21803 September1994 Public Disclosure Authorized RegionalProgram for the TraditionalEnergy Sector Public Disclosure Authorized DiscussionPaper Series THE TRADITIONAL ENERGY SECTOR AND THE ECONOMY: THE CASE OF MALI, BURKINA FASO, THE GAMBIA, NIGER AND SENEGAL Public Disclosure Authorized September, 1994 Isaac Castillo RPTES Consultant Directed by Public Disclosure Authorized The World Bank,Africa Region Supportedby DirectorateGeneral for InternationalCooperation The Netherlands RPTESCoordination Team Boris Utria, ProgramManager Max Wilton, Senior Adviser Mathieu-C.Koumoin, Energy Economist Koffi Ekouevi,Economist SuzanneRoddis, Operations Analyst For additionalinformation on the RPTESprogram or the DiscussionPaper series, please contact: RPTES Program Energy Africa Region The World Bank 1818 H Street,NW Washington,DC 20433 tel: (202) 473-4488 / 473-0719 fax: (202) 473-8249 e-mail: [email protected] RE VIEW OF POLICIES IN THE TRADITIONAL ENERGY SECTOR RPTES THE TRADITIONAL ENERGY SECTOR AND THE ECONOMY: THE CASE OF MALI, BURKINA FASO, THE GAMBIA, NIGER AND SENEGAL September, 1994 Isaac Castillo RPTES Consultant NOTE: THIS DOCUMENT WAS PRODUCED AS PART OF A CONSULTING ASSIGNMENT BY THE AUTHOR TO THE RPTES PROGRAM. IT IS NOT AN OFFICIAL WORLD BANK DOCUMENT. THE FINDINGS, INTERPRETATIONS AND CONCLUSIONS PRESENTED HEREIN ARE ENTIRELY THE RESPONSIBILITY OF THE AUTHOR. TABLE OF CONTENTS FOREWORD ... .. 4 I. INTRODUCTION ... 6 II. METHODOLOGICALASPECTS . 10 II.1 The Traditional Enerav Sector . 10 II.2 Information oroblems and calculation methods . 13 III. MALI ... .... 27 III.1 General Considerations . 28 III.2 The Enerav Situation .31 III.3 The Economic ImDortance of Traditional Eneraies . 32 II.5 Lona-Term Situation . 44 III.6 Conclusions . 48 IV. BURKINA FASO ... ..... 52 IV.1 General Considerations . 53 IV.2 The Economic Imoortance of Traditional Eneraies ... 56 IV.3 Economic Policv and the Traditional Enerav Sector ... 58 IV.4 Lona-term Situation . 62 IV.5 Conclusions . 66 V. THE GAMBIA ... 69 V.1 General Considerations . 70 V.2 The Economic ImoDrtance of Traditional Enerav Sources ... .... 73 V.3 Traditional Eneraies and Macroeconomic Pclicv . .... ............. ................... .. 75 V.4 Long-term Situation . 79 V.5 Conclusions . 82 VI. NIGER ... ....... 85 VI.1 General Considerations . 86 VI.2 The Economic Imwortance of Wood Fuels . 89 VI.3 Macroeconomic Policy and Traditional Eneraies ... ..... 95 VI.4 Lona-Term Situation . 98 VI.5 Conclusions . 103 VII. SENEGAL ........................ 107 VII.1 General Considerations . 108 VII.2 Economic Imuortance of Traditional Enerqv Sources . 110 VII.3 Economic Value of Wood Fuels . 113 VII.4 Traditional Enerav Sources and Macroeconomic 2 PolicY . 116 V1I.5 Institutional Reform . 120 VII.6 The Lonq-term Situation . 122 VII.7 Conclusions . 125 VIII. REGIONAL ANALYSIS . 129 VIII.1 General Economic Characteristics . 129 VIII.2 Recent Evolution of the Enercrv Transition . 131 VIII.3 The effects of FCFA devaluation . 141 GENERAL CONCLUTIONS . 145 REFERENCES . 161 3 FOREWORD The Energy Unit of the Africa Technical Department, which is part of the Division for Private Sector Development and Economics (AFTPS), is involved in conducting a study to analyze and revise traditional energy sector policies that have been implemented in recent years in the sub-Saharan region of Africa, called "Review of Policies, Strategies and Programs in the Traditional Energy Sector (RPTES)", in order to adapt them to new international economic conditions. This wide-ranging study has the following general objectives: i. A retrospective assessment of the objectives, scope, and approaches of the policies, strategies, and programs implemented to date in the traditional energy sector by public and/or private entities, as well as technical assistance and cooperation agencies and institutions. ii. To identify the main traditional energy sector inter-relations with the rest of the economy in selected countries and to develop a conceptual framework and a sectoral strategy in a broader context. iii. To prepare a set of recommendations and new policy orientations for the traditional energy sector and to identify the priorities of national institutions and other economic agents, complemented by appropriate external assistance actions. iv. To identify projects and/or programs to achieve results in the shortest time possible. v. To disseminate the results in the donor community. Within this context, the paper presented herein is aimed at analyzing the macroeconomic and social dimension of the traditional energy sector in a sample of West African countries: Senegal, The Gambia, Mali, Burkina Faso, and Niger. It will specifically focus on the following topics: i. The traditional energy sector's linkage with the