Africa’s 1.4 billion people population is growing fast. By 2050, it is expected to reach more than 2.5 billion, accounting for 25% of the global population. These numbers make it very clear that the continent’s current challenges must be addressed now before massive population growth makes further development on multiple levels simply impossible.
One of the most pressing issues is undoubtedly the energy sector. With 700 million people still living in the dark, without any form of accessible electricity in their homes, entire communities are hindered from the possibility of financial development. Electricity is crucial for proper education, new businesses, healthcare, and so much more, and the pressing issue must be addressed as soon as possible.
To that end, renewable energy is increasingly becoming the go-to solution, overpowering faulty, ancient national grids. Renewable sources, specifically off-grid solar solutions, can be deployed anywhere (unlike national grids that are not available in the remote, rural areas of the continent), are becoming more affordable every day, and are green, clean, and 100% sustainable.
So why are 700 million people still living without access? Across the continent’s 54 countries, renewable energy is now synonymous with the private sector, which has become crucial, even critical, in getting things done. As financing needed for reaching Africa’s energy and sustainability goals far exceed stretched-out national budgets, private companies and investors became of critical importance over the past decade.
But despite Africa’s needs being known, and despite a broad interest from the European private sector to invest in renewable energy across the continent, the volume of financial flows to Sub Saharan Africa remains slim.
One continent, 54 very different countries
According to a new survey by PWC and RES4Africa, a Foundation that supports Africa’s Just energy transition in order to achieve the SDG7, investors’ risk perception of investing in renewable energy solutions in Africa is the main reason for investment volume training negligible.
Surveyed investors said the political risk is the most acute in the region, with inadequate transparency and fairness of market mechanisms in second place. Generation and grid planning tend to be built on outdated or inaccurate supply and demand assumptions, and planning and future procurement information are often opaque or missing, presenting another significant risk.
Being involved in renewable energy projects across the continent for the past 15 years, the first thing that comes to my mind is the viewpoint. Often, foreign investors view Africa as a whole, forgetting the continent has 54 countries, each with its political scenario, energy policies, and business regulations.
Considering one country’s political climate as an indication of overall risk across the continent is somewhat odd. Imagine an investor not investing in an infrastructure project in Germany because of the political mayhem currently taking place in Belarus, only because both countries are in Europe. Many African countries, with Rwanda and Botswana at the top of the list, are considered politically stable. Botswana is actually number 17 on the Global Economy’s Political Stability Index, out of 194 countries.
Côte d’Ivoire is a perfect example of a country that moved out from political conflicts in the early 2010s and now stands out as an example of successful electricity market reform, growing energy access, and years of booming economic growth. Private sector participation played a key role, reinforcing the view of the country’s investors as a safe place to do business. For political risks across Africa, my advice is don’t let extreme events distort your understanding of risks in the continent as a whole.
The survey also points out that local governments have much to do to perpetuate new views of their home countries on the road to making the renewable energy sector more appealing to private companies and investors alike. Drawing credible energy sector plans, updating them regularly, and then sticking to them would grant investors greater visibility of future procurement horizons, attract more significant investments, and ensure that the least-cost solutions end up being awarded.
Data becomes key
When focusing on sub-Saharan Africa’s private customers that require small, off-grid renewable solutions for their electricity needs, investors’ risk perception often includes the customer’s ability to pay for the product or service. With entire communities lacking financial information, bank accounts, or any economic indicator of their paying abilities, basic trust in a company’s ability to collect payments can be missing.
To that end, data-based operations are becoming a viable solution. Solar solution providers can collect data on their potential and existing customers and predict payment default rates with advanced technology. Through AI, massive data sets can derisk operations from a financial point of view, making it easier for investors to be at ease with their allocated funds.
Looking ahead, in order to meet the UN’s Sustainable Development Goals, or SDGs, an additional $3.3 trillion in investments in African infrastructure is needed through 2040, more than $132 billion per year above current baseline investment levels and roughly double current levels. To reach even a mere fraction of that, countries across the continent must make their energy sectors more appealing and easy for international digestion. And global investors must focus on the vast opportunities that many countries hold and stop looking at Africa as one big land. There are 54 countries and 1.4 billion people (soon to be 2.5 billion) in need of sustainable, quick solutions. The conditions also present a viable investment opportunity that could be highly profitable and should not be lost due to bias. Choose one country and do your due diligence. I guarantee some interesting, even surprising, results.
The writer is an entrepreneur and investor,leading sustainability-driven companies in Africa and the Middle East