building new green assets are likely to have profound economic implications for the continent, ensuring that African manufacturing can grow and create jobs without adding emissions and remain globally competitive. However, this pathway has significant costs.

To reach net zero would likely require $2 trillion of additional investments in manufacturing and power over the next three decades. About $600 billion would be needed to decarbonize existing manufacturing industries and power networks—both through investments to retrofit brownfield manufacturing facilities and into new greenfield facilities that are zero-carbon by design. The remaining $1.4 trillion could help create new, low-emitting substitution businesses that replace or supplement high-emitting legacy sectors, specifically coal-to-liquids, petroleum refining, and cement. For example, cross-laminated timber is a sustainable replacement for traditional cement and could be used to build new green infrastructure, while charging stations to power the growing electric vehicles market could supplant the need for coal-to-liquids technology and reduce the need for petroleum refining by up to 70 percent.

Financing the power sector’s green growth would be a key enabler of decarbonization efforts. Michael Turner, Director, Actis—a leading global growth markets investor—says: “As African economies industrialize and energy demand increases, the availability of affordable green energy will be vital. Without green power, it will not be possible to realize Africa’s green manufacturing potential.”

Existing transmission and distribution networks would need to be upgraded to absorb a higher share of intermittent (renewable) power. A macro shift towards renewable energy sources, of which the continent has an abundance, could also be a focus. While existing fossil-fuel infrastructure means that this technology remains competitive in the short term, a longer-term lens shows renewables to be the most cost-effective technology to build and run in all regions within the next ten years.13 Even in countries where solar and wind are less abundant, such as Nigeria, there is scope for a marked shift towards renewables, and companies like Auxano—the first privately owned solar photovoltaic manufacturing company in Nigeria—and Nayo Tropical Technology have been active for several years providing solar inverter solutions and manufacturing solar panels and other components for mini-grid and solar home systems respectively.14

Our modeling indicates that investments are also likely to pay off over time. Assuming a carbon price of zero, our analysis indicates that about 50 percent of all net-zero investments would be net present value (NPV) positive without additional supporting mechanisms by 2030. However, if a functioning carbon market can be built across Africa enabling African manufacturers to buy and sell carbon credits linked to carbon prices in export markets, the proportion of investments that are NPV positive could rise.15 Our analysis indicates that a carbon price of $50 per ton of CO2e could ensure 60 percent of investments would be NPV positive by 2030 (Exhibit 3).

Around 50 percent of abatement levers are expected to be net present value positive by 2030.

Furthermore, decarbonization-fueled growth could create around 3.8 million net new jobs. While about two million jobs may be lost in legacy industries in both the manufacturing and power sectors as consumers switch to greener alternatives, just under six million new jobs are likely to be created in emerging green businesses by 2050, chiefly in electric vehicle charging infrastructure and cross-laminated timber, and with strong growth in the wind and solar industries.

One caveat is crucial; a large share of new jobs would be coming from new businesses that do not yet exist in Africa and it will be important to capture this value inside Africa rather than importing these products and skills and risk a net loss of jobs. For example, East African electric motorcycle startup, Ampersand, a leading electric vehicle operation in the region that leases or sells purpose-built electric two-wheelers to motorcycle taxi drivers, assembles all motorcycles and batteries on site, helping to ensure that the next generation of African developers and engineers are being nurtured in Africa.16

African entrepreneurs and financiers can capture new game-changing business opportunities

Africa’s emissions in the next 30 years are expected to come from future growth and the rapid uptake of new green manufacturing opportunities to create new jobs, produce new products that are less carbon-intensive, and embrace new low-emitting production processes is a key part of this. Our analysis identified 24 new business opportunities across several sectors including agriculture, biofuels, basic materials, energy, packaging and plastics, transportation, and textiles and apparel—each having substantial potential for green growth. Of these, eight businesses stand out (Exhibit 4).

Eight out of 24 green business opportunities have potential for high impact by 2030.

These new businesses could embrace opportunities in two main areas: new products that displace existing carbon-intensive products, for example, the production of plant-based proteins, which are fast gaining market share across the world; and the development of new industries and new processes that support green transportation or enable the energy transition. Two examples here include the manufacturing of wind turbine components to supply the fast-growing wind sector on the continent and the manufacturing of electric two-wheelers.

These opportunities offer African entrepreneurs and financiers exciting prospects. Those who act fast to take advantage of them could benefit from Africa’s unique resource advantage, including its range of natural resources, solid renewable energy capabilities, and a significant amount of uncultivated or under-cultivated land. Africa has an estimated 60 percent of the world’s uncultivated arable land.

Agnes Kalibata, President of AGRA (Alliance for a Green Revolution in Africa), points out that this makes agricultural-based technologies such as plant-based protein, cross-laminated timber, and biofuels particularly appealing on the African continent. “Agriculture-based technologies may offer solutions for Africa's low-carbon growth agenda. These will not only help abate GHG emissions but can also help increase farmers’ incomes and create new jobs,” she says.

