Energy Markets and Regional Integration in North Africa


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Energy Markets and Regional Integration in North Africa

The Arab uprisings, whether successful or not, unleashed a variety of new possibilities in many policy fields for the North African countries. One opportunity will almost certainly be a refreshed effort for regional integration, as the African Development Bank expects. Such regional integration is currently necessary and has been in the making for decades in the Maghreb. However, the Maghreb Union is at best a walking dead, as it is in a political dead end, blocked since decades by frozen conflicts or other animosities. Therefore, regional integration in the Maghreb will be primarily of economic nature and not political, at least at the beginning. To be more precise, this process will have to begin as an integration of the energy markets.

The European Union (EU) in its early days, only a few years after the end of World War II, started as the European Coal and Steel Community (ECSC) in 1951. It created a common market for the most important energy resource of the era, which at that time was considered to be coal, and the ECSC helped to keep European money in Europe. It was quickly augmented by the European Atomic Energy Community (Euratom) in 1957 which created a common market for the (then) energy source of the future, nuclear energy. Both institutions were headed by a High Authority, consisting of senior officials appointed by each government but independent of the national governments.

By taking this model for North Africa, one can see similar preconditions. Some countries have much more energy in their natural resources than they need while others have much less resources but contain larger populations they need to provide with energy. At the moment, economic cooperation between the countries in region and the EU is much stronger than it is with the respective direct neighbors. However, all North African countries need energy price stability to achieve political, fiscal and economic stability. Furthermore, regional cooperation is becoming ever more important: All North African countries are planning to dramatically increase their own share of renewable energy in regards to national energy mixes.

The World Bank and other foreign donors are currently financing a number of initiatives for electricity generation, mostly on the basis of Concentrated Solar Power (CSP). North Africa has ideal preconditions for the use of solar power. Yet, renewable energy is not considered to be as reliable as fossil energy sources, also due to the fact the storage of this energy requires large investments. At the same time, energy demand is rapidly growing in the region and is expected to flourish in the following decades. What better than to place such plans and challenges in the hands of an independent supra-national institution, created equally by all North African countries?

Such a supra-national institution is needed to ensure an ongoing development of and compliance to such treaties and also to guarantee price stability in phases of political turmoil or economic decline. Additionally, such a supra-national institution could promote reforms of the energy sector, enhance the efficiency of the energy market and also attract private investment in the local energy sector. The supra-national energy agency will also, once successfully established, promote the reduction of the national energy subsidies thereby liberalizing the energy market and tackle trade barriers. Such steps are an important precondition for further commitment by the World Bank and other international institutions. In some North African countries, energy subsidies consume up to one fifth of the state budget. Those subsidies are the same for all classes of society, and should therefore be replaced by a more sophisticated model to make energy affordable by the poor.

Once the supra-national institution is established with all its regulations and equipped with some regulatory capacities, a common market for North African energy is near. The final goal is to come from economic integration to political cooperation, providing the North African region with much needed political and economic stability. It could also be seen as a more suitable counterpart to the European Union and therefore facilitate future cooperation agreements. In the end, this institution might one day supplement or integrate into the structures of the nowadays mostly dysfunctional Maghreb Union. To achieve this ambitioned goal, however, a large amount of political work remains to be done.

At the moment, the biggest stone in the way is the decades old conflict between Algeria and Morocco, once started by Morocco’s occupation of Western Sahara. Today, the border between both countries remains closed and diplomatic relations are reduced to a minimum. Nevertheless, some developments indicate that cooperation on a practical and technical level is possible –which may suffice for an ambitious project as proposed here. An important agent might be the post-Gaddafi Libya with its large energy resources., even though this requires a certain level of domestic stability and Libya’s new politicians to reenter activities on an international level again. An integration of Egypt might also well be on the far horizon, although it should not be included in the starting phase, given its remote position from the other Maghreb countries and its powerful position in the Arab World.

The promotion of the regional integration of the energy market in North Africa should be in the natural interest of the European Union as it gives North Africa serious perspectives on growth and development as well as long-term ideas regarding real political stability. Additionally, with the establishment of a supra-national energy organization, the EU might have a single and reliable partner for energy cooperation across the Mediterranean. Therefore, policies in the region need to be readjusted: Not only should it promote bilateral or collective partnership with the EU, similar to the Barcelona process, but it should also aim at the establishment of EU-like structures in North Africa.

Thomas Claes

Thomas Claes is a graduate student of Middle Eastern Studies at Freie Universität Berlin, Germany. In 2011/12 he studied at the American University in Cairo where he conducted research on civil society and state-religion interactions in Egypt.
IFAIR

Comments

2 Recent Comments

  • Lukas

    The idea of an North African supra-national institution is good and you are right to draw parallels between the foundation of the EU as an economic union having coal and steel as its most important resources and North Africa having green energy as a very important resource.

    While thinking about this idea, just two points seemed to be unclear to me.
    Firstly, I ask myself, whether foreign investors would rally be interested in having a market union in Africa. Of course, political stability would rise in such a union and good governance would maybe have greater efforts by fighting corruption than it has today. But on the other hand, prices for exported energy would rise for sure, if there were a political counterpart to the EU, demanding taxes. Moreover it might be possible that labour costs would rise, if there were a politically strong North African union having the aim of increasing common wealth, which might end the explotation of workers, which foreign investors like most about Africa.
    So, do you think investors as well as western insitutions are really interested in having an African counterpart to the EU? If not, who else would help North Africa to turn your idea into reality?

    Secondly, I do not know, how many countries would have the chance to become members of this economic union. Even in North Africa economic standards differ between one and another state. More or less poor states such as the Niger would have high problems, when they have to pay for the energy produced in the union, because they do not have the means to produce enaugh. This might lead to a harsh exclusion of several poor states in Africa or do you think that solidarity among all North African states is that strong?

    Still, it is a good article, based on a well structured argumentation. I liked reading it.

  • Thomas Claes

    Lukas, thank you for you comment and questions!

    To 1) You might be right about rising costs and taxes. However, especially labor costs will still remain very(!) competitive towards Europe. North Africa will still be very (geographically) close to European markets and it will still have the energy trump in its hands. But of cause it won’t be the foreign investors who will make the regional integration happen. That is really up to the countries themselves. The main foreign promoters of this idea are the development banks, the World Bank and the African Development Bank. They promote the idea of free and integrated markets, so helping North Africa in this is in their core interest and they certainly will help, once the countries themselves take serious moves. I am a bit unsure about the position of the EU on this, because on the one hand they promote regional integration worldwide, but on the other, the current situation works quite well for the EU.
    Also, foreign invest follows the best growth rates, and following World Bank data, the missing regional integration costs North Africa’s countries 1-2% on annual GDP growth. So, in my non-economist-mind, regional integration will mean GDP growth + FDI growth.

    To 2) I was maybe a bit unclear about my definition of North Africa, but I am here talking about the states of the Maghreb Union, that is Morocco, Tunisia, Algeria, Libya, maybe including Mauritania and possibly including Egypt. That it, those are the countries that could mostly benefit from the integration.

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