Substitution or Stacking? Energy Transitions, Governance, and Manufacturing Performance in African Emerging Economies

• In Event: Energy Transition: Implementation and Outcomes Across the States and around the Globe

Abstract

Energy systems play a foundational role in industrial development, yet whether renewable energy can effectively support manufacturing in developing economies remains contested. This paper examines how renewable energy adoption and fossil fuel dependence shape manufacturing performance across 25 African countries from 2000 to 2023, using an adapted Industrial Energy Ladder framework. The analysis tests two perspectives: the Pro-Fossil Development view, which argues that fossil fuels provide the reliable baseload power and mature infrastructure essential for large-scale manufacturing and the Renewable Energy Leapfrogging perspective, which argues developing economies can bypass fossil-intensive stages and reduce carbon emissions without sacrificing industrial development. A central empirical question is whether these energy sources act as substitutes—indicating ladder-climbing—or as complements during industrialization.

Using a balanced panel and two-way fixed effects models with Driscoll-Kraay standard errors, the study estimates baseline and interaction specifications. Manufacturing performance is measured using manufacturing value added. Key explanatory variables include renewable and fossil fuel consumption, international clean energy finance, and institutional quality indicators. Results show renewable energy adoption is positively associated with manufacturing performance (elasticity ≈ 0.495), while fossil fuel dependence exhibits no significant within-country manufacturing benefit once economic scale and institutions are controlled. The interaction between renewable and fossil energy is negative and marginally significant, indicating partial substitution consistent with transitional “energy stacking” rather than abrupt substitution. Counterintuitively, international clean energy finance does not amplify manufacturing returns, suggesting current flows may prioritize residential electrification over industrial deployment. Most critically, institutional quality strongly conditions outcomes: the manufacturing return to renewable adoption increases by over 50 percent between the weakest and strongest regulatory and political stability environments.

These findings challenge pro-fossil development narratives and demonstrate that clean energy transitions can support industrial competitiveness in Africa. However, realizing this potential requires aligning energy investments with governance reforms and policy frameworks that support reliable, industrial-scale energy use.

Author

• Kofi Kusi Owusu Ansah, University of Arizona
  Presenting Author