EIA’s International Energy Outlook 2018 focuses on uncertainty in economic projections for China, India, and Africa

China, India, and Africa are three of the most populated parts of the world. Their economies collectively consume about one-third of all global energy, and their energy consumption is projected to grow faster than the rest of the world through 2040. As a result, changes in these economies have significant implications for global energy markets.

Africa has a wealth of natural resources and a younger, faster-growing population than many other parts of the world. How Africa develops over the next 25 years may have a substantial impact on international energy markets. This analysis considers the uncertainty associated with future energy demand growth in Africa by examining an alternative case for the continent’s economic growth over the next several decades.

In this sensitivity analysis, African gross domestic product (GDP) grows at an average rate of 5.0% per year over the 2015 to 2040 projection period, which is higher than the 3.8% per year GDP growth assumed in the International Energy Outlook 2018 (IEO2018) Reference case.

Assuming African annual GDP growth rates that are 1.2 percentage points higher than in the IEO2018 Reference case over the projection leads to per capita energy consumption that is about 30% higher than in the IEO2018 Reference case in 2040. The largest changes in consumption occur in Africa’s industrial end-use sector.

Background

Over the past several decades, Africa has periodically been heralded by economic forecasters as ready for great expansion and development, but that potential has not been realized. Africa remains a relatively underdeveloped region and one that continues to face many challenges, particularly related to a lack of infrastructure development and investment in areas including electrification, transportation (roads, airports, ports), and commercial development.

More than half the people working in Africa contribute to the production of food – many on arable land spread throughout the continent. However, this dynamic is rapidly changing – Africa is urbanizing quickly, and the growth of African cities is among the fastest in the world. Only Asian cities are expanding faster. These urbanization trends are one important factor helping to shape energy consumption trends in Africa. Economic growth is another factor.

Every country and region in the IEO2018 Reference case projection except Africa experiences an increase in per capita energy consumption from 2015 to 2040. African energy consumption per capita declines between 2015 and 2040 in the IEO2018 Reference case, even while income per capita grows. This trend occurs because the level of the African population rises faster than energy consumption, underscoring the difficulties the continent will have in meeting its energy needs.

Africa’s low level of per capita energy consumption in 2015 is partly explained by the region’s sizeable reliance on traditional, non-marketed fuels. Although non-marketed fuels from plant and animal sources are important energy sources – especially in the developing nations of Africa – comprehensive data on the use of non-marketed fuels are not available and not considered in EIA’s international data and projections. Not accounting for non-marketed fuels can affect both historical and projected energy consumption; for example, the International Energy Agency estimates that nearly 80% of Africa’s building energy use in 2016 came from traditional biomass for which reliable data does not exist.

Key takeaways

• Higher economic growth in Africa leads to an expansion of the manufacturing sector and an increase in industrial energy use because of possible regional competitive advantages.

• Higher assumed economic growth over the projection period leads to African energy consumption per capita that is about 30% higher than in the IEO2018 Reference case in 2040.

• The IEO2018 Africa side case highlights the need to further explore the relationship between projected changes in GDP and the response of energy consumption, particularly in the industrial end-use sector.

Africa’s energy consumption per capita lags behind other regions in the IEO2018 Reference case as population growth outpaces energy use

• The growing gap in GDP per capita between Africa and other regions highlights the potential for faster African economic growth.

• Further infrastructure development, particularly transportation network development and electrification, could alter this projection.

In 2015, Africa’s manufacturing sector was relatively small, and its services sector was relatively large, which contributed to Africa's comparatively low energy use

• Africa’s manufacturing sector share of total output was one-half the share in India and only one-third of China’s share in 2015.

• Africa’s construction, services, and agriculture output shares were similar to those shares in rapidly growing India in 2015.

• Africa’s mining output share was larger than that of both China and India in 2015 because of abundant natural resources and the underdeveloped state of many African economies.

High economic growth in Africa leads to an increased role for the manufacturing sector compared with the IEO2018 Reference case and a reduced role for the services sector by 2040

• Higher economic growth in Africa results in an increase in the size of the manufacturing sector relative to the services sector.

• The manufacturing share of output increases the most because Africa’s economy more effectively employs its population, urbanization, and natural resources to broaden its industrial base.

Manufacturing output growth increases more than non-manufacturing by 2040 when compared with the IEO2018 Reference case energy-intensive and nonenergy-intensive manufacturing growth increases are both above 30%

• African economies account for a larger manufacturing share in 2040, with percentage increases in output for both energy-intensive and nonenergy-intensive manufacturing industries that exceed 30% compared to the IEO2018 Reference case.

• Non-manufacturing industrial output grows more slowly, rising by 23% compared to the IEO2018 Reference case in 2040.

African industrial output growth is associated with higher energy-intensive manufacturing in the Middle East and a reduction of energy-intensive manufacturing output in non-OECD Europe and Eurasia

• African countries have a competitive advantage in manufacturing because of low-cost labor and natural resource availability, which can displace output in other regions of the world.

• Higher African economic growth decreases manufacturing output in competing regions such as other non-OECD Europe and Eurasia.

• Industrial economic activity in the Middle East in 2040 increases relative to the IEO2018 Reference case as higher African growth increases demand for fossil fuels.

This report was prepared by the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy.