Compliments of the new season to all our readers! We trust that you have come back well refreshed and ready to tackle 2016 as we continue to design solutions for Africa.
In this first article for 2016 on Africa infrastructure, we continue with our discussion on the 2015 Africa Progress Report (“APR”) produced by the Africa Progress Panel (“APP”) chaired by former Secretary General of the United Nations, Dr. Kofi Annan. We introduced the discussion in the previous article just before Christmas in 2015, where we highlighted the fact that Africa can take a leadership role in developing clean energy to power Africa whilst accelerating economic development and reducing poverty.
We gave various startling statistics as reported in the 2015 APR, showing the state of affairs and how the poorest in Africa are paying amongst the highest cost of energy in the World, sometimes up to 80 times more. We highlighted both challenges and opportunities. When one ignores the opportunities, it really feels like a vicious cycle and a permanent poverty trap, as if Africa is stuck.
But is it really that vicious and permanent, is Africa really stuck? We don’t think so if Africa can forge ahead with tangible and sustainable solutions, working together as Africans through coordinated regional integration. This must include forging strategic and smart partnerships with the international community, noting that our fortunes as the whole world are inextricably linked when it comes to economic development, clean energy, climate change and poverty reduction. It is certainly time Africa took a leadership role given the massive opportunities in an area where Africa has great competitive advantages.
The 2015 APR articulates the challenges clearly by noting that the energy-sector bottlenecks and power shortages cost the region 2 to 4 per cent of GDP annually, undermining sustainable economic growth, job creation and investment. In previous articles, we gave examples of South Africa where GDP growth projections have been revised downwards many times, now currently below 2% per annum over the next few years, largely due to power shortages that hinder economic growth, reinforcing the triple challenge of poverty, inequality and unemployment. The situation is worse in other parts of Africa. The APR notes that these power shortages reinforce poverty, especially for women and people in rural areas. To address the challenges, the APR estimates that investment of approximately US$55 billion per year is needed until 2030 to meet demand and achieve universal access to electricity.
This huge amount of investment requires Africa to develop various sources of sustainable financing locally and into the international market. The 2015 APR gives interesting perspectives, noting that one of the greatest barriers to the transformation of the power sector is the low level of tax collection and the failure of governments to build credible tax systems. The report estimates that domestic taxes can cover almost half the financing gap in Sub-Saharan Africa if loopholes are closed.
In our interactions, we have first-hand experience of a number of power utilities that struggle with revenue collection and have serious cashflow problems that lead to subsidies from their Governments. The report notes that approximately US$21 billion is spent annually on subsidies to wasteful utilities that are run inefficiently. This US$21 billion wasteful expenditure could be redirected towards more productive investment into the power sector, social protection and targeted connectivity for the poor.
The 2015 APR further notes that additional revenues can be mobilized by tightening financial systems to capture revenue lost through illicit financial transfers, by narrowing opportunities for tax evasion and by borrowing cautiously on bond markets. We have noted, in previous articles, the role of the private sector such as Pension Funds and the need for Governments to develop enabling environments to encourage increased private sector investments into infrastructure. The emergence of Independent Power Producers (“IPPs”) certainly helps to attract private sector investments with more and more countries encouraging IPPs to develop clean energy, with power utilities as offtakers.
The 2015 APR notes some countries that are already at the fore-front of the global trend of climate-resilient, low-carbon development, most of them through IPPs. These include Ethiopia, Ghana, Kenya, Nigeria and South Africa that are already implementing, with many others still at policy development stage. Other examples in West Africa include the Republic of Benin that recently announced a 360 MW multiple gas fired power project supported by the Africa Development Bank. This is relatively cleaner energy as natural gas emits 50 to 60 percent less carbon dioxide, compared to a coal plant, when combusted in a new efficient gas power plant. In other countries, Mozambique and Tanzania are said to account for about half of gas-fired power potential. These initiatives need to be accelerated as they are considered cheaper over the long term.
On other cleaner sources, Zambia and Zimbabwe in Southern Africa will jointly develop the potential 2,400 MW Batoka Gorge Hydro Power Station along the Zambezi River. Then DRC in Central Africa has huge potential of up to 100,000 MW of hydro power, with the Grant Inga project alone having potential of 44,000 MW. Then we have the Grand Ethiopian Renaissance Dam that will be one of the world’s largest dams. Five other major hydro-projects with a capacity in excess of 1,000 MW are under development in Ethiopia, Angola and Mozambique. Then Niger, Orange and Senegal river systems have large potential for hydro power. Then wind, solar and geothermal sources are all available as potential sources, and hugely undeveloped. The examples are many, but the implementation really needs to be accelerated so that we can see tangible results.
To achieve real progress and assume a leadership role in clean energy production, the 2015 APR gives some emerging trends that can be followed, and ends with some recommendations for implementation, noting that unlocking Africa’s energy potential and putting in place the foundations for a climate resilient, low-carbon future will require ambitious, efficient and properly financed multilateral cooperation. In the next three to five articles we will unpack the emerging trends and recommendations as contained in the 2015 APR in more detail.