President Obama’s trip to Senegal, South Africa and Tanzania was touted as a commitment to begin a new partnership with the rising continent. Home to 6 of the 10 fasted growing economies, Africa has made great strides – the International Monetary Fund predicts growth of 5.4 percent this year and 5.7 percent next year, but many sectors as well as countries are still plagued with severe problems spanning the gamut. The trip was focused most specifically on increasing opportunities for trade and investment, and “Power Africa” was a major component.
Broadly, the Power Africa initiative has been structured to provide new methods of acquiring means to reliable electricity through U.S. Government and private sector investment. As I have written in prior blogs articles, energy poverty is an endemic problem stifling development across all sectors of society. Access to reliable electricity can be the stimulant to help millions out of poverty. In sub-Saharan Africa, 70 percent of the population – nearly 600 million people (this number jumps to 1.3 billion when including all developing countries) – does not have access to electricity, according to USAID. And the problem is even more exacerbated in rural sub-Saharan Africa, where 85 percent of the population does not have access.
Where electricity is accessible, in many instances the lack of reliability due to outdated or insufficient infrastructure, load shedding, or inconsistent supplies, is not emphasized enough. Just imagine operating a factory and the machines unexpectedly shut down various times a day. A reliable supply of electricity is necessary, not just access, to confidently plan economically. The IMF projections would likely be increased significantly if there was reliable access to electricity for all continent wide.
Mr. Obama introduced Power Africa as an initiative that will “add more than 10,000 megawatts (MW) of cleaner, more efficient electricity generation capacity. It will increase electricity access by at least 20 million new households and commercial entities with on-grid, mini-grid, and off-grid solutions. And it will enhance energy resource management capabilities.” Implementation will keep or set countries on a growth track by providing knowledge and experience, aiding sector reform to enhance investment attractiveness, and offering technical skills – things such as installing reliable energy infrastructure to negotiating a power purchase agreement (PPA) for a large scale power plant.
The initiative is not continent wide, however. Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania, countries that have set electricity generation goals and have created an environment for investment for energy and utility companies, have been chosen as the host governments with the hope of doubling access to electricity within their borders.
To achieve these goals, the United States Government will provide $7 billion of support over five years to be dispersed in different forms, including financing, providing risk insurance and offering technical advice via USAID, OPIC, Ex-Im Bank, USTDA and MCC. State, Treasury and DOE will play roles as well. The inter-agency grouping has representatives meet to monitor developments and continue to evolve its plan as need be. The headquarters for the U.S. operations will be in Nairobi to fully grasp the day to day happenings, interact with locals, and address unforeseen issues, along with a slew of other tasks. There will also be a representative in each partner country to provide assistance when asked and work to ensure the benefits and jobs reach the citizens.
While $7 billion is indeed a very substantial sum of money by any account, this investment is not meant to solve the problem alone – especially in the scope of Africa’s need. To put the realm of investment needed in perspective, the International Energy Agency (IEA) says sub-Saharan Africa will require more than $300 billion in investment to achieve universal electricity access by 2030. But having the U.S. directly involved does carry cachet.
The White House was sure to label the program as an investment mechanism and not aid. Power Africa has attracted more than $9 billion in initial private sector investments to support the development of new electricity generation in sub-Saharan Africa. GE, Heirs Holding, Symbion Power, Aldwych International, Harith General Partners, Husk Power Systems and the African Finance Corporation all have been cited for their commitments.
Tony Elumelu, Chairman of Heirs Holdings which committed $2.5 billion, described the need for the investment “because of the benefits of the potential of power and electricity in Africa.” In regards if the $7 billion for the U.S. government, Mr. Elumelu continued, “we need everyone, we need partnerships. We need outside capital. Emphasizing trade and investment in sectors like power is very welcome.”
Opportunities Abound
If Africa’s natural power potential is harnessed, it can be a net exporter of electricity. As an example outside of the Power Africa scope, the possible record setting Grand Inga Dam project, rife in controversy, in the DRC on the Congo River, is said to be able to provide up to 40,000 MW of electricity or more than a third of the total electricity currently produced in Africa. It has an estimated price tag of $80 billion, potential collateral environmental damage, and would be located in a nation with a history of political instability and violence.
Few specifics have been given in Power Africa for what energy sources will be harnessed in its six partner nations. Responsible development of new found oil and gas discoveries are mentioned, specifically referencing assistance to Uganda and Mozambique. There were no specifics on other projects, be it solar, wind, hydro, geothermal or diesel, though. Separately World Bank President Jim Yong Kim recently said the institution, which is a major energy project financier, will no longer fund coal plants except when there are no feasible alternatives, citing climate change, and will focus on renewable energy projects. Newly approved Bank projects will be interesting to monitor and evaluate to see if they set a model for other international development projects.
Not at it alone
Other nations, regional and international organizations, and non-governmental organizations have already either made commitments, made large investments, or have been implementing their own programs to improve electricity as well. The overarching goal is summed by the U.N.’s Sustainable Energy for All initiative and its Global Action Agenda, which has the goal by 2030 of: ensuring access to modern energy services; doubling the share of renewable energy in the global energy portfolio; and doubling the global rate of improvement of energy efficiency. One specific example is offered by the EU which announced in 2012 their public private initiative which is tasked with providing access to sustainable energy for an additional 500 million people in developing countries – not just Africa – by 2030. Even more rudimentary is the lack of access to modern energy services – nearly 700 million Africans are confined to using polluting biomass which can lead to lung disease and time wasted to collect the daily supply. There has been an upswing in developing clean cookstoves, headed by the Global Alliance for Clean Cookstoves, to provide a means to more efficiently cook, empower women and protect the environment.
The China Effect
China has been investing billions of dollars in infrastructure, including energy, across Africa for more than a decade. The increased partnership has catapulted China to surpass the U.S. as Africa’s top trading partner. Despite the new money, China has been criticized for not doing enough for local Africans. A report from the U.N. concludes that China’s emphasis on raw materials – nearly 85 percent of investment – could stunt Africa’s growth since those materials are exported directly to China for processing, and, in effect, exporting African jobs.
The U.S. Trade Representative Michael Froman stated, “There are U.S. companies poised to help Africa develop its energy resources responsibly, to build their power plants, to sell them turbines and other equipment – promoting jobs, exports and growth here at home. This is a win-win situation for all involved.” U.S. Africa trade is increasing as well, just not at the pace of China. The Office of the U.S. Trade Representative said in 2012 U.S. goods exports to sub-Saharan Africa were up $1.5 billion, or 7.1 percent, from 2011, and up 277 percent from 2002. African exports to the U.S. totaled $49.7 billion in 2012.
Clarion Call
Acting on the need of Africans and the companies poised to help as Mr. Froman state, it appears President Obama has finally unveiled what he hopes to be a successful and lasting project with Africa where prior presidencies have been very successful. President George W. Bush initiated the President’s Emergency Plan For AIDS Relief (PEPFAR) to combat HIV/AIDS and is hailed as a development model providing more than 5 million antiretroviral treatments, and President Bill Clinton is highly regarded for the African Growth and Opportunity Act (AGOA), which has resulted in non-oil exports more than tripling since its enactment.
Time will tell if Power Africa can provide similar successes. The hope is for the results to allow more children to be able to flip a light switch on to study at night, for health facilities will be able to refrigerate vaccines, and small and medium enterprises (SME) will be provided reliable electricity for to build successful businesses, among many other other positive outcomes.
