There is growing awareness, within the region, and among its development partners, of the importance of regional integration to providing relatively small and isolated economies with a platform for enhanced growth and stability. This has become a significant focus of key regional organizations and partner institutions.

It also draws attention to important and cost-effective opportunities available from interconnection of national infrastructures towards integrated development efforts.

For example, some development partners increasingly, and rightfully, draw attention to the fragmentation of African economies and particularly the non-connectivity of infrastructure between African countries, as major constraints to development and economic growth. This is the essence of a recent European Commission (EC) proposal to the European Council, Parliament, and Economic and Social Committee.

It draws attention to the significant economic costs arising from lack of interconnected cross-border infrastructure. This often makes trade and commerce uncompetitive due to high transport and service costs, unreliable supply chains, delayed deliveries, and other constraints that contribute to low productivity, high transaction costs, and diminished competitiveness, and overall tend to stifle national economic growth in the countries of the region and their capacity to expand their trade at regional and international levels.

Regional economic integration, especially infrastructure-led, could play an important role in the Horn of Africa. It could make key contributions in several areas, ranging from peace building to sustainable economic growth and poverty reduction. Economic integration, or collaboration in key areas, could make vital contributions to their viability and future growth in the context of an increasingly difficult economic situation.

The EC suggests a “Partnership for Infrastructure”, encompassing investments in trans-boundary and regional infrastructure and their regulatory frameworks in the widest sense: transport networks (roads, railways, inland waterways, ports and airports), water and energy infrastructure, and connections as well as ground-based and space-based electronic communications infrastructure and services.

In the area of infrastructure-led regional economic integration, there is a need to examine the region’s fundamental needs for taking development beyond the subsistence level. These include interconnection of national road networks and other transport links to enable intra-regional as well as external trade. It also demands taking a hard look at the most urgent priorities for getting national economies on track, identifying and taking action to address the key obstacles.

Two of the most important obstacles to development that might be effectively addressed in the context of infrastructure-led integration are in the areas of energy and transport. Access to affordable energy is a prerequisite for effective and sustainable development in the Horn of Africa and most of the Nile Basin. The reality is, however, that this prerequisite is lacking in most of the region, and likely to be more so in future. Most of the countries in the region are largely, and increasingly, dependent on oil-fired power generation, which for most of them has become unaffordable due to the increasing cost on fuel.

In the context of the Horn of Africa and Nile Basin, this could be addressed through interconnection of national electricity grids, and to enable countries that largely depend on costly oil generated electric power, to buy much cheaper hydroelectricity.

While the countries of the region are increasingly hard pressed by the escalating costs of their largely oil-based electricity supplies, Ethiopia depends upon relatively much cheaper and environmentally friendly hydroelectric power. Its potential for hydropower production is more than enough for the needs of the entire region (IGAD region and Nile Basin).

The interconnection of the other countries of the region with the Ethiopian power grid could be a lifesaver to their economies that is hit by the mushrooming costs of oil used to generate their electricity requirements.

Ethiopia’s current hydropower production is 790mw, but its potential is more than 32,000mw. Hydropower projects already launched will increase output to 4,000mw by 2011. Part of the increase will go to Ethiopia’s own rural and urban electrification programs, but much of it will be exported to Kenya, Sudan and Djibouti.

A project is already underway for a power interconnection with Djibouti, which has agreed to purchase hydropower from Ethiopia. Kenya has signed an interconnection and power purchase agreement with Ethiopia to buy 600mw of hydropower; negotiations are underway between Ethiopia and Sudan for grid interconnection and power purchase.

The cost and availability of energy are key constraints on Djibouti’s development and major elements of poverty of the poorest sectors of the population. The country depends on oil-fired electricity generation at a production cost three to four times higher than that of Ethiopia’s hydropower. The average price per KWh in Djibouti in 2003 was equivalent to 0.25 dollars, as against 0.06 dollars in Ethiopia. It has now doubled due to dependency on fuel imports for power generation. Much the same is true for Somaliland.

Djibouti’s consumer prices for electricity, even prior to the current oil price shocks, were the highest in the region, at an average of 0.20 dollars per kilowatt an hour. The interconnection investment is estimated at 63.33 million dollars, including connection to Ethiopian border towns along the route.

The proposed Ethiopia-Djibouti power interconnection project will facilitate export of at least 300 GWh of power per annum from Ethiopia to Djibouti. It will reduce the cost of supply, and minimize fuel expenditure and investment in power generation facilities, while promoting growth, development, and consumer access along the interconnection route and in the border towns in both countries.

During the 1990s and thereafter, Ethiopia’s electricity prices were among the lowest in the IGAD region. This was largely because it was mainly hydropower, with a very small component of oil-generated power.

Tariffs in Kenya and Uganda were about one third higher. The subsequent steep increases in oil prices, and increasing power demand, have serious implications, for economies, and countries, dependent on oil-generated power.

