Obama initiative shines light on dark continent
Pledge to upgrade power in Africa is significant and deserves attention, writes Gregory Nott
AFRICA’S energy landscape is rapidly changing. New gas and oil finds in countries outside the traditional resources footprint in North and West Africa have fuelled a flurry of activity among energy investors from Europe, China and India.
The latest headline news is President Barack Obama’s Power Africa initiative, with a $7-billion pledge to upgrade power in Africa. The pledge, made in Cape Town, is significant and deserves attention. It involves a distribution of funds to the economies of Ethiopia, Tanzania, Uganda, Liberia, Kenya, Mozambique and Nigeria. Power is by far Africa’s biggest infrastructure challenge, with 30 countries facing regular power shortages and many paying high premiums for emergency power.
The programme will include $1.5-billion from the US Overseas Private Investment Corporation and $5-billion from the ExportImport Bank. The corporation supports investment in Africa through direct loans and loan guarantees, political risk insurance and private investment funds. It has supported more than $2-billion in financing for Africa since 2009 and in 2012 committed $1.5-billion to finance new renewable energy projects in Africa. For the past two years, the Export-Import Bank has supported record amounts of exports exceeding $1.6-billion.
Both entities have played a role in funding renewable projects in South Africa’s much-lauded renewable programme, which has recently closed its second window of projects. About 47 projects are now under way, totalling 2 450MW. Round three of the programme is in progress and the procurement of gas, coal and hydro by independent power producers will focus investment attention.
South Africa’s renewable energy independent power producer programme, hailed universally as a success, has captured the imagination of the market. Administrative efficiency and a transparent and well-run competitive, complex bidding process has gone hand in hand with high-level political support. This has not been lost on investors, advisers and other players, who have flocked to take part in the programme.
The South African Department of Energy has drawn widespread praise for its capable handling of this extremely complex bidding process, with industry watchers noting the comprehensive bid specifications, inclusive consultation process and disciplined approach to deadlines, as well as the integrity of the process of selecting preferred bidders.
Obama struck a chord with his audience and with Africa watchers. Access to energy is crucial. As he said: “. . . access to electricity is fundamental to opportunity. It’s the light that children study by, the energy that allows an idea to be transformed into a real business. It’s the lifeline for families to meet the most basic needs and it’s the connection that is needed to plug Africa into the grid of the global economy.”
The power challenges facing Africa were succinctly outlined recently at an Africa utility conference by Cape Town University’s Professor Anton Eberhard: “Power infrastructure is underdeveloped, electricity supply is often unreliable, power costs are high and access to electricity is low and unequal.”
Eberhard went on to argue that the scale of the challenge implied that ideological debates around public versus private investment were irrelevant and meaningless and that all sources of finance had to be mobilised. This means an integrated approach of fixing public utilities, improving regulation and accelerating private sector participation that
The scale of the challenge implies that ideological debates are irrelevant
welcomes sources of finance and projects separate from the Organisation for Economic Cooperation and Development.
Energy poverty is the single biggest obstacle to sustainable growth and development on the African continent. Africa has a population of one billion people, expected to double by 2050. The consumption of electricity per capita is one of the lowest in the world — 70% of the population is not connected to a power grid. The situation in sub-Saharan Africa is of particular concern because the region has most of the least-developed countries in the world. Rapid, concerted action is needed.
Given the situation, Power Africa must be welcomed as an initiative. It can, however, be only part of the story.
The legacy of Africa lies in the hands of an active citizenry. It is they who must ensure that, while continents, regions and countries take advantage of the global appetite for Africa and its primary energy sources, they must institutionalise the skills, the projects and the development for all of Africa. The drive must be to innovate. As in information and communications technology services, Africa’s countries must find inspiration to do things in new ways.
The mobile telephone sector is an example of what innovation can do in a particular sector and what it can mean for different Africa regions.
Interventions inspired by innovative mindsets and a desire to become a trendsetter are keys to unlocking the potential of Africa in the energy sector. Kenya, Ethiopia, South Africa and Morocco have made significant strides in setting trends.
The renewable, or clean-energy, sectors in these countries provided a template to other countries to surge ahead with next-generation technology. The interventions in this sector can be both public and private, because the undertaking is enormous.
In addition, market reform needs to take place and there has to be continuity and planning and political commitment in policies and strategies.
Any successful strategy must embrace independent power producers — energy regulators and institutions supplement the building of a sustainable sector. Investors look for a market that is certain, even though it may appear strange and at times volatile. An investor needs to know the rules.
Officials implementing the rules must be free of corrupt practices, competent and have the capacity to implement and apply them. These characteristics of a regulatory regime are not negotiable. Active citizens need to hold dear the institutions that are created and, above all, have a mindset to innovate.
It is time to make true that wellused phrase of Pliny the Elder: “Ex Africa semper aliquid novi” (Out of Africa always something new).
Nott is Power & Energy Director at Werksmans Attorneys