President of the African Development Bank Group Akinwumi Adesina

Africa Could Lose $25bln annually as New EU Carbon Tax comes into effect, AfDB Warns

A new European Union carbon border tax could significantly constrain Africa’s trade and industrialization progress by penalizing value-added exports including steel, cement, iron, aluminum and fertilizers, African Development Bank (AfDB) President has warned.

AfDB president Akinwumi Adesina issued the warning while speaking to delegates at the Sustainable Trade Africa Conference held at the UAE Trade Centre in Dubai.

“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,” the bank president said.

“Africa could lose up to $25 billion per annum as a direct result of the EU Carbon Border Tax Adjustment Mechanism,” Adesina told the delegates.

The AfDB president further stated that the continent has been short-changed by climate change, and “now it will be short-changed in global trade.”

“Because of weak integration into global value chains, 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% by 2035,” he said.

Africa was already being overlooked in the global energy transition, according to data from the International Renewable Energy Agency.

The continent received just $60 billion or 2% of the $3 trillion of global investments in renewable energy in the past two decades. 

This trend “will now impact negatively on its ability to export competitively into Europe,” he said, calling 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.

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 percent, followed by Asia at 8.8 percent, Eastern Europe 8.6 percent, North America 7.6 percent, and Western Europe 5.9 percent.

The conference 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.”