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Friday, 12 July 2013 15:19

Power is Africa's Biggest Infrastructure Challenge - Renaissance Capital

By Oluwaseyi Bangudu

LAGOS, Nigeria, July 12, 2013, (Premium Times) - Renaissance Capital, an investment banking firm that operates in high-opportunity emerging markets, has said that power is Africa's biggest infrastructure challenge and under-investment is the main cause of its power insufficiency.

The firm said this in a report analysing Barrack Obama, the President of the United States of America's power initiative- Power Africa- highlighting that it is a sign of greater U.S. commitment to Africa's investment opportunities.

"Underinvestment is the main cause of Sub-Saharan Africa's (SSA) power shortfall. The main cause of SSA's power supply crisis is infrastructure investment rates that fall short of the region's strong growth rates," the firm said.

"We think investing in power is one of the most effective ways of addressing the region's massive infrastructure deficit. