When the Europeans encountered Africa for the first time in the mid-19th century, knowing little about the “mysterious” land, they called it the “Dark Continent”. It was a derisive and pejorative term. But some centuries later, after colonisation, socialisation and commercial engagements, that perception has changed. The West no longer sees Africa as a metaphor for the deep unknown or for backwardness. Indeed, the narrative now is about a rising continent. “Africa Rising” has become a global theme signalling optimism about the continent’s potential. However, despite this optimism, a pall of darkness, real rather than metaphorical this time, has blighted much of the continent, retarding its progress.
Well, I am referring to the widespread lack of access to electricity across the continent. This problem is so dire that Western countries are now sufficiently concerned to want to do something about it. I will come to the West’s initiatives in a moment. But, first, let’s consider the direness of the situation.
According to the Africa Progress Panel (APP), an NGO chaired by the former Secretary-General of the United Nations, Kofi Annan, 621 million Africans lack access to electricity; 4/5th of the African population (727 millions) rely on solid biomass, mainly fuel wood and charcoal, for cooking; and 600,000 Africans die every year of household pollution from the use of kerosene and charcoal. The social and environmental havocs apart, there are also huge economic damages. The UK Department for International Development (DfID) estimates, for instance, that power outages cost countries in sub-Saharan Africa 1-2 percent of their GDP annually. And 50 percent of businesses in sub-Saharan Africa view a lack of reliable electricity access as a major constraint to doing business. The impact on household incomes is also significant. For instance, Africans pay 80 times more for their electricity than people in the UK!
Coming to Nigeria, Africa’s energy export powerhouse, the picture is depressing. According to the APP, 96 million Nigerians lack access to electricity. There is a huge gap between power supply and demand. As the Financial Times put it in one report, “Nigeria has one of the lowest per capital national supplies in the world, producing on average about 3,200 Megawatt (MW) a day”. Considering that South Africa consumes 60 percent of sub-Saharan Africa’s energy, it is clear that Nigeria, which is more than thrice the population of South Africa, is really power-starved! This, of course, creates significant social, environmental and economic problems. For instance, the use of kerosene and charcoal is part of daily life in the rural areas, causing safety and environmental hazards. And, in the cities, the curse of diesel generators is well known, as is the related pollution. According to the FT, privately owned generators produce up to 7,000 MW a day, adding “as much as 40 percent to the cost of doing business”.
Everyone now accepts that the debilitating power conditions in Africa are undermining the continent’s progress. As the International Energy Agency (IEA) put it in a recent report, “increasing access to modern form of energy is crucial to unlocking faster economic and social development in sub-Saharan Africa.” This reality has led to growing international efforts to address the challenge.
At the intellectual level, several international research projects have sprung up to develop innovative ideas for tackling the problem. For instance, the International Growth Centre (IGC), jointly run by the London School of Economics and Oxford University, recently launched an “Energy, Growth and Development Research Project”, to examine how access to reliable electricity can be improved and expanded in areas already served by the grid, and how rural unconnected areas can be provided with energy.
But while innovative ideas are needed, and some already exist, what have often been lacking are practical actions. Now, however, the recently adopted Sustainable Development Goals (SDGs) provide some impetus for action. Specifically, Goal 7 calls for “access to affordable, reliable, sustainable and modern energy for all” by 2030. This is no doubt a great ambition. But, as I wrote recently in a well-publicised piece for the IGC and “Africa-at-LSE” blogs, neither Goal 7 nor any of the other capital-intensive global goals can be achieved without huge investments. For instance, how can Africa provide universal access to electricity by 2030 when studies have shown that, on current trends, over 300 million Africans would still lack access to electricity by 2040? This is why, for me, the US’s “Power Africa” and UK’s “Energy Africa” initiatives are particularly interesting.
The “Power Africa” initiative actually predates the adoption of the SDGs, so it doesn’t flow directly from Goal 7. But its success would contribute to Africa’s attainment of that goal. The initiative was launched by President Barack Obama in 2013, with the aim of enabling electricity access in sub-Saharan Africa by adding 60 million new electricity connections and 30,000 Megawatts of new and cleaner power generation. Although US-led, Power Africa is broad-based, involving the World Bank, the African Development Bank (AfDB), the European Union, the African Union, the UN Sustainable Energy for All group, the Government of Sweden and, according to the US, “more than 100 private sector companies”.
To achieve its goal, Power Africa will use five main tools. First, it will provide transaction assistance, in the form of early-stage and late-stage support. Second, it will help mobilise finance, by way of equity, mezzanine finance, loans, guarantees, grants and insurance schemes. Thirdly, Power Africa will provide technical assistance on policy/regulatory design and reform to improve the enabling environment for private sector investments. Fourthly, it will help build capacity to support institutional strengthening and regulatory skill development. And, finally, the scheme will offer legal assistance to “strengthen host country government expertise and negotiating capacity in structuring, financing and closing power transactions”.
By contrast, the UK Energy Africa campaign is directly linked to the SDGs. Launched on 22 October this year by Kofi Annan and the UK’s International Development Minister, Grant Shapps, the initiative is designed to help African achieve universal energy access by 2030. According to the Minister, the campaign “focuses on achieving the UN’s new Global Goal 7 – market-based delivery of off-grid energy to households”. To achieve this goal, the UK would use three main tools, namely: (1) help overcome financial hurdles that prevent firms from raising capital by “testing new approaches and reaching the poorest”, (2) help overcome the policy and regulatory barriers to household energy and (3) make the most of “exciting” developments in research and innovation.
