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Greater Investment in Electricity Could Spark African Economic Growth, say Analysts

Specialists say continent has underutilized water and wind resources

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Part 5 of a 5 Series: Investment in Africa

Economic growth in many sub-Saharan countries has been stunted by an energy crisis that many say will continue without more government and private investment.

Many economists agree that increasing the region’s energy supply is essential for economic growth and poverty reduction.  Improved investments would also help African governments meet the U.N.’s Millennium Development Goals, which encourage drastic reductions in poverty and illness by 2015.

Studies show that investing in energy resources and increasing electricity has a significant impact on women and children.  Without it, they often spend hours gathering wood for cooking, which affects their ability to attend school or engage in income-generating activities.

According to statistics, 70 percent of all African governments do not have enough access to electricity, although they spend $40 billion annually on fossil fuel-based energy products.

Need in numbers

Robert Adam Mosbacher, Jr., is the former head of the Overseas Private Investment Corporation (OPIC), a U.S. government agency working to promote development by working with the private sector.  He was also the president and CEO of his own company in Houston.

Mosbacher says, “Clearly Africa…needs more electricity, and there are Western companies that would be interested in helping develop more electrical capacity….”   He cites as one example the Democratic Republic of Congo, where millions go without electricity even though the country has millions of square kilometers of water for hydropower.

Sub-Saharan Africa could also benefit from investment in wind energy, but the statistics from the World Wind Energy Report show that 95 percent of that investment is currently concentrated in Egypt, Morocco and Tunisia.


Barriers

Development in the energy sector could be daunting.  Observers say such investments are capital-intensive and involve high start-up costs.  But many economic analysts say it’s not the cost that turns away potential investors, but the volatile political climate of many African countries.

Mosbacher says for investment dollars to flow, “a few essential elements must exist.…”

He says that for every power project, which often costs hundreds of millions of dollars, “there has to be a legal framework that gives you comfort that…you will get your money back plus some return on your investment.”

“It is true,” he says, “that investors often shy away from countries considered high risk,” although he says it’s these very countries that need investment the most.

Current projects

The CEO of Africa Finance Corporation, Andrew Ali, says some of the largest projects invested in Africa today are in the energy sector.

Three are in East Africa.  They include a hydropower scheme at Bujagali, Uganda.  The 250 megawatt hydropower plant on the Nile is expected to supply electricity to millions of Ugandans in rural and urban areas, including the site of daily power failures, the capital, Kampala.

The second is a new geothermal plant under construction a few hours away from Kenya’s capital Nairobi. The plant is being built by the Kenya Electricity Generating Company (KenGen). Money for the projects has been raised mainly from local sources with help from the government.

Another is the African Rift Geothermal Project (ARGeo Project) is funded by a Global Environmental Facility contribution of US$ 17.75 million. The program seeks provide the region with more geothermal development – and investments.

Dr. Crowther Pepela, the former chair of the Kenya power and lighting company, says that there is lots of room for expansion in the energy sector, especially power and distribution.  He says “the world bank and other consortium of investors are helping in availing funds.”


Energy investment in Africa is not limited to hydro electricity and geothermal projects.

In Rwanda, organizations like The Solar Electric Light Fund (SELF), a not-for-profit organization, is implementing sustainable energy solutions to enhance the health and education sector.  The group’s director, Robert Freling,  says he is encouraged by the number of African governments that are promoting public and private investment in solar energy. He says a recent project in Benin shows that investing in the power of sunlight can provide long-term solutions to hunger in underdeveloped nations.


Making investments in big energy projects is becoming easier. Alex Twinomugisha, an analyst based in East Africa says that’s because banks are more willing to lend.  He attributes their change of attitude to the potential for success, and since, as he puts it, “they are probably making a killing arranging deals for the local financial market.”

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