Africa’s journey to net zero: USD7trn just for energy

  • The green energy transition is a once-in-a-lifetime opportunity for African development, a chance to reduce poverty and lift growth potential. To reap this opportunity, there are three levers to pull: strengthening political stability and the rule of law, reducing project risks by adopting blended finance, and formulating clear green-energy strategies backed by economy-wide transition plans with sector-specific pathways. This paper aims at the last point, providing guidance for governments and investors alike.
  • Limiting global warming to the Paris target of 1.5°C will require USD200bn of investments in the African energy system per year, by 2030, followed by USD370bn per year, by 2050. In total, the investment opportunity adds up to just over USD7trn between 2020-2050.
  • On that journey to net zero, two subsectors are pivotal. First, Africa’s electricity-production capacities will have to increase tenfold by 2050, requiring USD110bn of investment per annum as early as 2030, which then would need to increase to USD190bn in 2050 to meet the goal of limiting the global temperature increase to 1.5°C. Second, yearly investment needs in the African hydrogen market will have to reach USD2-3bn per year in 2030 and USD4-9bn in 2050. African countries feature a promising combination of resources, coastal access and favorable location, positioning the continent as a potential central hub for the hydrogen-based global economy. Note that hydrogen investments in Nigeria are set to be significantly higher than in most other major African economies and will already reach USD2bn in 2040.

Global warming is the largest threat to humanity and a major driver of poverty and inequality, conflicts and violence. Nowhere is this more true than in Africa, which is at the epicenter of the climate crisis: Although the continent contributed the least to global warming, it is burdened with the highest impacts and losses.

An African energy transition would not only mitigate climate change but also reduce poverty by increasing labor productivity, agricultural yields, water availability, food security and human health. Moreover, while mainly low-skilled jobs in “brown” sectors would be lost, higher-skilled jobs in “green” sectors would be gained, potentially leading to much higher human capital levels. In a nutshell, the energy transition provides tremendous development prospects for African countries.

Markus Zimmer
Allianz SE