The Polycrisis
Tim Sahay and Kate Mackenzie on how geopolitics has been driving a quiet revolution in clean tech, and how the energy transition is in turn reshaping world power.
The Polycrisis
02 | Electric World Order | Rest of World
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What does the US dollar have to do with energy access in Africa?
Mark Blyth explains why countries are so keen to cut back their US dollar dependence; and how that’s connected to the way they get energy. Also, why Germany is afraid of Chinese EVs. Then we talk to Adjekai Adjei about how these constraints actually play out in the African continent.
Guests:
Mark Blyth - professor of international economics at Brown University.
Naa Adjekai Adjei - Nigeria-based expert in Chinese energy projects in Africa from SE4All, and a fellow at the China Global South Project.
Hosted by energy and climate finance expert Kate MacKenzie, and Tim Sahay from the net zero industrial policy lab at Johns Hopkins University. They co-author The Polycrisis newsletter, which explores connections between energy, geopolitics, climate change, finance and industry.
- Produced by Sarah Allely
- Original music by Russell Stapleton
- Mixed by Bethany Stewart
Contact us at: polycrisispodcast@gmail.com
Welcome to the Poly Crisis Podcast. This first season, Electric World Order, is about the geopolitics. This is episode two. Rest of world.
SPEAKER_03The energy transition is a major part of the contest between China and the US. In this episode, we're looking at how this big change is turning out for everyone else.
SPEAKER_00Yes, and more and more countries are using Chinese manufactured clean tech to really change their energy systems. And in some developing countries, this change is actually bringing electricity to places that never had it before. And most of that gear like solar panels, batteries, and EVs, keep getting cheaper and better. This is happening really, really fast. In a lot of sub-Saharan Africa, it's skyrocketed in the last couple of years. Later in this episode, we'll hear more about this from an expert in Africa.
SPEAKER_03Yeah, I saw that Sierra Leone in West Africa imported enough solar panels to increase their total electricity capacity by more than half. And that was in just 12 months. And Ethiopia banned the import of petrol and diesel cars and motorbikes so that they don't have to spend so many US dollars importing fuel.
SPEAKER_00Yes, so Kate, you spoke to Mark Blyth, who's a professor of political science and international economics at Brown University, about why countries are so keen to cut back their US dollar dependence and how that's connected to the way they get energy.
SPEAKER_03Hi Mark. Hello. Almost everything is denominated in US dollars. Most of the world's trade, most of the um imports and exports of fossil fuels and and every other commodity under the sun virtually is priced in US dollars. The access to US dollars that any country has is really critical to its financial kind of well-being and stability, right? Can you can you explain how that is important to the energy pathways or the energy choices that countries are making outside of the US and China?
SPEAKER_01I I'd start by trying to explain why it's so central to the world that we live in, right? And why it's then so hard to break. And if you break it, why this is bad news for the US, right? So how does it work? More dollars are made outside the United States than inside the United States. Go figure, right? Why is this? Because the dollar's big, everybody accepts it. It's like the International American Express card. And its value kind of sets the it's the denominator to everybody else, right, in terms of the value of currencies. You talk about the pound dollar exchange rate, the euro dollar exchange rate, right? It's the anchor to the system. Also, everybody else has to earn dollars because as you pointed out, in order to get things like pharma, cars, computers, all the stuff that you don't make, you're gonna have to buy it from someone else. And guess what? They want paid in dollars. And one of the main dollar spigots is demand for oil. And if the United States can provide you with the oil and gas, and therefore the dollars and the dollar access, that keeps you well within the system. If you actually manage to break that, you're outside of the system, the system gets smaller, the United States and its influence has diminished.
SPEAKER_03And for countries that are, let's say, like pretty rich, um, say I'm here in Australia, um, Germany, for example, big importer of uh of fossil fuels, right? They don't produce very many, so they import a lot of gas uh previously from Russia, less so now, a lot from the US and other um other gas.
SPEAKER_01Increasingly from the US, absolutely.
SPEAKER_03But this but this dollar this dollar dependency or like centrality of the US dollar, it's less of an issue for those rich countries than it is for most of the rest of the countries in the world, right? It's like the it's a much bigger vulnerability.