For instance, prior to the recent surges in both power demand and oil prices, Kenya had expected to add at least 1600mw of generating capacity by 2017, of which only 15pc was planned to be hydropower, in view of the country’s limited potential for development of additional hydropower. The remaining 1360mw would come from thermal generation, including 900mw from diesel-based generators.

But at current oil prices, oil-based generation is likely to prove unacceptably costly, and probably unaffordable. At the same time, there are indications that the real demand for electricity could be considerably higher than was estimated at the turn of the century. In view of the accelerating cost of oil-fired electricity generation, especially diesel, power trade between Ethiopia and Kenya could be particularly beneficial for both countries.

Sudan is in the process of negotiating an agreement with Ethiopia for interconnection of their electricity grids and the purchase from Ethiopia. The current agreement involves significant levels of electricity sales, and in view of increasing demand, could reach considerably higher levels in future. This implies a need for continuing increase in Ethiopia’s power production to meet that demand.

While Sudan is an oil-exporting country and could use it for electricity generation, it would prefer to export its oil and buy cheaper hydroelectricity from Ethiopia.

In South Sudan and in the context of embarking on its reconstruction and rehabilitation, the Government plan includes the purchase of diesel generators for a large number of towns and villages. In view of the subsequent huge increases in the price of oil, the intentions of the Government of South Sudan to make electricity widely available, and the particularly high costs of diesel generation on a large scale, this may need to be reconsidered.

In the longer term, the least-cost option is likely to be interconnection with Ethiopia and the purchase of hydroelectricity.  

Egypt has reportedly also expressed interest in the possibility of buying Ethiopian hydroelectricity. It could itself become an important customer and beneficiary from cheaper energy. Experts suggest that Egypt’s development may be constrained more by lack of power than lack of water. The Aswan Dam can now meet only a fraction of Egypt’s power needs. In 1994, it was estimated to supply only about 20pc of the country’s total requirements, which were increasing by about six per cent per year. 

The hydroelectric potential of the planned Blue Nile reservoirs is far more than that of the Aswan High Dam, and represent only a part of Ethiopia’s hydroelectric potential.

At present, the largest source of meeting Egypt’s rapidly increasing electricity requirements is through thermal generation using the country’s natural gas and oil, an increasingly costly way of doing it. Egypt, like other countries in the region with gas or oil production, would much prefer to export it and take advantage of lucrative international markets, if they can find less costly sources of electricity for their own energy needs.

And again, there could be an additional reason, as to generate electricity, the water must pass through the dam’s generators, and keep on flowing down, something of a guarantee, in its own right, of continuing water flow.

The opportunities exist not only in the Nile Basin, but in those of a dozen other major rivers that flow down from the Ethiopian Highlands to the lowlands of the surrounding countries. All of these countries experience constraints on their efforts at development and poverty reduction arising from power shortages, or the rapidly increasing costs of the electricity needed to power their development efforts. All of them could benefit significantly from development of Ethiopia’s hydroelectric power potential, the interconnection of regional power grids, and development of regional power trade.

According to recent estimates, Ethiopia could earn up to 300 million euro annually from the currently planned power exports. With increasing power needs across the region, and continuing high costs of oil generation, hydropower exports could eventually bring in considerably more.

The interconnection of infrastructure also has a potential to contribute materially to regional peace and security, as shared infrastructure creates interdependency and provides the participating countries with important economic incentives to manage tensions, avoid conflict, and consider possibilities of closer collaboration and integration.

In this respect, the cooperative development of trans-boundary river basins could contribute to solving many of the critical problems of the Horn of Africa.

Someone said, “Countries that trade don’t fight.” Of course, that is an over simplification and they sometimes do fight. Nevertheless, there is considerable evidence that where there is significant economic interdependence between countries, tribes, or clans, they are much less likely to fight, and more likely to make an effort to avoid conflicts that would upset relationships from which they derive significant recognized benefits.

The participants in regional power trade enter into such a relationship because of recognized benefits, on which they place a value. In doing so, they establish a significant measure of mutual dependency. In the context of the Nile Basin and Horn of Africa, power trade will eventually mean establishment of inter-dependency between several countries, for example: All of the countries of the region are faced with rapidly growing electricity needs, the high costs of thermal generation of electricity to fill the gap, and the potential for much more affordable and accessible hydropower.

The critical limiting factors in food production in this region are water availability and declining availability of arable land. Any significant increase in production must depend on more intensive farming systems, requiring irrigation, and other inputs, to increase land productivity.

Even so, improved agriculture alone is unlikely to provide sustainable food security and poverty reduction for all the rapidly increasing population of the region over the longer term, but it is a necessary starting point. Success will also require substantial development of off-farm employment to absorb the surplus rural population. This in turn will require development of the region’s main natural resources and affordable energy sources, including hydroelectric power, to support industrial development.