• Fuel for thought

    In response to high energy prices driven by demand in developing countries, biofuel production in Africa is starting to take off.

    Fuel for thought

    One of the main challenges facing economic development in Africa is access to reliable and affordable energy sources, especially as most countries on the continent are becoming increasingly dependent on imported oil.

    In rural areas, various sources of biomass, including wood and dung, are still the most accessible and affordable sources of energy. But in terms of Africa’s fast-expanding urban areas, energy supply – for transportation in particular – depends primarily on imported fossil fuels.

    As a result of this ever-growing demand for fuel and the increase in world oil prices, the expenditure on energy imports by most non oil-exporting African countries has been increasing rapidly.

    A paper compiled by Tsegay Wolde-Georgis and Michael Glantz for the International Research Centre for Energy and Economic Development in Africa, titled Biofuels in Africa: A Pathway to Development, estimates that sub-Saharan Africa uses between 20% and 30% of its export earnings to pay for petroleum.

    For example, Tanzania’s import of petroleum products has reached about 40% of its total imports and Ethiopia spends around 87% of its export earnings to bring in oil.

    There’s an obvious solution to this equation: most oil-importing African countries could avoid high expenditures by developing their own biofuels resources.

    In Biofuels For Africa, a World Bank report by economist Donald Mitchell, it is suggested that biofuels will not only provide opportunities for farmers to grow new cash crops, but will also cause the relative price of all agricultural commodities to rise as a result of the increased competition for resources.

    Another attractive benefit is that biofuels offer the prospects of job creation in rural areas, reducing fuel import costs and improving foreign exchange earnings.

    ‘African countries can participate in this new era as both producers of traditional agricultural commodities and as producers of biofuels to meet domestic and export demand,’ Mitchell states in the report.

    Policy makers in many African countries are already creating a favourable investment environment to attract foreign and local biofuels entrepreneurs. This is in addition to developing international partnerships with the EU and countries such as Brazil and India in a bid to transfer biofuels technology to the African continent.

    If properly managed, these technologies have the potential to enhance Africa’s energy and economic development.

    This does not, however, come without risk. As Wolde-Georgis and Glantz state: ‘If care is not taken in the implementation of biofuels development strategies, unintended social, economic and environmental consequences may occur.’

    As an emerging region with huge biofuel potential, Africa is forecasted to see a growth of more than 130% in ethanol production

    According to the UN’s Food and Agricultural Organisation (FAO) and the Organisation for Economic Co-operation and Development, global ethanol and biodiesel production are both expected to expand and reach 168 billion litres per annum (bnl) and 41 bnl respectively within the next eight years.

    As considerable as this figure may appear, it will not be enough to meet the global biofuels demand, which is set to reach over 180 bnl for ethanol and about 60 bnl for biodiesel by 2020, according to the Global Biofuels Centre.

    Ethanol markets are, and will continue to be, dominated by the US, Brazil and, to a smaller extent, the EU. More than three quarters of world’s biodiesel production occurs in the EU, US, Argentina and Brazil.

    While developing nations will experience exceptional growth in biofuels production, from a volumetric perspective, the quantity produced will remain a small share of the global production.

    Ethanol production in developing countries is projected to increase from 42 bnl in 2012 to 72 bnl in 2022, with Brazil accounting for 80% of this supply increase, and a large part of the remaining volume coming from China.

    On the other hand, biodiesel production in developing countries is projected to increase from 10 bnl in 2012 to 14 bnl by 2022. Asian countries such as Malaysia, Thailand, Indonesia, the Philippines and Vietnam are expected to lead the growth in biodiesel production in developing countries.

    In co-operation with FO Licht, the Global Renewable Fuels Alliance (GRFA) recently released its latest Global Annual Ethanol Production Forecast.

    In a statement accompanying the release, GRFA spokesperson Bliss Baker says that, as an emerging region with huge biofuels production potential, Africa is forecasted to see a growth of more than 130% in ethanol production in this year alone.

    In South Africa, Tanzania and Mozambique, the production of ethanol production is expected to reach 420 million litres, 55 million litres and 59 million litres respectively by 2020.

    ‘Although total volumes of ethanol produced in emerging regions like Africa are lower in comparison to more established producers, a production increase of over 130% is incredible because we know that these production increases will drive new investment in agricultural and job creation while reducing Africa’s reliance on imported oil,’ says Baker.