SPEAKER_01It is, and that's also why a green transition for these countries isn't really just about the green transition. It's about lowering your dollar dependency, it's about lowering your oil dependency. If you can start to produce all your electricity essentially free, and you can do it through panels imported from China or windmills or however you want to do it, then you don't need to import oil. And if you don't need that, you don't need to earn dollars. And suddenly your whole fiscal situation changes. So that's why Chinese green investment is extremely attractive to countries and so they're still importing foreign goods, though, aren't they?
SPEAKER_03Like they this is often, you know, often I hear, well, isn't this another dependency on another country? It's not quite the same, though, is it?
SPEAKER_01Well, I mean, think about it in terms of like a budget. So imagine you've got a hundred bucks to spend, and usually you have to spend 30 of them on oil, which means you've got 70 to spend on everything else. If suddenly you're spending 15 on oil, you've got 15 extra to spend on other stuff. So yes, it's a it's still a dependency for other things you need to import, but it does give you a lot of degrees of freedom that you don't have before.
SPEAKER_03So, um, what about this issue though, of countries saying, well, we want to make all this stuff ourselves instead of just importing like vast amounts of solar panels and EVs from China because China is so good at making these things. They're making such vast quantities so cheaply. Um, a lot of countries and their populations, a lot of people are understandably a little bit kind of concerned that, oh, everything just everything's coming from China, we don't, we're not getting any jobs out of this. Uh, different countries are are doing this in different ways or responding to this in different ways. But w what do you think about that concern coming from different countries? You know, when people are raising this, like, oh, we're just being swamped, you know, China's got this overcapacity and we're being swamped with all of these Chinese cars.
SPEAKER_01No, China ha China has overcapacity, but it's not as if the world basically has a sh has too much green tech. If you if you take this seriously, we need everything we can get. We probably need more than China's putting out. So who worries about this? Germany worries about this. Why? Because they worry about electromobility, why? Because they make crap software, because they make ice engines, internal combustion engines, and basically the stuff that they make in terms of electromobility in comparison to China just isn't very good. So they're losing market share, and they thought that they could compete in this space and now they can't, and they want to protect their car industry and the jobs that go with it. So that's where you're going to get resistance. If you're in Ethiopia, you don't have a car industry. And if somebody's coming along and saying, I can give you an EV for$15,000, they're like, dude, sold.
SPEAKER_03I wanted to ask you if just on this question of different countries um big importing or can contemplating importing more and more Chinese clean tech, uh, but but having this concern of, oh, you know, we're not we're not getting any local jobs out of this, we're just takers of green technology, we're just the takers, and China is the maker.
SPEAKER_01Right. But if at the end, if the end of that you reduce your dependence on oil and thus your need for dollars, and you end up with cheaper or more reliable electricity, what's the trade-off you're making? Not everyone can have a panel industry.
SPEAKER_03Yeah, true, true. However, people generally populations still, you can see, kind of get they get unsettled by this uh reliance or this sense of you know, some other countries getting all of the skill, all of the technology and we're not we're not getting any of it when there's no good jobs here from from from us, uh no good jobs for us in all of this. So I'm thinking of three different countries, right? So Canada, as as you know, part of Mark Carney's strategy in Canada is to get Chinese uh Egvee companies to come into the country and start setting up factories there with good union conditions and sharing local technology, sharing know-how, right? So that then Canada's car industry can become the car industry of the future rather than the past, just making these old big SUVs, clunky SUVs.
SPEAKER_01But they're essentially saying that 10 years from now, when Trump's no longer part of the fixture, we'll have the EV supply chain that your your own companies don't have.
SPEAKER_03So that's the goal, that's that's the that's the goal for for Canada's current government, whether the car industry goes along with it or very quickly or not, who who knows? Um then you've got Brazil, right? Brazil where there is a big BYD factory being built, which Tim has just recently toured, and um, you know, it's good it's going to be vast. Um there's a whole obviously lots of negotiations went into that, getting jobs, you know, how are the local jobs, what's the local technology transfer, how far, how far up the value chain is this? Are we just assembling or are we actually making the hard stuff? Um and then a third example is um Kenya. So there's a Kenya and a few other African countries have got Chinese-backed, uh most mostly Chinese-backed, uh solar panel plants, but it's mostly just as assembly. So, you know, similarly in South somewhat similarly in South Africa. But these three countries, let let's say in the way that they're negotiating with China about all of this, about how much Chinese tech and know-how and expertise are you going to give us? They've all got different bargaining chips, right? And one of them is, you know, yeah, how how would you describe that that difference in those sort of you know big rich country like Canada, big powerful but middle income country like Brazil, and then you know, a low, low income country like like Kenya.
