Power Outages: An Economic Constraint On Africa

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Doing business in Africa is not for the faint of heart. This is particularly the case for Startups with little capital trying to expand their businesses. Despite The World Bank Doing Business report recently revealing that African countries have significantly reformed to make doing business in  Africa relatively easy, massive challenges still remain. Africa’s capacity for generating power remains lower than that of many other regions around the world. With frequent power cuts in many cities, a good number of businesses are spending more money on energy costs through the use of generators. The increase in operational costs of running businesses that involve manufacturing has no doubt led to a surge in imported products. In 2013, imports in Senegal accounted for nearly half of the GDP with the country’s main suppliers being France (accounting for 16% of imports), India and China. Overall, operators of small and medium sized enterprises such as hairdressers, artisans of all kinds have been hardest hit. Most do not have enough resources to invest in generators to serve as backup during power outages.

Similarly, mining companies in other parts of the continent such as South Africa are also voicing their concerns as state utility companies continue to introduce power outages which are now limiting their consumption of power and bringing their productivity almost to a grinding halt. The fact that the GDP of most countries in Africa is propped up by the mining industry should raise alarm bells as the energy infrastructure in African countries continues to crumble and collapse.

The current trend of constant power outages, if continued, could undo the progress that has been made economically over the past decade. It is inconceivable how a region that has 7 out of 10 of the fastest growing economies in the world with a growing middle class can expect further growth going forward, with the ongoing scourge of unpredictable power supply. The World Banks, recently declared 25 of the 54 nations in Sub-Sahara Africa to be in an energy crisis. It is now more than a century since the invention of the light bulb and yet millions of people still do not have electricity in their homes. According to Reuters, satellite imagery of Africa at night shows a “dark continent” with the exception being South Africa and the North African Mediterranean coast. With almost 70% of the population of Africa having no access to electricity, it is clear to see why this is a real crisis that can not be ignored particularly at this time when Africa is a hot bed for foreign direct investment. The power outages are s symptom of more serious problems. The reality is that the power sector poses a threat to Africa’s long term economic growth and competitiveness. The cost to the economy of load shedding according to the World Bank is equivalent to 2.1% of GDP on average. The governance,  regulation and institutional performance of many of the utility companies that operate in Africa needs to be looked at and overhauled.   Major investment is needed to upgrade the current energy infrastructure which has remained underdeveloped and poorly maintained for decades. This has inevitably led to Indian and Chinese firms identifying investment opportunities in Sub-Sahara Africa. In recent years, some Chinese institutions have emerged as major financiers of power infrastructure in Sub-Sahara Africa,  to improve power supply. A joint venture between the Chinese firm Sinohydro and Zesco a Zambian utility firm, is leading development of Kafue Gorge Lower hydro project. Tata, India’s largest private integrated electricity firm holds a 50% equity stake in Zambia’s Itezi Tezi Dam along side the  Zesco ( Zambia Electricity Supply Corporation) in Zambia. There has been progress but it remains slow. There are also some energy projects by the World Bank that are in the pipeline which total up to approximately 3 million US dollars aimed at rehabilitating war-torn dilapidated power grids and increase peoples access to electricity. It is evident that private funding from both domestic and foreign sources have been utilised to help improve the sector. The utility companies which are largely state run however, remain underfunded and are significantly focused on state ownership of assets. Involvement over the last decade or so, has been predominantly from state agencies with very little attention being given to the existing infrastructure which can no longer cope with increasing demand. The Power Africa initiative unveiled by President Obama in 2013 on his visit to Africa, which was meant to attract private investment to develop more of Africa’s extensive energy resources including oil and gas, hydro, wind, solar and biomass while building power generation and overall business activity, created a lot of excitement at the time. Many stakeholders are still waiting to see what changes the power Africa initiative will bring over the next few years. While solar power projects have also taken off in some parts of Africa, they are by no means enough to be distributed in a commercially viable way that will sustain the kind of economic growth that Africa needs right now to create jobs and improve the lives of many in a meaningful way. The use of solar power for commercial purposes for the most part, remains untapped but there are exciting ventures being launched in East Africa with a handful of Kenyan safari camps running exclusively on solar power in Amboseli National Park. While renewable energy solutions are an exciting option, more needs to be done to improve existing infrastructure to enable continued economic growth and connect people who are off the grid in rural areas particularly now as the world continues to view Africa as a new frontier in investment opportunities and technological growth.

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