Explore the 2017 African Economic Outlook: Entrepreneurship and Industrialisation in Africa for more on this subject
For decades, access to electricity has been a serious challenge in Africa. It still is. 600 million Africans are not connected to an electrical network. African businesses cite electricity amongst the two most severe constraints on their operations (Enterprise Surveys, 2016). Twenty-five of the 54 countries in Africa, including Nigeria, South Africa, Ghana and Senegal, deal with frequent power crises characterised by outages, irregular supply and surging electricity costs. These are symptoms of insufficient generation capacity and a lack of infrastructure.
Despite these sobering facts, a number of recent initiatives signal that major improvements may be underway. The impetus to act is driven by the benefits Africa can reap by investing in electrification. Such benefits go far beyond direct job creation in energy infrastructure, as important as that is. Several pieces of evidence (Jimenez , Torero , van de Walle et al. ) suggest that household electrification also increases job opportunities by carving out more time for work and enabling rural micro-entrepreneurship. We see three reasons for hope that Africa is on the path to greater electrification – provided certain conditions are met.
First, solid investment fundamentals are encouraging the building of new electrical production capacity.
Growing demand for electricity across Africa, along with a more conducive environment for public-private partnerships (PPPs), are raising developers’ interest. Electricity demand is currently growing at 6% per year, and will likely exceed GDP growth until 2040. This has spurred private investment, leading to project financing that is increasingly diversified (Crishna Morgado and Lasfargues, 2017). Power generation in Sub-Saharan Africa increased by 21% to reach 115 GW between 2010 and 2015. Chinese contractors accounted for 30% of this growth (IEA, 2016).
Since 2011, more and more projects in the alternative/renewable energy sector are being developed in Africa (Figure 1). Out of 38 sectors reported in the fDi markets database, it was the third most attractive for companies that invested in Africa in 2015-16, with USD 21 billion in new projects announced. Morocco is at the forefront of recent developments: in February 2016, it launched the world’s biggest solar power station in Ouarzazate. This PPP model between MASEN (Morocco’s agency for solar energy) and a consortium of private and international organisations may be a promising way to engage key players and can serve as an example for future projects in other countries. Tools such as the OECD Policy Guidance for Investment in Clean Energy Infrastructure can also help governments address barriers to private investment in renewable energy generation.
Figure1: The alternative/renewable energy sector in Africa is attracting investment
Source: Adapted from fDi Markets database, Financial Times Ltd. www.fdimarkets.com (accessed in June 2017)
Second, several African countries are laying out big investment plans in power generation, with a special focus on rural electrification.
Connectivity for rural areas is gaining momentum in national policies, with Morocco and South Africa leading the way. The Moroccan rural electrification programme (Programme d’électrification rurale global or PERG) was launched in 1996, and succeeded in increasing the rural transmission coverage from 18% in 1995 to 80% in 2005 and 99% by mid-2015. PERG significantly improved the quality of life in rural areas (AFD, 2012). It also slowed down emigration by 5% and increased the rate of returning emigrants by 1.5%.
Similarly, the share of South Africa’s households connected to electricity increased from 34% in 1994 to 90% in 2016. The integrated national electrification programme launched in 2000 in South Africa has been instrumental for this positive achievement, considering both urban and rural needs. South Africa set up clear policy directives for electricity access through an energy white paper adopted in 1998 and a National Energy Act in 2008. Electrification in rural KwaZulu-Natal raised female employment by 9.5% within 5 years (Dinkelman, 2011). And to further expand the connectivity in rural areas, South Africa’s government is now investing in alternative technologies – hybrid and off-grid solutions (Azimoh, et al., 2016).
Several other African countries are laying out national strategies to expand power generation capacities. Côte d’Ivoire, for example, plans to double power generation, and a dedicated rural electrification plan (PRONER adopted in July 2013) aims to connect all villages to the network by 2020. In Tanzania, the government’s power system master plan intends to increase the installed capacity from 1.6 GW in 2014 to 10 GW by 2025 and expand access for the rural population.
Third, in addition to national plans, international initiatives are funding new projects to foster access to electricity in Africa by 2025 .
Nine such initiatives are ongoing, with the majority of them focusing partly or mainly on renewable energy and solar power (see the African Economic Outlook 2017, pages 144-145, for more details). For example, Light up and Power Africa, one of the “High 5” priorities of the African Development Bank (AfDB), aims for universal access to electricity by 2025 in Africa, with much of the electricity coming from clean and renewable energies. The AfDB is planning to invest USD 12 billion over the next five years for that priority.
Ultimately, if all three of these areas are to make a sustainable difference in meeting Africa’s electricity demands, policy makers must pay particular attention to two factors: grid maintenance and pricing policies.
Better access to reliable electricity can have long-lasting impacts on economies and on peoples’ lives, but only if existing infrastructure is effectively maintained. Due to degraded infrastructure, major hydro-electric projects face losses on their lines of up to 50% (Patat, 2015). Clearly, existing infrastructure in Africa needs effective maintenance. Kenya, for instance, is using digital technologies and satellite imaging systems to help improve its energy network maintenance. KPLC, the national network company, digitised geographic information about power lines, sub-stations, transformers and meters in 2015. This is to improve monitoring and resolve technical problems more quickly, reducing administrative burdens.
And policy makers also need better pricing policies to get it right. The value of a highly performing electrical grid would be lost if its intended clients do not purchase the electricity it produces. In many developing countries, segments of the population are unable to connect to the grid at the market price for economic reasons. This is clearly an issue for policy intervention, but not for implementing general subsidies on consumption prices, which are neither socially fair nor economically efficient. The benefits of oil subsidies, for instance, tend to be captured by high-income households (Clements, et al, 2013). Instead, policy makers in many African countries may have to set-up carefully designed social pricing mechanisms to reach an optimal level of electricity usage.
1.This article is adapted from the AfDB/OECD/UNDP (2017), African Economic Outlook 2017: Entrepreneurship and Industrialisation. www.africaneconomicoutlook.org/en (see Chapter 5, pp. 143-145).