INVESTOR’S NOTEBOOK STEPHEN CRANSTON
hen I saw a press release named “Africa’s Electrifying Future” I thought I had run across an old promotional item for the late and unlamented Electric Liberty. This was an early attempt to sell insurance and investments online under the brand name MyLife.com. It is no accident that it tagged itself “Electric” as it hoped to bask in the reflected glory of Eskom, then considered to be a model company. And compared with the dot-com bomb that was Electric Liberty, Eskom still looks like a model business. Not even Liberty’s top liability generators could attract more than a few watts of interest in MyLife, which sold just a handful of policies.
It turns out that the release was not a puff piece about one of many early Internet disasters. It is a new blog by Templeton Emerging Markets fund portfolio manager Mark Mobius about the need to provide electric power in Africa. According to US statistics, sub-Saharan Africa has just 78 gigawatts (GW) of power with SA accounting for 44 GW. The US alone has 1 053 GW installed. Sub-Saharan Africa excluding SA has similar generating capacity to Sweden, a country of less than 10m people, And Mobius says that even the 34 GW for the region overstates the actual production capacity because of inadequate maintenance, outmoded equipment and fuel shortages, not to mention the effect of damaged power lines, transmission technical loss and the theft of electric power.
Only 30% of Sub-Saharan citizens have access to electric power. The average American uses 12 461 kWh of electricity a year; the average Ethiopian just 52. And, as we know, even in SA provision can be sporadic with power cuts, brown-outs, blackouts, load shedding or whatever is the fashionable word for no service. But Mobius is impressed by the projects that are starting up, particularly in hydroelectric schemes. The Inga Falls Number Three project on the Congo river could one day generate as much electricity as the whole of Eskom. However, building the projects isn’t even the biggest challenge: distribution, given the huge size of the continent, its dispersed population and widespread theft of both power and copper cables, might be even more of a challenge. Mobius says the mega-projects could end up as captive generating plants to supply large-scale mining or industry projects or very select wealthy urban areas, and not the general population. Mobius says that investors should encourage African governments to privatise electricity generation, Nigeria’s move to break up its state electricity company is a good example of this. Large quantities of the natural gas produced by Nigeria are flared off and wasted but after the reforms a local oil and gas company has built gas infrastructure to process the previously wasted gas — which in turn is becoming a major part of the oil companies’ revenues.
Mobius’s key point is that the availability of reliable power could sustain dynamic economic growth rates across Africa, creating markets for new consumer businesses. Many higherincome households in Nigeria spend hundreds of dollars every month on petrol generators to keep refrigerators and air-conditioners running. If these households had access to reliable and less expensive electricity it would free up immense discretionary spending which could be redirected into savings, investment or consumption.