SPEAKER_01Right. I mean, ultimately, what does Canada have? Canada is the parts supply chain for the American auto industry. So they can lever that up much in the way, the same way that Eastern Europe is able to do uh with Chinese tech and say, don't set up the factory in Germany, set it up in Hungary, right? Because we're the guys that build all the parts anyway, and you're still gonna need shock absorbers, you're still gonna need a chassis, we can do this to something to trade. When you get to Brazil, it's a very, very large market. Uh it's a middle-income country, but you'll sell a lot of cars. Uh, if it's Lula that's still in charge, who knows how the politics work on this one? But if the right get back in, this whole thing could flip just as it's done with Chile. But it could be a case of if uh Lula's uh folks stay on, then you end up with um uh a factory being built, you end up with uh a certain degree of technology transfer. But what China sees in this one is basically access to a very, very large market and also to lock in their tech in this very large market. That's a kind of like something that keeps them in there. And then when it finally comes to Kenya, it's like, well, what is it that Kenya wants? Kenya would probably want reliable electricity. Well, I'm not gonna set up an EV factory there, am I, if you don't actually have electricity. How about we just start with the electricity first? Why don't you have some panels, maybe some windmills, right? I'm simplifying grotesquely, but you know, nonetheless, that's how you would look at it. If China's looking at this from the point of view of they've got burned on their belt and road stuff over the past 15 years, they're now basically a bad debt collector. They've got a lot of like leverage over particularly African countries with debts that they've accumulated, some Latin American ones as well. This is a way of them showing up as the good guys. Now we're not just gonna give you money, it's gonna blow up and you us more money. We're gonna actually give you something to earn the money back with. And nobody in the West is paying any attention to this. The United States is running around saying Canada's losers and Europe's got nothing, and you're all pathetic, we hate you, and we're just gonna charge you tariffs and you're just losers, whatever. And China's just showering these countries with money and equipment. And India's neuralgia is just the same as everybody else in the global south. 1991, when the cunt and the economy nearly went bang and they were forced to liberalize, uh, was a shortage of foreign exchange. Why? Because they were spending all their money on oil, right? Get rid of the oil constraint. How do you do that? You do a ton of renewables. So much of this comes down to the rest of the world trying to go off oil and the United States punching in them ahead and saying, no, you'll take more oil.
SPEAKER_03Yeah, and I guess once they build out panels, the more the more solar or whatever other stuff you build out, you just you just naturally need less, right?
SPEAKER_01Much easier to add a new panel than it is to find the money to buy another gallon.
SPEAKER_03I agree. It's like this, it's this real change in what all our expectations are, what our sort of collective expectations were.
SPEAKER_01I mean, it's a reasonable thing. Yeah. A reasonable how do you fund it? And then it's like how do you muscle it? And then you go, well, who's actually going to do this? Right? And and the doers in capital. I don't hate to sound like a shamterian booster, but the doers in capitalism are firms. Like they're not government projects.
SPEAKER_03Yeah, yeah, absolutely.
SPEAKER_01Particularly when your government shite.
SPEAKER_03Yeah, absolutely. All right, thanks so much, Mark. That was that was great, really interesting.
SPEAKER_00So, Kate, you and Mark covered a lot in that interview. The dollar fossil fuel connection, the US, and also the question of local manufacturing.
SPEAKER_03Yeah, and that one's close to your heart, isn't it? That's what your Net Zero Industrial Policy Lab at Johns Hopkins looks at very closely. Um, how should countries do green growth, whether they should make things or just buy them from China, and how to deal with China if they do want to make it? And this question comes up a lot lately. Why does China make all the green tech? Shouldn't we make some of these green machines at home? But then I remember someone saying uh in a panel round table that we were both involved with, Tim, that you didn't hear countries insisting that they needed to manufacture, say, gas turbines or their own coal-fired power plant equipment.
SPEAKER_00Yeah, but developing countries really need to industrialize to get richer. They want those higher profits, skilled jobs, and tax revenues that come from green growth. Kate, the auto industry is always very politically powerful wherever it exists, and any country that's big and wants to industrialize will want to make cars. So you spoke to someone who understands very well the situation that a lot of African countries are in in terms of their energy needs.
