Thursday, 24 May 2012

East Africa set to become Africa’s manufacturing hub


 EAST AFRICA is on the path to becoming an energy secure region. And here we are talking about the energy mix including both fossil fuels and renewable sources of energy. Energy security is defined as physical availability, reliability and affordability of energy sources.
East Africa qualifies in all respects.  Picture this: Oil and natural gas finds are being updated almost weekly and reports of investment in exploitation of renewable sources energy have become regular in the region. In short, all sources of energy are available in one region. That is an energy secure region. And such a region soon becomes a manufacturing hub due to low cost of energy and its reliability.

An oil rig in Action
At the rate at which oil and Gas finds in the region are being are being announced, the region could soon stand neck to neck with the giants in the world.  According to the wire service Reuters, the US Geological Survey estimates that 253 trillion cubic feet of natural gas lie off Kenya, Tanzania and Mozambique compared to 186 trillion cubic feet for Nigeria, Africa's biggest energy producer. Both Tanzania and Mozambique are blazing the trail in natural gas exploration in the region. So far in excess of 100 trillion cubic feet has been found in the two countries.

Although oil discoveries are not anywhere near- the giants in West Africa.  Estimates show that east Africa could hold an estimated 6 billion barrels of oil compared to 60 billion in Nigeria. However, this is work in progress and estimates could change with new finds. For instance, in Kenya, the latest country to discover oil, the available quantity has been updated twice in a month from 20 metres of net pay load to 100 Metres at depths of 1500 Metres.  The explorer, Tullow oil Plc. says they expect to drill up to depths of 2700 Metres. More oil could be found, says the company in a statement.

 Uganda also has one billion barrels proven reserves but its potential is estimated at between 2.5 billion barrels and 6.0 billion barrels. Uganda proposes to produce some 150,000 barrels a day in the near future.
Apart from Oil and natural gas, east Africa is also exploring other sources of electric energy. Kenya is the leader in this respect. The country is estimated to have the potential got generate some 3000MW of wind power, of which an estimated 500MW will come on stream by 2016. It is also estimated to hold 7000MW of geothermal energy although some sources indicate that the potential is higher. So far, the country generates 205 MW of geothermal power –the highest in Africa but still too low considering its potential.


Consequently, there is a flurry of activity in geothermal exploitation. The local power generator; Kengen plans to generate 5000Mwof geothermal power by 2030. This works to an estimated 280MW every year over the next 18 years.  Each 280MW units is said to cost US$1 billion. That is neat pile of cash. Already a 280 Mw Unit at Ol-Karia IV is under construction.

In addition, the government owned Geothermal Development Corporation, GDC, plans to invest US$750 million to develop a 1600MW steam fields at Silali in Menengai in the Rift Valley. The fields will be developed in three phases. Phase one will generate 400MW at a costs of US$150 million. The funds were mobilised from Africa development Bank in the form of loans and grants. Some $124.5 Million is a loan while the balance some $25 million is a grant. The steam fields, to be completed in 2016, will be concessioned to independent Power producers to generate power from. This will make it even cheaper for power generators to invest in generating capacity. The result is power that is at least 50 per cent cheaper than it coasts now.

 Energy, together with transport, is some of the factors that contribute to the high cost of doing business in the region.  The region depends on the unreliable hydropower. This makes it vulnerable to shortages of electricity especially during drought.  To ensure continuity the region relies on expensive Thermal power to keep the economy running. The result is expensive products and stagnant manufacturing units.

Economics theory teaches that, low cost of production attracts investment into a location. East Africa is set to cut the cost of energy and transport, given the amount of investment into both.  Investment in oil and gas exploration is bearing results while infrastructure development is growing apace in the region.

In next five to ten years, say experts, the energy mix is expected to be fully operational generating both huge revenues and cheap power. Both Geothermal and Wind power cost an estimated US$0.07 per Kilowatt hour.
Experts say that the region has all the ingredients of manufacturing hub. These include; cheap and reliable energy, well -educated populations, a pool of skilled man power and a diversified economy including a vibrant manufacturing sector.

Given that all these factors are in place, say experts, the region will witness increased activity in the manufacturing as local manufacturers expand their capacity to meet the demand s of a prosperous population. Foreign manufacturers are also expected to come into the region in order to cut coats and also to penetrate the African Market from east Africa.

Apart from cheap power and smooth roads, the region is planning to create one Free Ttrade Area boasting of a population of more than 500 million people by July 2013.This is a US$1n trillion economy and growing. This it will achieve by marrying all three trading blocs into one. The three are; East African Common Market, COMESA bloc and SADC bloc.

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