Key message 3 – Developing countries have natural endowments that can contribute to the net zero transition, opening up opportunities for urban industries and services.

Natural endowments have historically played a dominant role in the economies of many of the poorest countries in the world. In Africa, on average, fossil fuel exports constituted 37% of total exports in 2020 (authors’ own calculations based on data from The Growth Lab at Harvard University (2022) in line with Oramah (2022)). However, the IEA predict that, by 2050, the global energy supply will drop from 60% coal, natural gas, and oil under business-as-usual, to 20% under net zero (IEA 2022). Countries will need to find ways of redeploying and upgrading their existing capabilities towards new opportunities, which can contribute to sustainable urbanisation objectives. These include exploiting the potential for renewable energy generation, such as solar, wind, and hydropower, as well as the extraction and processing of mineral resources that go into building low-carbon technologies.

While Africa and South Asia enjoy high renewable energy potential, most of this remains untapped. When it comes to solar, Africa is home to 40% of the global potential, but just over 1% of installed capacity (Mo Ibrahim Foundation 2022). Furthermore, while hydropower is Africa’s primary form of renewable energy, African countries are exploiting only 11% of the potential available (Addleshaw Goddard and Association 2021). Wind energy, geothermal energy, and green hydrogen are only beginning to be harnessed.

Figure 2 shows the share of electricity coming from renewable energy sources across Africa and South Asia. Currently, 22 African countries have renewables as their primary source of electricity generation (Mo Ibrahim Foundation 2022) while in South Asia, it is Bhutan and Nepal who primarily rely on renewable energy, largely coming from hydropower (Triyana and Li 2022). For some of these countries, the high proportion of renewables does not translate to a high absolute amount of electricity generation, as installed capacity—and therefore access—in much of Africa and South Asia is relatively low. Instead, they are still reliant on other off-grid non-renewable energy sources for cooking, heating, and transport. Despite this, the development pathways created through initial investments in renewable energy rather than coal will ensure cities develop more sustainably, and with stronger advantages in the production of greener goods and services.

Figure 2: Share of electricity from renewables in Africa and South Asia.

Source: Authors’ calculations based on data compiled by Our World in Data, with Africa and South Asia primarily drawn from BP Statistical Review of World Energy.

Notes: Globally, around one-quarter of electricity comes from renewables. This is varied regionally, with averages of 2015 – 2020: Europe – 34.6%; Asia Pacific – 21.9%; Africa – 19.5%; Middle East – 2.6%; North America – 22.3%, South and Central America – 64%; Oceania – 27.5%. Grey indicates data unavailable.

The high costs of transporting cleaner energy sources bring further comparative advantage to developing countries. This is because cleaner energy sources have a lower energy concentration than fossil fuels (Li et al. 2010). They also lose between 50-80% of initial energy during the conversion process necessary for it to travel long distances (Giddey et al. 2017). These distributional impacts will be felt both between countries—where those rich in renewables and other cleaner energy sources will develop stronger comparative advantages in heavy industry; and within countries—where locations near the source of these energy will be preferred sites of production (Hausmann 2022).

Cities in developing countries can also go beyond simply employing cleaner energy to decarbonise existing production and attract new green firms by manufacturing intermediary goods which are part of renewable technologies themselves. Such value add could start in lower-complexity goods, such as lead-acid electric accumulators—which provides for energy storage in off-grid PV system—or liquid dielectric transformers, used for initial assembly, repair, and maintenance of wind energy systems. While Africa’s share of inventive activity in the field of mitigation is relatively low compared to the rest of the world, evidence shows it is rapidly increasing in energy storage, hydrogen, fuel cell technologies, and renewable energy (UNEP 2013). For example, South Africa is innovating with green hydrogen production to decarbonise the smelting process of nickel (Fitch Solutions 2021).

In order to deliver on this potential, the global shift to net zero will almost quadruple demand for the materials and ‘critical metals’ needed as inputs to renewable energy and low-carbon technologies by 2040 (IEA 2020). As with renewable energy, developing countries also hold most of the world’s reserves in these minerals, but are not yet taking full advantage of it. On average, developing countries are holding 2.5 times more in current reserves of key ‘low-carbon’ transition metals than they are producing, while for rare earths in particular, this value is even greater—with developing countries holding 10 times more in reserves than they produce (see Figure 3).

Figure 3: Developing country production and reserves of key ‘low carbon’ transition materials.

Source: Data from (Arrobas et al. 2017).

Notes: For low carbon use: Bauxite – Solar PV cells; Copper – Solar PV; Lead – Hybrid vehicles; Lithium – Electric vehicles; Nickel – Renewable batteries; Platinum – Hydrogen vehicles; Rare Earths (a group of 17 critical metals) – Multiple use, including wind turbines; Silver – Electric vehicles and solar panels; Zinc – Energy storage and renewable energy system longevity.

New demands bring the opportunity to exploit different minerals in urban industries and services. For example, Neodymium, one of the 17 rare earth metals, is required for magnets used in generators of wind turbines and electric vehicles. While 85% of this is currently mined in China (Nansai et al. 2014), mines in Burundi and Malawi hold promising sources of the metal (Statista 2021). Similarly, copper is used on average five times—but up to 40 times—more intensively in renewable energy systems than in fossil–fuel-equivalent energy production (Strong 2017) & (Hertwich et al. 2015). Many countries already have the technologies to extract it and could reap the benefits of growing demand. Higher value-added tasks include preparing the alloy and processing the product, or service activities, such as marketing and design. Rare earth mines near Migowi city, Malawi, are already attempting to drive local employment through new local content agreements, improved infrastructure, and investing in processing plants (Mkango Resources Ltd 2022).

Importantly, the mining industry itself can be very energy and water intensive, which means it will need to be done more sustainably (Hausmann 2022). Furthermore,  over a third of nickel reserves are in areas of high biodiversity or water stress, with by-products from processing being very harmful for environment pollution and health impacts (Smith 2018). Growing service industries related to environmental accreditation of mines and managing the negative impacts on the surrounding environment are therefore another opportunity to upgrade into higher-value activities.

Across both renewable energy and minerals, it is not only the endowment of the resource that matters, but also other factors that affect the overall comparative advantage in producing and processing it. This includes the cost of capital, which greatly influences the viability of investing in renewables in a particular location, as well as capabilities in managing the long-lead times for planning, permitting, and construction. Strong institutional capacity is also needed to effectively manage ‘the resource curse’—in other words, the failure to show enhanced economic performance from natural resources due to mismanagement of revenues and commodity cycles (see Humphreys et al. (2007) for escaping the curse and Collier and Laroche (2015) for harnessing natural resources).