SPEAKER_03Aja Kai is a researcher and she's a fellow at the China Global South project, and she's an expert specifically in Chinese energy investments in Africa. So she knows a lot about what energy generation looks like in Africa in the mid-2020s and how that's leading countries to interact.
SPEAKER_00She doesn't look at the kind of bottom-up stuff like what's happening in Pakistan, right? She's focused more on large-scale energy projects. What we're seeing in developing countries is these two big changes: there's off-grid DIY solar, and then there's that large-scale utility solar.
SPEAKER_03Yeah, and the thing is the big utility projects are obviously much more expensive, and you need a lot of state coordination, you need a lot of upfront money, and that can be really hard to get.
SPEAKER_00Okay, let's hear from Ajakai Ajay.
SPEAKER_03Hi, Ajaqai, welcome to the polycrisis. Can you give us a bit of a sense of what the energy landscape is like in Africa at the moment and how um how it's been changing in the last few years, particularly around electricity generation in in different parts of the continent?
SPEAKER_02Africa and the energy continent has been unfortunately a bit precarious. Currently, there's like the famously quoted figure of about 600 million Africans don't have access to electricity. And power generation seems to be or is definitely on the lower end. There's a lot of kind of reasons for this, but key is being just being able to finance a lot of that large-scale infrastructure that's quite expensive for a lot of countries to carry. And so we've seen investors coming in from a number of places around the world, including China. Um, and I think that's really improving kind of the amount of generation capacity that the continent is getting right now. But I would say we have a long way to go. It is changing in the sense that we're seeing more renewables, especially in countries such as South Africa, Namibia, etc. So there's a lot of shifts, but there's also a lot of work to be done. Um, but there's definitely good progress.
SPEAKER_03Yeah. I'd be interested in your thoughts about whether China or Chinese companies are more the kind of prefer or are are are preferred partners for African countries on getting sort of foreign investment into energy projects.
SPEAKER_02So I can't necessarily say preferred. Um there's just this huge gap in terms of how much how many people don't have access. So I don't think there's a preference. But I would say the advantage that um Chinese companies and financiers have been coming through with is that it's been more of a like a bundled package. So a lot of the time Chinese companies may come in and um have the ability to assist the African government to also get financing to build the project. And I think, yeah, so essentially that bundled package of a contractor coming with the financial solution is really helpful because you know, African governments have been kind of strained in terms of how much investment they can personally put in.
SPEAKER_03So, how difficult is it for most African countries to access the level of investment that's needed to really improve energy access?
SPEAKER_02I would say that a lot of um African governments are experiencing or have challenges in the power sector that kind of, for lack of a better word, put off investment.
SPEAKER_03What what does it mean? What does it look like to have limited energy access? Could could you give us a sense of in in countries where it's you know where it is particularly limited, what does it mean for households and companies and even governments where, you know, to just not have that really good universal reliable energy electricity?
SPEAKER_02A lot of the time when countries present their access rates, they present the kind of overall access rate. So a country will say it has 50% access energy, which is not great, but it seems like it's at least 50% of the population. But what we actually find is when you look at it from a more granular perspective, you would see that maybe, and my numbers won't be exact, but what you'd see is that um in the urban areas, so like the cities and the capitals, maybe the access rate will be 70%, and then um in the more um developing areas and the more remote locations, you'll find access rates of as low as 6%. And then you know, when balanced out, it would say the country has 50% access, but actually a lot of the time the majority of the population doesn't have access, and that's it has very real implications. So in the work that I do, like my day-to-day job, we basically look at you know improving access through mini-grids, and we have you know connected hospitals where women were literally giving birth in the dark. If not in the dark, you'd have women giving birth, and then you know, there would be lights and then there would be darkness and nobody could see, and children would be born with like phone torch lights. Um, so it has very real implications, life and death implications, um, especially from the healthcare sector, but then it also has, you know, overall development impacts from education to businesses, um, with you know, a lot of utilities and a lot of countries can provide like four hours of electricity a day. Um, and what does that mean for a hairdresser who needs to be blow-drying hair? What does that mean for, you know, people who um sell frozen goods like butchers and butcheries? You know, it's it's just a very difficult um environment for them to be able to conduct business.
SPEAKER_03I'm wondering if you can give me a sense of what it looks like, um, what what the energy environment currently looks like in a particular country in sub-Saharan Africa, for example. I I I think you're speaking to us today from um from Abujo in Nigeria, is that right?
