## North Africa's Hydrogen Mirage

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**Canonical URL:** [North Africa's Hydrogen Mirage](https://www.imf.org/en/publications/fandd/issues/2023/09/north-africa-hydrogen-mirage-rabah-arezki)

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## Bibliographic details
- Authors: RABAH AREZKI
- Published: September 1, 2023

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### Overview
- 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.

### Energy geopolitics and hydrogen prospects
- 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.

### Risks and macroeconomic implications
- 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.

### Domestic governance, social cohesion, and migration
- 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.

### Policy recommendations and sequencing of reforms
- 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.

### Key statistics and factual points (verbatim)
- “Less than a minute(0 words) Read”
- 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).*

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_Source: https://www.imf.org/en/publications/fandd/issues/2023/09/north-africa-hydrogen-mirage-rabah-arezki_