Investment needed

Market & Trends

Investment needed

Africa continues to lag behind other developing regions in terms of power generation and distribution, and only huge capital spending will narrow the gap.

$600 estimated billion needed in infrastructure investment between now and 2030

It’s estimated that Africa needs $600 billion in infrastructure investment between now and 2030, largely for power generation. But many such projects face local opposition over environmental impact and displacement of people, while investors worry whether political leaders will honour any deal terms agreed.

Elizabeth L. Littlefield, former president and CEO of the Overseas Private Investment Corp.– the US government’s development-finance agency – recently noted that these are very difficult deals to conduct, as they can take a very long time. Often, a lot of investment interest surfaces after a project has already begun, tempting countries (and organisations) to renegotiate the initial terms already agreed with original developers. Several observers see this as the most important challenge between governments and power sector developers in Africa. Both sides have much to do to improve the process. However, Kenya is a notable exception.

The country boasts separate companies for generation, distribution and transmission, and each has its own financial incentives, market knowledge, and investment decision capabilities. South Africa, with the state-owned power provider Eskom, also operates in this way. But the general rule in Africa is that industries and governments tend to subsidise power – which is very different of course to the developed world. And that is a problem for investors. Underinvestment is thus the main reason why Africa continues to lag behind other developing regions, with an installed capacity below 100 GW. Per capita electricity consumption averages 40 to 45 KWh per month, compared to more than 100 KWh/month in Latin America or South Asia.

Moreover, household access to grid electricity in South Saharan Africa is estimated by the World Bank to be at 35.3% – far lower than the 78% in South Asia, 96% in the Middle East and 94% in South America. According to the International Energy Agency, 15 out of 20 countries in Africa are ranked bottom worldwide for per capita consumption of electricity, while 13 out of 20 countries lacking adequate power supply are African. There is also disparity between urban and rural areas, with over two-thirds of urban residents estimated to have access to electricity, but only 15% in rural areas according to the World Bank and IEA.