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Emerging Opportunities From Fixing Africa’s Power Infrastructure

Emerging Opportunities From Fixing Africa’s Power Infrastructure

That means substantial private investment is needed to fill the gap between the government and donors’ wherewithal.

“Achieving this level of investment will require not only steady improvements in the investment conditions for electricity access-related projects, but also rapidly improving capacity and effective coordination among the various actors involved,” notes the report.

The United States already supports such projects through the U.S. Export-Import Bank, U.S. Trade and Development Agency, Millennium Challenge Corporation, as well as the World Bank which committed $5 billion in new support for energy projects during the U.S.-Africa Summit in August.

The EU-Africa Infrastructure Trust Fund is providing $500 million for sustainable energy projects that is expected to catalyze private investments of up to $10 billion.

And the new $2 billion Africa Growing Together Fund through the African Development Bank is being financed by China.

In fact, it is estimated that 30 percent of all new projects in Africa result from Chinese investment.

According to the International Energy Agency report, “nearly $10 billion is estimated to have flowed from China into the sub-Saharan energy sector from 2005-2011,” which is nearly double what the European Union and several times what the United States spent over the same period. Angola, Ethiopia, Zimbabwe, South Africa and Nigeria received the greatest Chinese support.

Opportunities Growing

While economy-of-scale raises the attractiveness to investors of large infrastructure projects, the fundamental market driver is getting power to sub-Saharan Africans where it is needed most.

The second-fastest growing region of East Africa has a transmission and distribution industry filled with potential and is ripe for investment, according to a September Frost & Sullivan report on the East African Transmission and Distribution Industry, which notes the “steady growth of the industrial sector in Kenya, Tanzania and Uganda is expected to continue attracting increasing foreign direct investment.”

“Obviously, you need a really firm grasp of the regulations because [companies] are not going to make investments unless they have regulatory certainty; so they know they’re going to get cost recovery for those investments,” Gardner told AFKInsider.

McCray says what he tells new companies looking at the Africa infrastructure market is that the big companies “think about Africa in terms of real opportunities where there’s funding and reasonable expectations of completion,” especially where there is a long-term plan in place that “at least gives you a way to look at how the market might evolve.”

“If you go on a country-by-country basis and you see what policies they’re putting in place that will drive that market; all kinds of things can be considered when you’re trying to measure the country’s regulatory environment for a specific type of an investment versus another country’s regulatory environment,” Gardner said.

The October International Energy Agency report concludes: “For the moment, the bottlenecks holding back an increase in investment appear to arise more from considerations of policy and project preparation, rather than financing. But if policy and capacity constraints are eased and investment projects are proposed at the rate projected in the New Policies Scenario, then the limitations of the region’s financial systems may become much more pertinent.”