COP 28: New EU carbon tax could cost Africa $25 billion annually, warns Adesina

Onome Amuge 

Akinwumi Adesina, African Development Bank Group (AfDB) president has warned that a proposed carbon border tax by the European Union (EU) could impose significant constraints on Africa’s trade and industrialization efforts. Adesina explained that the tax would penalize value-added exports such as steel, cement, iron, aluminum, and fertilizers, which could result in a trade deficit of $25 billion per year for the continent.

Adesina argued that the proposed carbon border tax could force Africa to once again become a raw commodities exporter to Europe, resulting in the de-industrialization of the continent. He highlighted Africa’s energy deficit and heavy reliance on fossil fuels, particularly diesel, as major reasons for this risk.

Addressing  delegates at the Sustainable Trade Africa Conference held at the UAE Trade Centre in Dubai, the AfDB president said, “Africa could lose up to $25 billion per annum as a direct result of the EU Carbon Border Tax Adjustment Mechanism. Africa has been short-changed by climate change; now it will be short-changed in global trade.”

Adesina stressed that Africa’s low level of integration into global value chains makes intra-regional trade a key opportunity for the continent. He cited data from the African Continental Free Trade Area (AfCFTA), which predicts that intra-African trade will increase by 80% by 2035. Adesina also highlighted data from the International Renewable Energy Agency (IRENA), which shows that Africa is being left behind in the global energy transition.

He noted further that Africa received just $60 billion or 2 per cent of the $3 trillion of global investments in renewable energy in the past two decades, a trend that will now impact negatively on its ability to export competitively into Europe.

In order to address the challenges presented by the proposed carbon border tax, Adesina called for what he called “Just Trade-for-Energy Transition (JTET)” policies. This, he explained,  would allow Africa to transition to renewable energy sources without restricting its trade prospects. He acknowledged that natural gas can play a role in this transition by reducing the variability of renewable energy sources and stabilising Africa’s energy systems, which is crucial for industrialisation. 

According to Adesina, a report by Moody’s Analytics found that Africa has the lowest default rate on investment in infrastructure compared to other regions of the world. The report revealed that Africa’s default rate is 5.5 per cent, compared to 12.9 per cent in Latin America, 8.8 per cent in Asia, 8.6 per cent in Eastern Europe, 7.6 per cent in North America, and 5.9 per cent in Western Europe. This suggests that Africa is a relatively safe destination for investment in infrastructure, which could help to boost the continent’s energy and industrial sectors. 

Adesina also noted that some mega projects have attracted investor interest through the Africa Investment Forum, a joint initiative of the African Development Bank and seven other founding partners. These include the $24 billion Mozambique liquefied gas project, the $15.2 billion Abidjan to Lagos Highway, which will connect five countries, and the $3.6 billion Tanzania to Burundi and DR Congo railway line.

The African Development Bank conference, which was moderated by Victor Oladokun, senior advisor to the president of the African Development Bank for Communication, also featured a speech by Benedict Oramah, president of the African Export-Import Bank (Afreximbank). Oramah warned that rapid decarbonisation by fossil fuel-exporting countries in Africa could reduce merchandise exports by $150 billion, citing preliminary results from a study commissioned by Afreximbank. 

Walid Mohammed Hareb Alfalahi, CEO of the UAE Trade Centre, also addressed the conference, dispelling the popular perception that Africa is a risky and difficult place to do business. “What you hear about Africa is not the reality,” Alfalahi said, citing his own positive experiences investing in projects across the continent. He added that he sees great potential in Africa and opportunities for further investment, suggesting that the reality of doing business in Africa may be different from the widespread perception.