New European Union (EU) carbon border tax could significantly constrain Africa’s trade and industrialization progress, the Africa Development Bank (AfDB) has warned.
AfDB President, Dr Akinwumi Adesina said the carbon tax will penalise value-added exports including steel, cement, iron, aluminium and fertilizers.
“With Africa’s energy deficit and reliance mainly on fossil fuels, especially diesel, the implication is that Africa will be forced to export raw commodities again into Europe, which will further cause de-industrialisation of Africa,” said Adesina.
The Bank President told delegates at the Sustainable Trade Africa Conference held at the UAE Trade Centre in Dubai that Africa could lose up to $25 billion per annum as a direct result of the EU Carbon Border Tax Adjustment Mechanism,”
“Africa has been short-changed by climate change; now it will be short-changed in global trade,” he said.
Despite weak integration into global value chains, Adesina said Africa’s best trade opportunity lies in intra-regional exchanges, with the new Africa Continental Free Trade Area estimated to increase intra-Africa exports over 80 percent by 2035.
Adesina stressed that Africa was already being overlooked in the global energy transition, according to data from the International Renewable Energy Agency.
“Africa received just $60 billion or two percent of the $3 trillion of global investments in renewable energy in the past two decades, a trend that will now impact negatively on its ability to export competitively into Europe,” said Adesina as he called for what he termed the Just Trade-for-Energy Transition (JTET) policies, which would enable Africa’s renewable ambitions without restricting its trade prospects.
Africa will need to use natural gas as a transition fuel to reduce the variability of renewable energy and stabilize its energy systems in support of its industrialization, Adesina said.
Meanwhile the Chief Executive Officer of the UAE Trade Centre, Walid Mohammed Hareb Alfalahi said Africa is the new frontier for investment contrary to widespread perception that the continent is a dangerous and difficult place to do business.
“What you hear about Africa is not the reality. I see the potential in Africa. I see the possibilities to do more,” said Alfalahi as he recounted his positive experience of investing in a number of projects on the continent.
Adesina said a report by Moody’s Analytics showed that Africa had the least default rate on investment in infrastructure compared to other parts of the world.
According to the report, Africa’s default rate stands at 5.5 percent, compared to Latin America’s 12.9 per cent, followed by Asia at 8.8 percent, Eastern Europe 8.6 per cent, North America 7.6 per cent, and Western Europe 5.9 percent.
Adesina also highlighted some of the mega projects that had attracted investor interest through the Africa Investment Forum that was created by the African Development Bank and seven other founding partners. The projects include Mozambique’s $24 billion liquefied gas project, the $15.2 billion Abidjan to Lagos Highway corridor covering 5 countries and the $3.6 billion Tanzania to Burundi and DR Congo railway line.
“I’m talking about a different Africa. There is no project that as partners, we cannot handle,” said Adesina.
The conference, moderated by the African Development Bank President’s Senior Adviser for Communication, Dr. Victor Oladokun, was also addressed by the President of the African Export-Import Bank, Afreximbank, Professor Benedict Oramah.
He warned, “Preliminary results of a study recently commissioned by Afreximbank reveal that rapid decarbonisation by fossil fuel-exporting countries in Africa could cut merchandise exports by $150 billion.”