How can the AfCFTA facilitate improved energy efficiency and interconnectivity in Africa?

As the world races to meet the sustainable development goals (SDGs) come 2030, there is an increasing awareness for the need to maximize the potential of existing development interventions in achieving cross cutting SDG themes. For the African continent, one of such strategies relates to exploring ways in which regional integration as embodied in the recently adopted African Continental Free Trade Agreement (AfCFTA), could strengthen the energy sector and existing power pools, and support better utilisation of the region’s abundant renewable energy resources to meet unmet demand.

Ensuring access to clean, affordable and efficient energy remains at the core of SDG7. However, African countries still suffer from huge deficits in energy generation and distribution, resulting in unreliable power networks, frequent power outages and expensive tariffs. The proportion of citizens with access to electricity remains abysmal, much lower than the global average. In a bid to improve efficiencies through interconnectivity and reduce the challenges at national levels, sub-regional power pooling initiatives have become popular in Africa. The idea behind creating power pools is to encourage cooperation among countries, through linking excess capacity in countries where power is produced more economically, with excess demand in other countries that can benefit from cheaper imports.

While power pooling has had some success in the region, it has not reached its potential in solving Africa’s energy problems. This indicates a need to adopt strategies that can build on the positives from power pooling, and resolve some of the associated limitations. This is where the AfCFTA comes into play.

Some shortcomings of existing power pools

Besides the challenges of weak infrastructure and network grids, several other factors have contributed to the limited success of power pooling in the region. These include:

· Insufficient pooling of investments: Due to budgetary constraints, member states of sub-regional pools have not been able to mobilise sufficient funds to finance infrastructure projects. Private sector capital has also not been fully harnessed because of delay in trade liberalisation policies and unconducive business environment that create investment risks.

· Poor regulatory and institutional space: Africa’s existing power pools are not supported by well-defined, consistent, and predictable energy policies and institutions. Regulatory focus is often targeted at short-term goals rather than long-term development. Also, sub-regional energy institutions are not sufficiently empowered, and lack the right structures to effectively harmonise and implement/enforce development strategies or reforms.

· Mistrust among member states: Member states have shown a great deal of reluctance in supporting the existing power pools because of the fear of losing national sovereignty. Misaligned individual country interests and lack of operational transparency have also contributed to such fears. In addition, countries are not guaranteed that other members would honour the terms of energy trading agreements.

· Political economy issues: Government owned enterprises are often major energy providers in several member countries, supplying power at subsidised rates because of inefficient and high production costs. Such arrangements make themarket rather complex, and deter private-sector involvement.

Prospects of AfCFTA in stimulating integration of Africa’s energy systems

A single liberalized regional energy market could mitigate some of the outlined shortcomings and improve the prospects of regional power pooling. Potential benefits include:

· Investment opportunities: An expansive energy market is expected to attract private sector investments and development financing. This could allow for funding new technologies to reduce production costs, increase capacity and maximize energy generation, which in turn can improve access to diverse energy products. Increased intra-African trade can also generally act as a catalyst for innovative finance options, strengthen financial systems to be able to support energy development projects, and incentivise investment in physical energy infrastructure by reducing investment risks.

· Coordinated policy approach and implementation: Under the AfCFTA, member countries are bound to align local laws with broad regional plans. As such, unified energy sector interventions and better coordination of reform agenda could promote several initiatives, including a more sustainable and environmentally friendly energy route for growth. Trade competition could further spur member states to adopt better national policies to improve efficiencies.

· Engendering trust among member states: The AfCFTA mandates members to publish trade related regulations and procedures, this provides greater transparency. The provision of a dispute resolution framework further helps ease the fears of smaller economies.

While effective regional collaboration can help boost energy production and support a more efficient distribution mechanism, it is imperative that the lessons from existing sub-regional energy collaborations are incorporated into future reforms and improved upon to increase the chances of meeting the targets set out in SDG7. Physical infrastructure such as national grid development is also crucial for successful regional power integration; therefore, national governments need to play their role in upgrading outdated grids. An inclusive and transparent framework should also be prioritised, to ensure that the interests of energy stakeholders in the region are adequately aligned.

This article was initially published by the Centre for the Study of the Economies of Africa