Investing in new and unfamiliar sectors and technologies may be risky and would depend on the appetite of innovative entrepreneurs and financiers to seize these new opportunities to drive green growth, but the benefits of doing so could be substantial. New green businesses could deliver billions of dollars of revenues per year while collectively helping to abate the continent’s GHG emissions across the supply chain by up to 60 MtCO2e annually by 2030; they also have the potential to create about 700,000 direct and indirect jobs by 2030, with even stronger job growth in the decades beyond.

Five potential areas of action to reach net zero by 2050

Decarbonizing Africa’s manufacturing sector by 2050 is a significant and difficult undertaking that would require a cohesive effort from various stakeholders, including governments, businesses, international organizations, development finance institutions, investors, and civil society. The transition also needs to be a just one to ensure that no one is left behind. Our analysis has identified five important areas of action to consider:

  1. Shift to a net-zero mindset and policy environment. A strong correlation exists between countries where the population is highly aware of the climate risk issue and those that have made strong decarbonization commitments.17 While all but one African countries have made NDC commitments and 32 have announced unconditional targets, only four have absolute emission reduction targets. The remaining targets correspond to reductions against business-as-usual scenarios, meaning emissions could still increase by 2030.18 To drive the required mindset change, stakeholders could work together to raise public awareness through public debates and education campaigns at all levels. Developing green growth strategies to ensure that countries capture the full opportunity emerging from green businesses while adapting and improving the resilience of their manufacturing sectors could also be important. These efforts would need to be complemented by strong green policies to ensure change happens. African governments would have a role to play, first in setting concrete and specific targets and NDCs, and second, by putting in place the enabling regulatory environment and direct support mechanisms for a green-manufacturing ecosystem.
  2. Unlock green financing. With an estimated $2 trillion investment over 30 years required to achieve net zero in Africa, significant efforts would be needed to mobilize green financing on the continent. In approaching this challenge, stakeholders can consider three actions: developing a strong pipeline of investable green projects; developing new green financing instruments that match the different risk and return profiles for green investments; and establishing a strong baseline and verification system for GHG emissions that give financiers confidence that their investments are yielding the expected carbon savings. A transparent financing system could help make investors the de facto enforcers of companies’ committed decarbonization efforts.
  3. Upgrade green infrastructure. Africa’s infrastructure lags behind that of the rest of the world, and this is a major roadblock for development on the continent. Our analysis suggests that important precursors for green manufacturing growth include renewable energy, transport, recycling, an enabling business ecosystem (e.g., green financing), and data infrastructure (e.g., carbon databases to monitor and track decarbonization progress). In meeting this backlog, public–private partnerships could play an important role in helping to speed up new builds and investments in critical green infrastructure.
  4. Upskill and reskill the workforce. Decarbonization would require major changes in various dimensions of industry and skills needs are likely to change with them. It is likely large private companies would drive much of the change by hiring and training workers in new skills, but governments and development partners could help too in three important ways, particularly in offering support to small and medium-size enterprises. First, workforce planning and simulations could help to identify key changes and anticipate future skills required in the job market, as well as to define new occupational standards and develop appropriate curricula; second, the development of skills certifications for new green jobs could support skills mobility; and third, shared infrastructure development such as training institutes and factories could help to speed up reskilling.
  5. Accelerating R&D. Developing viable new green sectors, technologies and products that are specific to Africa’s needs would be an important priority, and investors and the public and private sectors could support significant R&D efforts to drive this. On the one hand, local research could focus on projects that are relevant to Africa, but not a priority globally, such as local circular economy solutions and processes to reduce emissions. On the other hand, Africa could take steps to fast track the development of new green businesses. One action to facilitate this could be to set up dedicated green manufacturing accelerators to spur innovation and enable the scale-up of new green manufacturing technologies (notably through research partnerships) and businesses across the continent.

An opportunity to reimagine Africa’s growth path

The path to net-zero emissions may not be easy, but the risks of not achieving this goal, according to our analysis, outweigh the costs and sacrifices that would have to be made to get there. Action is more urgent now than ever, as the window to keep global warming below 1.5°C narrows. Across multiple sectors, the technology is readily available today, with additional low-carbon technologies expected to reach maturity and economic viability from 2030 to close the gap to full decarbonization by 2050. Meanwhile, investors and businesses have an opportunity to move fast and seize new green-manufacturing business opportunities.

At this critical juncture, and as Africa seeks to manage the fallout from the COVID-19 pandemic and chart a path to recovery, there is an opportunity to step back and reimagine the continent’s growth path with a more sustainable mindset. Africa’s manufacturing story can be about innovation, about new kinds of jobs, financing, and technology that are geared towards building a more sustainable and equitable society that will be felt for generations to come.

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