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February 25, 2009

Rhetoric surpasses reality on Africa-Brazil biofuels collaboration

Brazil, along with China and the European Union, has identified sub-Saharan Africa as a region with ideal agro-climatic conditions, and the socioeconomic potential needed to become a large-scale biofuel feedstock provider over the next decade.

Through Petrobras , the state-controlled oil company, the Brazilian government has proposed a series of long-term investments across the continent--offering African governments the financial, technical and agronomic assistance needed to get their industriesoff the ground. This assistance at the same time serves Brazilian interests by diversifying sources of feedstock supply and augmenting global demand for biofuels.

However, many of Brasilia's ambitious foreign policy pronouncements have not moved far beyond the rhetorical stage:

--While the government is keen to develop Brazil's weight as a global player, in particular in terms of South-South relations, in practice any investments are likely to be modest in the foreseeable future: Petrobras' investment budget for the period 2009 to 2013 includes only $2.8 billion for biodiesel and ethanol, of which only 9% will be invested abroad.

--Moreover, 49% of Petrobras is in the hands of private investors, limiting the government's ability to use the company to advance its political aims, in particular given heavy demands on its investment capacity domestically.

Lusophone focus. While Brazil is pursuing biofuel initiatives across the continent, it is the development of the Lusophone axis which appears to be Brasilia's key strategic objective:

Mozambique. The bilateral biofuel cooperation agreement signed between Brazil and Mozambique in September 2007 came after Maputo had already attracted more than $700 million of foreign investment in the sector--for both biodiesel (jatropha) and sugar cane (ethanol). That agreement seeks to replicate Brazil's ethanol production model by transferring Brazilian technologies and expertise in plant science, plantation management, as well as refining, distribution and marketing.

Neither party has yet produced figures on the scale of sugar cane plantation or investment in refining capacity envisaged. Mozambique has about 10% of its available arable land (precise data is poor) currently under cultivation. Estimates suggest that somewhere between 10 and 30 million hectares of land would be suitable for growing food and biofuel feedstocks--particularly sugar cane. Early indications are that Mozambique has the potential to produce about 11.3 million liters of ethanol per day by 2015. Rather than undermining food crops, investment in the biofuel sector --including irrigation and transport links--could help boost food crop production.

Angola. Like Mozambique, Angola is large, with a relatively low population density, and a vast amount of land suitable for biofuel crop production--particularly soybean-based biodiesel. It also has one of the largest expanses of non-forest agricultural land in the world--even excluding the substantial areas still littered with landmines from the civil war.

Luanda has also signed a biofuel development cooperation agreement with Petrobras, similar to that agreed with Maputo, although development plans are still at the embryonic stage. In addition, Petrobras recently signed a partnership agreement with Eni of Italy to build biofuel plants in Angola, Mozambique and Brazil to serve the Italian market. After years of inaction, Angola now appears intent on investing in developing its own agricultural potential, including biofuels. However, while Mozambique is likely to become a hub for ethanol production, Angola seems destined to become a hub for biodiesel production.

Brazil's proposals for developing Africa as a source of biofuel feedstock are unlikely to be matched by concrete investments, in particular in light of the recent fall in oil prices, although Petrobras may seek to expand its presence in countries where it also plays a role in the oil sector. However, the biofuels sector could benefit substantially if, as anticipated, the new U.S. administration throws its weight behind the development of low carbon energy supplies.


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