So, the West, mainly the US, the UK, and, to some extent, the EU, are driving initiatives to help address the chronic and acute power problem in Africa. Of course, this is not just a Western affair. For instance, the AfDB is not only part of the US initiative, it has its own. Indeed, the new AfDB president, Akin Adesina, has made energy access in Africa his key priority and recently launched a “New Deal for Energy Access in Africa”, an initiative aimed at solving Africa’s huge energy deficit by 2025 by scaling up financing and driving policy and regulatory reforms to improve incentives for accelerated investment in the power sector.
Taken together, these initiatives represent a concerted international effort to address the huge energy deficit in Africa. It is a clear indication that the international community recognises the challenge that the power deficit poses for Africa’s economic and social development. This is commendable, for, as the IEA points out, tackling Africa’s energy problem would help accelerate its progress. However, we should also be realistic about what can be achieved in terms of the practicalities of the initiatives.
For instance, the initiatives are dependent on key success factors. These include the ability to mobilise the necessary finance to support energy generation in Africa and the political will to undertake critical policy and regulatory reform to incentivise investments in Africa’s power sector. I would add that the exclusive focus of the initiatives on renewable energy may also limit how much they can help Africa achieve universal access to electricity. Let’s consider the success factors in more detail.
Take funding first. The AfDB estimates that there is a $55 billion financing gap for energy in sub-Saharan Africa that needs to be closed. Yet domestic resource mobilisation is weak in many African countries, and development aid will not play any significant part in funding energy generation in Africa. As the AfDB pointed out, if the developed countries meet their 1970 commitment to give at least 0.7 percent of their Gross National Income in development assistance, this would raise more than $178 billion, which could help to scale up energy development in Africa. But, to date, only seven countries, including the UK, have met this commitment.
The financing of the US and UK initiatives is market-based and, therefore, depends on the willingness of private investors to commit huge investments into power generation and distribution in Africa. It is clearly not certain that, despite US- or UK-backed guarantees, private investors would be rushing to invest in power projects in Africa, given the investment climate in many African countries. So, the possibility of these initiatives incentivising much-needed investments to tackle Africa’s energy deficit is still a great unknown.
Linked to the first success factor is the second: policy and regulatory reform in Africa. The US’s Power Africa and the AfDB’s New Deal for Energy Access initiatives are, in particular, predicated upon policy and regulatory reforms to improve the enabling environment for investment in the power sector. But this is a matter that sits squarely within the domestic politics of each African country. I believe it is too optimistic to expect policy and institutional changes in Africa to be responsive to market imperatives, sufficiently and rapidly enough to create the incentives for accelerated investments in the power sector. The truth is that policy and institutional reforms are extremely difficult to achieve in most African countries. The political will is simply not there, and special interests often stand in the way.
For instance, in Nigeria, the Petroleum Industry Bill has been languishing in the National Assembly for years. And other critical reforms to address competitiveness, business environment and governance issues are not taking place. Yet, without far-reaching policy and regulatory reforms, it would be difficult to attract significant and sustained investment into power generation and distribution, where legal, policy and commercial certainties and guarantees are often critical incentives.
Then, lastly, I believe that the exclusive focus of the West’s initiatives on renewable energy will only partly address Africa’s energy problem. The US’s Power Africa initiative will only support “new and cleaner power generation”, and the UK’s Energy Africa campaign is designed to “accelerate the development of the emerging solar market in Africa”. Indeed, Nigeria and the UK signed an agreement on solar energy during the launch of the Energy Africa campaign in London. Vice President Yemi Osinbajo, who signed for Nigeria, said that Nigeria will “boost supply and consumption of solar energy”. It is understandable that the West will only support renewable energy generation in Africa given the global mood in favour of low-carbon energy. Indeed, US law prohibits any federal support for US companies investing in energy projects that involve fossil fuels.
The subject of renewable energy is significant and, therefore, for another day. But let me say that the future of power generation in Africa should be renewable. I disagree with the British peer and science writer, Matt Ridley, who said recently that “Africa needs to be rich – rather than green”. Both are not mutually exclusive. However, my point is that Africa’s huge power deficit requires an energy mix that includes, at least in short-to-medium term, the less dirty fossil fuel. Coal is certainly the dirtiest, but gas has only half the carbon content of coal. And it is gas-fired electricity that is mainly driving electricity generation in the US and UK.
Since the UK’s famous “dash for gas” about two decades ago, gas has played a key role, about 46 percent today, in its electricity generation. And shale gas is driving electricity generation in the US.A major criticism of Nigeria’s power policy is the country’s failure, for so long, to exploit its massive natural gas reserves – about 180.5 trillion cubic feet and “enough to meet the EU’s needs for 11 years”, according to the FT – for domestic electricity generation.
So, let’s be clear, the West, particularly the US and the UK, should be applauded for their initiatives to help tackle Africa’s huge power problem. But the noble ambitions are also challenging. We have to see whether, for instance, US-backed guarantees and insurance schemes would drive private investments in energy generation in Africa. I am less optimistic about policy and institutional reforms in most African countries even though this is crucial for the success of the power initiatives. And, finally, while I understand the West’s focus on low carbon energy, I believe that part of the solution to Africa’s huge energy challenge must include investment in gas-fired plants. But, as Tesco, the British supermarket, says: “Every little helps”!
Olu Fasan