rest of the economy will be identified and reviewed. ii. On the basis of demographic forecasts and projections for the stock of natural resources, specifically forest resources, over the next 30 years in the five countries of the sample, the most likely impacts of the traditional energy sector on the main macroeconomic indicators (GDP, employment, balance of payments, etc.) will be identified and analyzed. iii. The main fiscal and monetary tools that can be effectively 4 used to manage the traditional energy sector in the above- mentioned countries will be identified and analyzed (energy prices, legal and institutional aspects, investments, etc.). iv. The major macroeconomic issues that are common to the countries of the sample and linked to the traditional energy sector will be identified and analyzed. V. The macroeconomic issues tied to traditional energy sources will be identified and analyzed by country. This study is being carried out just when the African Financial Community franc (FCFA)1 was officially devalued by 50% on January 11, 1994 with respect to the French franc, after having maintained its parity with the French franc since the independence of these countries at the beginning of the seventies. The devaluation of the CFA franc, which was over-valued, will exert an immediate impact on imports, especially crude oil and oil products. 1 This financial partnership is comprised of Benin, Burkina Faso, Cameroon, Central Africa, the Comoro Islands, Congo, C8te d'Ivoire, Gabon, Equatorial Guinea, Mali, Niger, Senegal, Chad, and Togo. 5 I. INTRODUCTION The quantification of fuelwood or charcoal consumption activities and their importance with respect to macroeconomic aggregates requires something more than a mere percentage of GDP or employment generated over the labor force. Its real dimension involves the complexity and many variables of the energy transition of developing countries toward the use of more modern energy sources within the framework of a broad-based modernization of the economy and the insertion of these countries into an international context. The common economic structure of the countries reviewed displays an energy balance dominated by the consumption of biomass as a principal source of energy and the underconsumption of modern energy sources. The total per capita consumption for countries involved in the RPTES is below the average for Africa.' The share of biomass in the total gross domestic of energy supply for the countries being reviewed fluctuates between 50% and 92%. The region has no oil (except for Senegal, which produces a marginal amount of petroleum) and identified coal resources are small and limited only to Niger3 (IEPF, 1991). In addition, the potential for developing hydropower is quite limited owing to low rainfall and unfavorable topographical conditions. According to this energy-economic outline, the use of biomass will continue to perform a decisive role in the energy future of these countries. The demographic pressure on natural resources, especially forest ecosystems, are leading these countries to an environmentally unsustainable situation over the long term (Falloux and Mukendi, 1988; Falloux and Talbolt, 1993; Anderson, 1987). The rapid growth of the urban population and the creation of an imperfect market for traditional fuels involving a very high sales volume, or turnover, with fuelwood viewed as a free good, aggravate the situation further. Fuelwood and charcoal are the most widely used energy sources in the cities, and their prices at the end-user level are the lowest (Barnes, 1990). Improper natural resources management, especially forest, and unsustainable agriculture practices are causing extensive environmental damage to soil and water resources. The exploitation of fuelwood resources has become a mining-extractive activity. 2 Per capita total energy consumption in Senegal, country with the highest figure between the 5 being analyse, is only 60% of the average for Africa as a whole. The per capita consumption of commercial energy (electricity and oil products) for the RPTS countries fluctuates between 10% and 60% of the African average. 3 In 1987 Niger's coal reserves were estimated to about 240 million tons. This represents less than 0.4% of Africa's total coal reserves. 6 Forest revenues are generally very low compared to what they could be, due to low forest fees and low collection rates. This puts a low price on the forest and encourage waste. The tax approach for fuels and the weakness of the institutions in charge of collecting stumpage fees prevent the self-sustainable development of public or private reforestation programs. Most reforestation programs are experimental and financially supported by international cooperation. It is doubtful if these