Industrial Decarbonisation In Africa: Why Competitiveness Will Decide the Transition

Africa’s energy transition debate remains dominated by power generation targets, electrification rates, and renewable capacity additions. These are necessary foundations. But they are no longer sufficient.

The continent’s industrial future will not be decided by climate pledges alone. It will be shaped more decisively by energy costs, power reliability, energy productivity, and exposure to carbon-linked trade regimes. In practice, industrial decarbonisation is becoming less a climate ambition question and more a competitiveness question.

This distinction matters. African governments are aligning climate strategies with global narratives. Yet the systems required to allow industry to decarbonise without losing market position remain underdeveloped.

If competitiveness is ignored, decarbonisation risks becoming a mechanism of exclusion rather than a pathway to sustainable growth.

Competitiveness arrives through markets, not pledges

For African industry, decarbonisation pressure is arriving through trade, procurement, and finance, not through multilateral agreements.

Export-exposed sectors such as cement, fertilisers, steel, aluminium, and energy-intensive agro-processing increasingly face carbon-sensitive procurement standards, investor transition-risk screening, and border-adjustment mechanisms. These instruments are often framed as climate policy, when in practice, they function as filters on cost, productivity, and documentation capacity.

African firms enter this environment from a structurally weaker starting point:

• Higher energy intensity per unit of output,
• Higher cost of capital,
• more volatile power supply,
• Weaker emissions measurement and verification capacity.

Unless these fundamentals are addressed, decarbonisation risks becoming a mechanism for gradual industrial exclusion, rather than a pathway to sustainable growth.

Energy costs are not just tariffs; reliability is the hidden tax

Energy competitiveness is often reduced to headline electricity prices. This is misleading. Tariff comparisons obscure reliability gaps that function as implicit industrial taxes. Across much of Sub-Saharan Africa, firms face frequent outages and voltage instability.

For continuous or batch-sensitive processes, cement kilns, steel furnaces, chemical reactors, cold chains interruptions translate into lost throughput, equipment stress, higher inventory costs, and working-capital strain.

World Bank outage data consistently show reliability gaps that remain structurally large relative to OECD benchmarks. In effect, unreliable power reduces output per unit of capital invested. It raises risk premiums and distorts investment decisions.

Industrial decarbonisation pathways that assume stable and scalable grid electricity risk misprice electrification strategies and underestimating operational losses, and competitiveness-first decarbonisation requires treating power reliability and quality as core industrial inputs, not secondary energy-sector indicators.

The energy-efficiency deficit is Africa’s quiet disadvantage

One of the most under-discussed competitiveness gaps facing the African industry is persistently weak energy-efficiency performance.

Continental energy data show only marginal improvements in energy intensity over the past decade, far below the rate required to materially lower production costs or converge toward global efficiency benchmarks. This matters because energy efficiency is not merely an emissions lever. It is a first-order cost and productivity lever.

Industrial energy-efficiency programmes in Africa demonstrate this clearly. Evaluations of large-scale programmes implemented with support from the United Nations Industrial Development Organisation show material, monetisable energy savings, often alongside improvements in operational stability and maintenance practices. Evidence from such programmes indicates that systems optimisation alone can deliver average efficiency gains of 15–30%, frequently with payback periods under one to two years.

In high cost-of-capital environments, these short-payback interventions are disproportionately valuable. They reduce exposure to long-term financing, foreign-exchange risk, and technology uncertainty, making them among the most financeable decarbonisation actions available.

Yet, climate finance flows in Africa remain heavily skewed toward energy supply. According to the Climate Policy Initiative, the vast majority of climate finance continues to flow to generation, while industry receives only a small fraction. Industrial efficiency remains the “missing middle”.

If African governments and development finance institutions are serious about industrial decarbonisation, energy efficiency must be treated as industrial infrastructure, not a technical footnote.

Power systems define what can realistically decarbonise

Many global decarbonisation models implicitly assume what African industry often lacks: a reliable, affordable, long-term electricity supply.

Across the continent, power systems remain constrained by:

• Limited generation buffers
• Transmission bottlenecks
• Tariff structures that penalise industrial loads
• Risk allocation frameworks that discourage long-term contracting

As a result, electrification-based decarbonisation strategies can appear viable in modelling exercises yet falter under operational and financial scrutiny. This is not a technology gap. It is a system-design gap.

Industrial decarbonisation cannot be planned downstream of power systems. It must be integrated into them. Decisions about firm power allocation, contract duration, and tariff design are now industrial policy decisions.

Capital-intensive pathways face a cost-of-capital wall

High financing costs reshape the feasibility frontier of industrial decarbonisation. In emerging economies, decarbonising heavy industry faces compounded constraints: high cost of capital, limited fiscal space, technology risk, and shallow domestic long-term finance markets.

In African contexts, capital-intensive pathways, hydrogen-based steelmaking, CCUS, and large-scale electrification of high-temperature heat can be technically viable yet financially prohibitive without concessional support and risk-sharing.

Evidence from technical assistance and pilot programmes illustrates this clearly. Even where institutional capacity exists, CCUS initiatives have struggled to progress beyond early-stage studies. Similarly, delays and withdrawals from large green hydrogen and ammonia projects highlight that bankability of offtake, price formation, and certification readiness remain binding constraints.

The implication is not that these technologies should be abandoned, but that they should be treated as medium-term industrial capabilities, not near-term competitiveness levers.

Carbon illiteracy is becoming a trade barrier

As carbon accounting becomes embedded in trade, measurement capacity itself becomes a competitiveness factor. The EU’s Carbon Border Adjustment Mechanism (CBAM) is now moving from its reporting phase toward compliance, and even before financial settlement begins, it is already transmitting MRV requirements upstream through EU importers to exporters.

Where producers cannot provide verified embedded-emissions data, default values apply, often conservatively. In effect, weak data capacity functions as a non-tariff barrier, penalising firms regardless of actual performance.

This trend extends beyond CBAM. EU corporate reporting standards increasingly require value-chain emissions disclosure, while sector-specific regulations, such as those covering batteries, mandate product-level carbon footprint declarations. Public procurement initiatives are also being structured around low-emissions materials.

For the African industry, the lesson is clear: MRV capacity is trade infrastructure. Without it, exporters face margin erosion, compliance friction, and gradual exclusion from preferred markets.

Why climate finance keeps missing African industry

Climate finance architecture remains misaligned with African industrial reality. Most instruments are structured around generation projects. Industrial decarbonisation, by contrast, requires retrofits, process optimisation, and firm-level aggregation activities poorly suited to standard project-finance templates.

Only a small fraction of mitigation finance has historically flowed to heavy industry in emerging markets. Where progress has occurred, it has relied on bundled instruments combining capital, first-loss coverage, and verification support.

Industrial decarbonisation requires finance that fits balance sheets, not models that fit donor comfort.

Conclusion: the transition will be judged by outcomes, not targets

Africa does not face a binary choice between industrialisation and decarbonisation. It faces a choice between competitive transition and managed decline.

If decarbonisation is pursued primarily as compliance, industry risks gradual exclusion from global markets. If pursued as a productivity and resilience agenda, it can strengthen Africa’s position in a carbon-constrained world.

The energy transition will ultimately be judged not by installed capacity or declarations, but by whether African firms can continue to produce, export, and employ profitably and sustainably.

Competitiveness will decide the transition.