Friday, Dec 09

Recommendations for Africa and its ‘Power’ Politics

Recommendations for Africa and its ‘Power’ Politics

According to the World Bank, the largest infrastructure deficit in sub-Saharan Africa is in the electrical power sector, which

results in the rates of access to electricity in the region to be very low, both in comparison to other developing-country regions and to the developed world.

It also stated that about 57% of Africans, or about 621 million people, lack access to power, notably in rural areas.

Sub-Saharan Africa is the most electricity-poor region globally. This has had profound impacts on economic growth and development prospects through this deficit.

This lack of power negatively affects the region in multiple ways: It constrains economic production, growth, and commerce.

It also undermines human resource development and hinders the improved quality of life potentials (e.g., it limits light for education and access to power for refrigeration and digital communications devices); and limits the quality of social services and public safety.

Uneven distributions of this power also cause unbalanced sub-national patterns of development, notably between urban and rural areas.

Lack of access also has direct negative effects on public health. It limits the capacity to store vaccines and other medical drugs and the operation of medical equipment and health facilities generally.

It also spurs the use of bio-fuel sources for cooking and lighting. Such sources—including wood, charcoal, kerosene, and even dung—are less costly than electricity but are frequently still relatively expensive (e.g., for urban consumers) and are often highly polluting.

Harvesting of wood and its use or processing into charcoal also leads to deforestation in some areas. Estimates of African power requirements and the corresponding need for financing vary widely but are invariably high.

The contrast between Africa and the developed world with respect to power production and capacity is especially stark.

In 2012, all 48 sub-Saharan African countries (all except South Sudan, with a combined population of more than 912 million) produced about 422 terawatts (TW), less than the 564 Tw produced by France, with a population of just under 66 million.

Similarly, in 2012 Africa had a generation capacity of about 106 MW per million people, while that of the United States was about 3,320 MW per million people.

The number, 621 million people, continues to rise, hampering development progress in the region.

Without affordable, reliable electricity, healthcare, education and business potential is curtailed. Countries that are able to meet the energy needs of all their citizens are wealthier, more resilient and better able to advance human development.

Restricted access to energy on the continent is the focus of the Leaders in the sub-region. This trend can be turned around if the region’s energy challenge is given the urgent and sustained political attention that it deserves.

Africa’s economic performance over the past decade has been impressive. At a time when growth rates around the world have been low, sub-Saharan Africa’s GDP has increased by 5 percent to 6 percent annually.

Yet in marked contrast to other emerging markets, strong economic growth has not led to energy transformation.

The tide of wealth is rising but per capita use of electricity has stagnated. Nigeria has outperformed India on economic growth and produces almost as much economic output per person. Yet India’s energy consumption per capita remains significantly higher than that of Nigeria.

Many countries, including Brazil, Indonesia, Thailand, and Vietnam, have demonstrated that it is possible to accelerate progress towards universal energy access. In Africa, countries, as varied as Ethiopia, Ghana, Kenya, Rwanda, and South Africa, have shown that rapid advances are achievable.

The common denominator is political will.

The African Development Bank (AfDB) estimates that around half of the needed finance to power Africa is already available. With new leadership that is committed to placing energy at the very top of the Bank’s agenda, the AfDB is well-positioned to be a major catalyst in transforming the region’s energy systems.

Africa cannot afford to be unambitious. Leaders must change the “politics of power” by making a sharp break from existing, highly centralized energy systems that largely benefit the rich and bypass the poorer members of society.

Transforming utilities

Improving the overall governance of the energy sector and changing utility practices will take a deep commitment to changing structures and entrenched politics.

In many countries, power utilities are nexuses for political patronage and corruption. Many are now viewed less as a mechanism for delivering affordable energy for all than as sites for rent-seeking. They have also often been targets of intense public anger, much of it well deserved.

Final File for Print September Edition 158 copyThe “Dumsor” Vigil in Ghana

Mismanagement has led to a considerable waste of public resources and an accumulation of large debts. In 2010, sub-Saharan Africa’s energy utilities were operating with deficits estimated at 1.4 percent of regional GDP, some $11.7bn. This represents five times the level of publicly financed investment in the energy sector.

There are also some long-running systemic failures. Africa is losing an estimated $8.2bn annually through power sector inefficiencies associated with poor cost-recovery, distribution losses, and other factors.

By selling electricity at prices that are less than the cost of production – in part for populist political gain – utilities have been unable to generate the revenues needed to invest in operations, maintenance and new infrastructure.

Reliance on emergency power adds to this vicious circle. Generating electricity through emergency power provision typically doubles the cost of electricity.

Utilities experiencing power shortages typically enter into short-term contractual arrangements with emergency power providers who install new capacity, usually in the form of oil-fired generators. The leasing terms are often onerous – and utilities have to meet the cost of oil imports.

This year’s Africa Progress Report makes several recommendations on how to change the politics of the power sector in Africa.

First. Governments must set out strategies for achieving universal access to energy, aiming at a 10-fold increase in power generation by 2040 while laying the foundations for a low-carbon transition.

New technologies, policy reform, and innovative business models offer promising pathways. Ethiopia, Kenya, Rwanda, and South Africa are already setting examples

Second. Leaders must tackle vested interests and break the webs of political patronage in energy utilities. Utilities must be required through legislation to publish the terms of all off-take arrangements and emergency power-purchase agreements. Tendering should only be done through locally registered and regulated companies.

Third. Contract and negotiation transparency must be increased in international energy deals while Africa’s renewable revolution must be placed on a transparent and well-managed foundation.

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All the proposed changes to the political economy of energy in Africa are possible if there is sufficient will to act. African governments are always looking for foreign investors, but these governments are not being proactive in making sure that the big mining companies also contribute to the energy network infrastructure development.

The sustainability of power utilities in Africa is another big challenge due to poor funding and tariffs that are not cost-reflective. The cost of electricity generation and transmission in Africa is more expensive compared to that in the Western world.

This cost differential can be attributed to poor operational efficiencies of the aging power plants and transmission lines.

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In most cases, African energy networks are not privatized, they are semi commercialized but wholly owned by governments. As a result of this, there are no new ideas flowing into this sector. Private players would be able to bring in new technology and change the way the utilities are operated.

From my experience, the majority of utilities are ring-fenced and any foreign investment or capital injection portion will suffer the losses. This has been an impending issue that makes investing in the power sector not that lucrative.

In the long run, I think consumers in Africa will need reliable electricity supply rather than heavily subsidized unreliable supply. The solution would be to completely privatize the power utility industry.

As APP Chair Kofi Annan says in his foreword to the Africa Progress Panel report, we simply must “act now and act together”.

Bestselling author Simon Sinek talks about the best way to win at business and beat your competitors in his new book, The Infinite Game in this episode of Behind the Brand with Bryan Elliott.