AFDB’s new deal for power sector in Africa
Africa’s largest infrastructure deficit is to be found in the power sector. Whether measured in terms of generation capacity, electricity consumption, or security of supply. Africa’s power infrastructure delivers only a fraction of the service found elsewhere in the developing world.
The entire installed generation capacity of Africa’s 48 Sub-Saharan countries is just 68 gigawatts, no more than Spain’s. As much as one-quarter of that capacity is unavailable because of aging plants and poor maintenance.
In Sub-Saharan Africa, just one person in five has access to electricity. If current trends continue, fewer than 40 percent of African countries will reach universal access to electricity by 2050.
Per capita consumption of electricity in Sub-Saharan Africa (excluding South Africa) averages only 124 kilowatt-hours a year and is falling. The rate of consumption is barely 1 percent of that in high-income countries. If entirely allocated to household lighting, it would hardly be enough to power one light bulb per person for six hours a day.
More than 30 African countries are now experiencing power shortages and regular interruptions in service, leading many to rely on very costly leased generating plants as an emergency stopgap. Frequent power outages mean big losses in forgone sales and damaged equipment, 6 percent of turnover on average for formal enterprises, and as much as 16 percent of turnover for informal enterprises unable to provide their own backstop generation. The economic cost of power shortages can amount to more than 2 percent of gross domestic product. For some countries, it has shaved as much as one-quarter of a percentage point off annual per capita GDP growth rates.
AFDB new deal
Nigeria’s Akinwumi Adesina, the new president of the African Development Bank plans to dedicate his tenure to solving what he sees as the biggest hindrance to economic growth and development on the continent: the energy deficit.
Termed the “New Deal for Energy in Africa,” the continent’s largest development bank said the plan will significantly raise its support for energy projects and that its partners should also scale up efforts.
The proposal also called for African countries to increase financing for the development of the energy industry.
“A lot of financing is needed,” Adesina said in a speech in Abidjan, the commercial capital of Ivory Coast, where the bank is based. “We must close the $55 billion financing gap for energy in sub-Saharan Africa.”
The deal is the first initiative he’s announced in his new role. The bank spent $2 billion on energy projects in 2014, with $650 million in power generation. Over 80 percent of the generation projects were renewable energy.
He says the bank will take a leadership role, coordinating with existing multinational initiatives and pushing member states to move faster to privatise and liberalise their energy sectors.
“Getting power right” must happen to unlock the continent’s potential, he says.
Mr Adesina says the fact that more than 600m sub-Saharan Africans live without access to electricity threatens the continent’s industries, “beating up” on GDP in many nations and leaving would-be small businesses and entrepreneurs to “lie idle”.
“So from an economic perspective, from a health perspective, from the jobs perspective and from a life perspective, Africa must power itself,” he says.
Meanwhile, he notes, demand for power on the continent is growing and many investors wanting to expand their businesses see the cost of energy as a barrier to entry.
But when it comes to solving the continent’s long-running power crisis there have been plenty of tough talk and many lofty promises with little change.
Nigeria’s power aspirations
The government of Nigeria has high aspirations for the country to be among the world’s top 20 economies by 2020. The government hopes to achieve this with an ambitious target to generate 40,000 MW of electricity by that year, an enormous challenge, considering current power generation is about 4,000 MW.
One step towards the target to re-draw Nigeria’s power map was made with the decision to privatise the power sector. The first phase of the privatisation was concluded in November 2013. This was a landmark US$2.5 billion transaction that saw PHCN unbundled into six generation companies (Gencos)—(four for thermal power and two for hydro)—and 11 distribution companies (Discos), and sold to new private owners.
However, challenges still exist. Eight months on, the average Nigerian does not feel the impact of the privatisation due to a number of issues being faced by the successor companies part of which is financing.
The private sector can play a key role in the development of Africa’s energy sector if provided with an enabling environment, said Tony Elumelu, the co-chair of the African Energy Leaders Group, at the meeting in Abidjan.
Mr Adesina says the AfDB’s initiative will be a step change from previous efforts. Though the details are not finalised, he says a key priority is to “address systemic issues that have held us back” — namely the energy policy environment in many of the bank’s member states. “The biggest elephant in the room is the fundamental reforms needed in the energy sector,” he says.
The limitation is not lack of financing. It is the policy environment, he says, adding that “we will be looking at things like how we price energy and the regulatory environment around the utilities”.
FRANK UZUEGBUNAM