‘The energy transition must be balanced with economic justice’

In an exclusive interview with Critical Resource, Sheila Khama (a NED of Tullow Oil and former CEO of DeBeers Botswana) discusses learnings from the Covid-19 crisis, argues that companies will need to strengthen regional supply chains in Africa, and highlights the risks of an economically unjust energy transition on the continent.

Regionalised supply chains will be key to managing future crises

Sheila Khama

“The last global economic crisis of 2008-2009 was primarily financial in nature. The current one is driven by the pandemic and is altogether more invasive as it impacts the very fundamentals of moving people and goods around the globe. In previous crises, these fundamentals were intact and there was no reason to doubt that they would revert back to ‘normal’. However, it is far from certain that the same will happen after this current crisis. To successfully reduce the social and environmental risks of any future pandemics or other crises of this magnitude, businesses will have to adapt their supply chain environments, among other things.

Traditionally, multinational companies rely on global supply chains to achieve economies of scale, but in a world in which people and goods cannot move freely, this becomes a major handicap. Interestingly, this might mean that extractive companies and host governments have a potential convergence of views – in part because it is in their common interest for goods and services to flow uninterruptedly. Here, the answer might be that goods should be produced as closely as possible to operations.

While not every country will be able to create domestic supply chains to serve major industries, out of this crisis an opportunity may arise for further development of regionalised supply chains or manufacturing hubs, particularly within Africa. The way the sovereign owners of Airbus distributed opportunities to leverage supply chains for the manufacturing of aircraft provides a potentially useful lesson. Regionalised supply chains might follow a similar trajectory as the ‘Airbus dream’ – at first this was considered a laughable idea by some, then once accepted it was painful to implement but ultimately worked to the benefit of several countries and many communities.”

The Covid-19 crisis has demonstrated the value of public-private partnerships

“Crises of this magnitude do not happen every day and many governments, especially those in poor countries, were caught off-guard. It’s therefore not surprising that as Covid-19 spread, the private sector, with its leaner decision-making structures, was quicker off the mark. Companies acted fast in taking measures to support employees, suppliers and communities, whilst governments were focused on emergency public health measures and regrouping.

The financial support and expertise of the private sector has been generally welcomed by government. We did not see the tensions that have sometimes typified interactions between host governments and investors, as each played to their respective strengths in addressing this public health emergency. For example, in Ghana, collaboration between the government and the mining industry led to the creation of an initiative to help fund the purchase and distribution of essential medical equipment. It is also positive that Africa, one of the world’s most vulnerable regions, broadly avoided getting caught up in politics and offered a clear sense of purpose in response to the pandemic. It was an impressive demonstration of institutional discipline on the part of the region’s governments.

Looking forward, it is important to take stock of what can be learned from the way the crisis was managed. If viruses and pandemics are a reality of our common future, then public-private partnerships may be the model best suited to finding effective solutions. The response to the public health crisis, particularly within Africa, shows that there is a basis for this model, wherein the government provides policy direction, health systems and infrastructure, and the private sector utilises both its financial resources and project management capabilities to support implementation. I hope the post-Covid-19 consensus will be more partnership between government and industry. This might also be a model for justly delivering economic benefits to communities – and would be a win-win since it would strengthen the license to operate of extractives companies.”

Forcing African countries to rush away from fossil fuels will hamper a ‘just transition’

“The petroleum sector was already in a downward trend coming into the Covid-19 crisis, and the pandemic added further pain to an already difficult market situation. Judging from industry reports, we are likely to see an acceleration of the negative economic impacts, which will sadly include more job losses in the petroleum sector in the near term. It is an unfortunate but unavoidable step as producers adjust to the ongoing low-price environment. In Africa, the egregious economic impact of this weaker commodity price environment will be felt most keenly by the major oil-producing nations including Algeria, Angola, Libya and Nigeria.

Nonetheless, we have to make peace with the notion of a transition away from fossil fuels. What will drive the prospect of an energy transition in Africa more than any other factor are the shareholder interests of the multilateral financial institutions. Some industry players in the United States, United Kingdom and the Nordic countries can see a renewables-led future and have chosen to no longer support the development of oil projects, including those on the African continent. Globally, investors in major resource companies are also pushing companies away from the growth of fossil fuels, which could discourage new investments.

This donor conditionality and the investor pressures raise critical questions around the idea of a just energy transition on the African continent. Energy powerhouses such as Nigeria and Angola face a race against time to meet various climate change-related commitments. Meanwhile, emerging African nations such as Ethiopia, Mozambique and Tanzania face the prospect of their newly discovered hydrocarbon assets becoming less economical. Although gas assets are not likely to become stranded in the medium term, the possibility that oil deposits become redundant in a renewable-energy driven future is real.

This is not a statement against the need to further develop clean energy. On the contrary, each of us has a role to play in this drive. However, unless there is a global consensus on an economically just and strategic energy transition, we are sadly looking at potentially numerous stranded energy assets in Africa and the prospect of further economic injustice. It seems to me that Africa is damned if she does and damned if she does not – but not enough consideration has been given to the social and economic price African citizens will have to pay if their governments are forced to simply walk away from oil and gas. This is something that requires more attention.”

Sheila Khama is the former CEO of De Beers Botswana and currently non-executive director at Tullow Oil as well as an independent consultant. For nearly ten years, Sheila worked as a natural resource policy advisor to governments in Africa, Latin America and South Asia, at both the African Development Bank and the World Bank.