    A total of 10 African countries, including Nigeria, Ethiopia, Sudan and Mozambique now have biofuels-friendly policies in place ‘to encourage the use and production of renewable fuels and to reduce their crude oil reliance’.

    A report commissioned by the GRFA titled Contribution of Biofuels to the Global Economy, found that agricultural industries in developing countries will benefit significantly from biofuels production because, among other things, it results in price increases for agricultural commodities used as feedstocks in all countries.

    ‘These higher prices could result in a positive supply response from small farmers who are able to react to the price incentives.

    ‘The emergence of biofuels as a major new source of demand for agricultural commodities could help revitalise agriculture in developing countries, with potentially positive implications for economic growth, poverty reduction and food security,’ the report states.

    The report also points out, however, that these developing countries will continue to face many of the same constraints. These include political instability, lack of infrastructure and extension services, as well as corruption – factors that have prevented them from taking advantage of opportunities for agriculture-led growth in the past.

    While the domestic market for biofuels throughout Africa is expected to be robust because of high fuel prices and rapid demand growth, substantial opportunities exist for export development.

    Many commentators argue that the development of biofuels in Africa is aimed less at introducing their use into African countries and more at exports to the EU to help those countries meet blending targets, which stipulate that by 2020, 10% of transport fuels must be from renewable sources.

    There is ample proof that large-scale biofuels investments are playing an important role in transforming land use in developing countries

    A recent World Bank study suggested that ‘the rapid increase in the global demand for biofuels, especially ethanol, over the next decade or more will provide opportunities for African exporters because neither the EU nor the US is expected to be able to meet its consumption mandates completely from domestic production’.

    According to the World Bank, the EU ethanol market is especially attractive for African biofuels producers because of duty-free access afforded to most African countries under various preferential trade agreements. Whether the benefits of biofuels production will outweigh the potential negative impacts that large-scale biofuels production could have for African farmers is an ongoing debate.

    ‘Along with new opportunities for biofuels production come new challenges that must be met if such production is to be sustainable,’ says Mitchell.

    These challenges include ‘the environmental impact of expanded crop production and manufacturing of biofuels, the land use conflicts that arise from expanded crop production, the impact on food security, and the need for government support to smallholders so they can participate in and benefit from expanded biofuels production’.

    In a report that looks at the impact of biofuels production on food security the FAO’s Committee on World Food Security found that initial accounts focused on the role of biofuels as a driver of domestic and foreign large-scale investments in land, and identified biofuels production as a central, if not the leading, motive behind these investments. However, later analysis reduced the weight originally attributed to biofuels, identifying other drivers – for example, the effort by capital-rich and resource-poor emerging countries to ensure food security.

    Nevertheless, there is ample proof that large-scale biofuels investments are playing an important role in transforming land use in many developing countries. In this regard, Mitchell suggests that land laws in many African countries need to be strengthened to protect the rights of local people who currently have insecure land tenure.

    ‘Land allocations for biofuels should be transparent, involve all stakeholders and provide just compensation to those who give up their land for biofuels production,’ writes Mitchell.

    The food price boom that occurred from 2007 to 2008 (and which, according to many observers, was caused in part by the steeply rising demand for the production of biofuels) led many African governments to restrict production of biofuels feedstocks in an effort to improve food security.

    Most African biofuels policy papers now include explicit regulations about the choice of feedstocks for biofuels production.

    The South African biofuels strategy, for example, bans the use of corn, a staple food in the country, for ethanol production in order to reduce food insecurity in the region.

    However, Mitchell believes that such restrictions raise serious equity considerations because they limit the income opportunities of farmers, who are often among the poorest members of society. ‘These restrictions also limit employment opportunities [in addition to] wages in rural areas where poverty is often pervasive by limiting production of potentially profitable biofuels feedstocks.’

    A better approach in terms of policy, writes Mitchell, would be to address food security directly. This could be achieved ‘through targeted social safety nets and investments in infrastructure, crop-breeding research, and other public goods that increase food production and lower costs’.

    Mitchell concludes that the most effective way to improve food security is by increasing income capacity for the poor.

    After all, if increasing biofuels production can contribute to economic growth and poverty reduction, it can also contribute to food security through enhanced purchasing power.

    By Alida van Heerden
    Image: Gallo/GettyImages