Buffeted by a historic recession in 2020, sub-Saharan Africa's energy sector and economy experienced a challenging 2021, exacerbated by Covid-19-related complications.
Now, the region's economies are rebounding and, spurred by the global energy transition, governments are decarbonising across the energy value chain, insights provider IHS Markit states in a blog post titled ‘Africa Energy and Economy Review and Outlook (2021-22): A Time of Transition to an Uncertain Destination’.
The blog post highlights that the size and scale of these economic and energy transitions, both of which are occurring simultaneously, is unprecedented.
Moreover, Omicron – and, potentially, later, other Covid-19 variants – is disrupting progress and clouding the future trajectory of initiatives taken today, IHS states.
“With the region beset by a multitude of uncertainties, the only thing clear about what these transitions mean for sub-Saharan Africa in 2022 is that there is no clear line-of-sight ahead,” the authors indicate.
ECONOMICS AND COUNTRY RISK
IHS outlines that sub-Saharan Africa is rebounding from a historic pandemic-driven recession in 2020, but that growth is subdued and recovery trajectories diverge among countries.
It notes that Covid-19-inflicted supply chain disruptions have been less severe across the region compared to globally; however, the region is affected by inflationary pressures, challenging monetary authorities.
Moreover, the fiscal debt-to-gross domestic product ratio remains high across the region; therefore, governments are seeking to undertake fiscal consolidation to stem a rising public sector debt burden.
There is also political unrest, constrained fiscal capacity, rising cost of living and upcoming elections which are likely to further drive government instability, the blog post posits.
It highlights that the Africa Continental Free Trade Area (AfCFTA) is making incremental progress deepening trade linkages.
Lastly, it notes that, at COP26, Africa achieved mixed results, with funding pledges from developed countries to assist with the mitigation and adaptation for climate risks fall critically short of stated needs.
UPSTREAM OIL & GAS
IHS points out that upstream development activity is constrained and that the competitor mix is shifting.
It notes that governments face challenges with new upstream licensing; however, Africa leads in terms of frontier drilling.
IHS highlights that, despite generally lacklustre results last year, African exploration holds promise for 2022.
According to the blog post, African governments will grapple with the pandemic, which will slow down exploration and production policy progress.
Despite climate policy and civil society pressure on fossil fuels, African resource holders are expected to remain committed to gas.
The blog post indicates that while sub-Saharan Africa is no longer the world's fastest-growing region for oil product consumption, the fast pace of the region’s demand growth is bucking the global recovery trend.
However, the Omicron variant has considerably constrained the recovery of jet fuel demand, and complications around travel stemming from Omicron, along with the risk of new variant outbreaks, suggest that 2022 will be another year in which demand is shrouded in uncertainty.
Following a wave of rationalisation over the past few years, the trend of refinery closures across the region is unlikely to reverse in 2022, IHS states.
It notes that while several new refining projects and upgrade programmes to improve usage rates and output have been announced, it is unclear whether they will be realised and herald a refinery renaissance, or fall flat and mark the beginning of more refinery shutdowns.
The blog post points out that power demand rebounded last year and that it will continue to grow in 2022, albeit more slowly.
It notes that the diversification and decarbonisation of energy sources away from oil and coal to gas and renewables will gain momentum.
According to IHS, renewable projects resumed but experienced delays, challenging initiatives to increase energy supply and access, and to diversify the energy supply mix.