Why ‘powered’ Africa is key to its economic transformation

History teaches us that Africa will not be able to lift people out of poverty, substantially improve well-being, and reduce inequalities, if it cannot sustainably power itself. The paradox is stark. The region has stunning landscapes, scorching sun, vast water resources to produce cleaner, cheaper and widely accessible energy. Yet, today, more than 600 million people or two thirds of the continent’s population live in darkness, without electricity. Today, the continent has less capacity to generate and transmit grid-based capacity than South Korea, which has a fifth of its population.

Though not much talked about, the cost associated with lack and inefficiency of energy is devastating. Power shortages reduce economic growth by 2-4 per cent annually. Quality education is affected too. In Burkina Faso, Cameroon, Malawi, and Niger, about 80 per cent of primary schools have no access to light for their classrooms or to power computers. Also, power outages in healthcare facilities have critical effects for hospital patients all over Africa.

Though Africa contributes only about 2% of global C02 emissions, the great damages that climate change has on African livelihoods is striking. More prevalent droughts and floods place unprecedented stress on agricultural systems, water sources are rapidly exhausted, and changing weather patterns causing natural disasters are just a few examples. Climate change is a threat to livelihoods, and lives as well as development trajectory.

However, the timing is ripe to reverse the tide and use this as an opportunity to critically rethink our leadership on clean technology and sustainable development. Energy provision is at the core of this process. How do we get to a much more balanced energy mix which looks to substantially reduce dependence on fossil fuels, with the aim of ultimately divesting away from them? The reality is that for the very short term without adequate investment, good governance, and strong leadership, Africa cannot take a leadership role – globally – in leap-frogging from current energy systems to efficient, resilient and low-carbon economies.

Viewed from an investment perspective, replacing existing fuels with modern energy is a widely neglected market opportunity. As argued in this year’s Africa Progress Report ‘Power, People, Planet: Seizing Africa’s energy and climate opportunities’, 138 million households living on less than $2.50 a day spend US$10 billion annually on energy-related products, including charcoal, candles and kerosene. This is a challenge as well as an opportunity. Access to modern energy systems would not only cut household costs, releasing resources for productive health and education investment, but also boost renewable energy businesses.

The World Bank estimates that over the next decade $6.4 trillion will be invested to develop clean technologies in developing countries. The global fossil fuel divestment (asking institutions to move their money out of oil, coal and gas companies for both moral and financial reasons) is real, and continues to pick up steam in the most unexpected places. This is an opportunity to unleash creative, competitive, technologically advanced business opportunities on the continent. Chair of the Africa Progress Panel Kofi Annan argues that ‘unlocking Africa’s clean energy potential can drive growth and create jobs’.

Can anyone guess what Tesla’s new storage could mean for the continent? Probably not, but the sheer opportunity of wide market access is encouraging. How will mobile payment for mall and less expensive solar systems affect the energy market? That is the kind of transformation we need to see on the continent.

Politics and economics in the energy sector lie at the heart of the problem. Political will is missing. African governments currently invest just 0.5 per cent (US$8 billion) of gross domestic product per year in the energy sector. This is inadequate to power homes and boost businesses. Power sector inefficiencies from underpricing of electricity and under-investment in operations and maintenance cost the region US$8.2 billion annually. These inefficiencies are linked to political patronage and institutionalized corrupt practices too. Tanzanian state power utility, Tanesco, for example, lost US$124 million through a complex web of off-shore companies. Corruption and opacity in the management of utilities on the continent remains very high and is a major challenge which must be addressed.

How to finance this transformation

The reality is that we can indeed find great resources on the continent. Using revenue generated from fossil fuels to fund renewable energy is one way to do so. Another perfect example is the potential in curbing illicit financial flows (IFFs). IFFs – billions of dollars lost mostly through trade misinvoicing – shortchange governments in putting energy infrastructure in place. As argued in ‘Power, People, Planet’, Africa alone lost an estimated US$69bn through illicit financial flows in 2012, more than the financing needed to cover the energy and climate adaptation gaps, which amounts to US$66 billion per year.

In the report ‘Domestic Resource Mobilization in West Africa: Missed Opportunities’, the Open Society Institute for West Africa (OSIWA) indicates that between 2012 and 2018, West Africa alone could lose up to US$56bn in government revenue simply due to transfer mispricing, and even more due to abusive tax incentive regimes. There are practical opportunities to fight these outflows by reviewing fiscal regimes, strengthening revenue administrations, increasing transparency in the financial sector, and critically engaging in regional and continental exchange and control mechanisms. This is a critical aspect of making fiscal revenue work for broad development.

African governments must increase finance for high energy, low carbon future by spending about 3-4 per cent of GDP on energy sector development. They must take bold steps to reduce the inefficiencies. They should explore the opportunity of redirecting the US$21 billion per year they spend covering utility losses and subsidizing oil-based products into energy infrastructure. In July, global leaders will converge in Addis Ababa to discuss financing for development. It is an opportunity for African governments to rethink taxation system aimed at increasing tax revenues, and addressing illicit flows and corruption.

By: Stephen Yeboah is a research fellow at the Africa Progress Panel and Mohamed A. Sultan works on Economic Governance with the Open Society Initiative for West Africa (OSIWA)

Photo credit: African Development Bank