SPEAKER_02Yeah, that's correct. So I'll start with stats just to like frame the picture. So Nigeria has a population of about 200 million people, um, and an installed capacity of about 13 gigawatts. Um, comparing that, for example, to not its direct neighbors, but Ghana, which is not too far from Nigeria, has a population of about 30 million people and an installed capacity of about five gigawatts. So we have a country that is five times bigger than another from a population perspective, more than five times bigger, with a electricity system that's barely or just about double the size. So from Nigeria specifically, where I'm speaking from, the availability of electricity is very low. And so there's not a lot of power to go around. And so a lot of people are generally off-grid. So putting in their own solar panels on their homes. And that I would say is for the more privileged. For the average Nigerian, that means just no power at all. And then for let's say a more middle class Nigerian, that means a generator. And um, but it does have very serious environmental impacts using generators. Also, generators are then dependent on fuel. And if there's fuel scarcity, then that's you know, access to electricity is then impacted. If fuel prices go up, then you know it's not access to electricity is then not affordable. So we have a in Nigeria a very big population, limited generation capacity, and essentially most of the majority or the majority of the population having to find their own means to generate electricity.
SPEAKER_03And even though Nigeria is actually a really big oil producer, there's not much refining capacity there, and there's still the effect of international prices. Uh have you been surprised to see um an this upswing in people? Seems like households in particular, but maybe also firms in in some parts of Africa are installing more solar panels recently, given that, you know, given that there still really isn't enough grid infrastructure there?
SPEAKER_02Yeah, there's definitely been a huge upswing in in the amount of solar that's being installed by individuals and as you said, by businesses. And that has been obviously good just because of like the amount of demand that there is, we've seen kind of solar prices dropping, free-falling over the years, which has been great. Definitely makes sense for businesses to say we're going off-grid so that you know we have more reliable power, but then then that greatly impacts kind of the viability of the greater system, like the the bigger electricity ecosystem, um, because then you can't have your utilities being further bankrupt because their guaranteed customers have then decided to defect from the grid. So it's had very positive implications, but it has also had um quite challenging implications that governments are are looking at um in terms of you know just their financial viability?
SPEAKER_03Because you have so much expertise in China in particular, in China's in in African energy, in the African energy landscape, what's your sense of how that Chinese approach to energy has changed in Africa over the years and to what extent is it determined by kind of bigger geopolitical concerns or or is it more diffuse and and and sort of disconnected than that?
SPEAKER_02What we find is that when private sector financiers are trying to make investments, they look at a lot more at kind of for lack of a better word, the maths, the finances behind it, and if those, if you know, it makes sense if there'll be an immediate or kind of return on investment in terms of like the time horizons that um the private sector usually looks at. But looking at it from a Chinese perspective, um the risks that may kind of deter the private sector is kind of less pronounced from the Chinese perspective, and China uses a lot more relationships to kind of mitigate these risks and to um kind of deal with the challenges of investing in Africa's power sector. And I think maybe that's where kind of the more geopolitical conversation comes in to say how is diplomatic relations and relationships used as an essential risk mitigation tool when there's challenging macroeconomic environments that the investors need to navigate.
SPEAKER_03So Tim, even though clean energy tech is growing super fast in African countries, it's still very hard to get the finance. You need to build a big traditional electricity power plant. And when they can get the finance, it's often at very high interest rates and it's on much tougher terms than a rich country would get.
SPEAKER_00Yeah, you can sort of see why off-grid rooftop solar would be very attractive, even if you could just get electricity a few hours of the day.
SPEAKER_03Yeah, diesel's expensive, and that's even in Nigeria, which is actually a really big oil producer, but that doesn't make their diesel any cheaper. And Nigeria is a huge country and it's only got one diesel refinery. So they're importing diesel and petrol or paying for it in US dollars, which are hard to get, when you're already in a difficult financial situation, and then it's terrible if your currency value falls because you still have to pay in US dollars, as Mark told us earlier. So then that creates a burden for everyone. You've been listening to the first season of The Polycrisis. I'm Kate McKenzie.
SPEAKER_00And I'm Tim Sahai. We publish a newsletter about the political economy of climate change, amongst other things. You can sign up for that and find out more about us at thepolycrisis.com or in our show notes.
SPEAKER_03Our producer is Sarah Allerly, Russell Stapleton composed our excellent music, Bethany Stewart is our sound engineer, and Sarah Allerly is also our second producer.