Africa has a huge power problem; both political and electrical. However, let’stick to electrical power and leave the other debate to the activists. The last time an investor tried to describe the challenges facing the power sector in Africa to a few colleagues, they all unilaterally agreed that ours was a lost cause. Investors generally refer to the continent as the “bring-your-own-infrastructure” continent and of course, power generation tops the list. The Guardian (A Nigerian News publication) projects that Telco operators expend about N214.3 billion ($1.07 billion) yearly powering 50,000 diesel generating sets. Let’s pretend they didn’t have to buy the generators in the first place. This is the story of both multinationals and SMEs running businesses in most parts of Africa, rendering them largely uncompetitive in the global economy.
Africa’s energy poverty is very well distributed and not limited to businesses alone. On the average, access to electricity is about 25 percent. The Economist reports that only seven countries—Cameroon, Gabon, Ghana, Ivory Coast, Namibia, Senegal and South Africa— guarantee 50 percent of its people access to electricity. But even for the 50 percent with access, outages have become so cultural they have their local names. This is fuelled by under-capacity, grossly inadequate for the fastest growing region in the world.
The 49 countries of Sub-Saharan Africa (SSA), with more than a billion people, generate roughly the same amount of power as Spain (with a population of 45 million). In a typical year, it is estimated that the whole region generates less electrical power than Canada, and half of that supply is in South Africa, which itself struggles to meet up with demand.China, with an already installed capacity of 1505GW, builds the equivalent of SSA’s 80GW every two years. In contrast, Nigeria, Africa’s largest economy has hovered under 3000MW of power for over 3 decades and has occasionally gone past 4000MW in recent months.
Such power inadequacies come with attendant economic consequences. But the rise in commodity prices created a whited sepulchre. We had 10 of the world’s fastest growing economies, so we relaxed. Even in the midst of the boom, World Bank analysts estimated that power shortages in the continent cuts annual growth in GDP by 2 percent and 4 percent in the case of Nigeria. But we were content with 7 percent GDP growth rate when China’s advanced economy was growing in double digits.
Closing this power deficit will take years and resources but we have to start from somewhere and we have to start now. According to the Africa Infrastructure Country Diagnostic, the continent’s infrastructure spending needs stand at about $93 billion per year, and about 40 percent of total spending needs are associated with power. With Africa’s biggest economy allocating a miserly 11 percent of its $24 billion budget to capital projects, one begs the question of how this gap will be financed.
A number of analysts have suggested that Africa needs to open up its market for private investment. Nigeria is leading the way here and only recently carried out a far from perfect privatisation program of its distribution companies and some generation companies — largely financed by local investors.
Foreign investors are taking a second look at the numbers, and are taking baby steps in the world’s last economic frontier. A few of them have set up project development arms to ‘spoon-feed’ early stage projects to financial close while others are taking big leaps. A tally by The Economist that announced power projects (under construction or at an advanced stage of planning) suggests that the region’s electricity-generating capacity will increase by more than half by the end of the decade, 2/3rd of which is financed by private investors. Slow demand growth in the Western and Asian nations’ power markets is catalysing this move — Europe mothballed 20GW of power plants in 2013 alone (that is already a quarter of SSAs installed base). Investors, however, are not charity organisations and will seek profitability before social impact.
Beyond financing, other huge structural problems exist and would take innovative thinking to proffer a solution to this power conundrum. Nigeria’s celebrated privatisation program has stalled, Ghana is struggling with providing guarantees for PPAs, and South Africa has its own structural issues. Weak grids, Import challenges, poorly structured tariff plans all the challenges can be traced back to the Governments that were
voted in (or rigged in) to solve them.
African governments must pay more than lip service in making private investments work. They must get out of the way and let the Power industry thrive. The sacrifices will be huge but once the fundamentals are done right, every other thing will fall into place. The first and failing Africa rising story was told by commodity and powered by Darkness, the next and lasting one will be told by competitive industries powered by electricity.
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