North Africa's Hydrogen Mirage

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The prospect of billions of dollars in hydrogen investments targeting North Africa risks distracting leaders from pressing domestic social and economic crises.
Hydrogen attention stems from Europe’s search for energy security following Russia’s invasion of Ukraine, with Southern Rim nations viewed as suppliers to the Northern Rim.

Hydrogen types described:
- “Gray hydrogen”: produced from natural gas without carbon capture and storage.
- “Blue”: hydrogen with carbon capture and storage; costs are higher.
- “Green hydrogen”: produced using nuclear power, biomass, or renewable energy like solar or wind; costs are still relatively high.
Notable project example mentioned: a memorandum of understanding between a German developer and Mauritania for a $34 billion project with annual capacity of 8 million tons of green hydrogen and related products.
Infrastructure and regional plans:
- Portugal, Spain, France, and Germany signed an agreement to build a Mediterranean pipeline that would supply 10 percent of the EU’s hydrogen by 2030.
- Energy ministries of Italy, Germany, and Austria signed a letter of support for development of a hydrogen-ready pipeline between North Africa and Europe involving Italy’s gas grid operator.
Risks tied to investment dynamics: exchange rate appreciation, current account swings from deficit to surplus, and contingent liabilities from large projects such as failure or abandonment.

Hydrogen investments could perpetuate rent-seeking behavior by political and economic elites, analogous to fossil-fuel rent capture.
The economic concentration around fossil fuels and associated capital investments exposes Southern Rim nations to the risk of stranded assets or the threat of stringent restrictions on fossil fuel trade.
The European push for industrial policy and economic sovereignty may limit integration and reduce demand for Southern Rim exports, creating new risks to manage.

Migration context and human cost:
- On June 14, 2023, a refugee boat capsized off the coast of Greece and left hundreds dead.
- In 2022, no fewer than 160,000 people attempted to cross the Mediterranean; almost 40 percent of them were from Tunisia or Egypt. More than 2,300 died.
Structural domestic problems undermining opportunity and cohesion:
- Distrust of government and perceptions of corruption remain high.
- Lack of a dynamic private sector; unemployment higher for individuals with more education than for those with less.
- Legacy of state-administered economies with large government-owned enterprises crowding out independent businesses and fostering parallel informal economies.
- State-owned banks underpin shadowy fund flows supporting state-owned enterprises and limiting fair competition.
- In some countries a crony private sector captures wealth, distorting competition.
Energy-sector specifics:
- Importing nations such as Morocco and Egypt have overhauled or removed fuel subsidies or price controls, with mitigation measures such as cash or in-kind transfers to ease the impact on poor households.
- Oil-exporting countries such as Algeria and Libya have tended to stick with subsidies despite their high economic and environmental costs.

Ensure utmost transparency in the hydrogen sector to limit corruption.
Maximize revenues and citizen benefits from hydrogen production, including localization policies.
Implement reforms beyond the energy sector to remove roadblocks to creating decent jobs for young people.
Recommended sequencing to build trust:
- Begin reforms with political and administrative elites and cronies “walking the talk” before introducing changes that affect the broader population.
- Eliminate corporate subsidies stemming from import monopolies and promote fair competition by limiting abuse of dominant positions by state-owned enterprises or cronyism.
- Promote distributed solar power to blur the distinction between consumers and producers, which may make citizens more accepting of evolving market prices.
- Only after the above should labor market restructuring and exchange rate stabilization be pursued.
Rekindle regional cooperation among North African nations to create a larger market attractive to new investment and to renegotiate better trade deals with EU partners and others.
Prioritize building trust at home and providing opportunities to young people rather than relying on anticipated rents from hydrogen exports.

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2022: 160,000 people attempted to cross the Mediterranean.
Almost 40 percent of them were from Tunisia or Egypt.
More than 2,300 died.
Mauritania $34 billion project with annual capacity of 8 million tons of green hydrogen and related products.
Portugal, Spain, France, and Germany pipeline to supply 10 percent of the EU’s hydrogen by 2030.
Noor-Ouarzazate complex: covering 3,000 hectares.
World Bank Policy Research Working Paper 10339.
Arab Barometer Wave VII.

Source: North Africa's Hydrogen Mirage by Rabah Arezki (F&D Magazine, September 2023).

North Africa’S Hydrogen Mirage
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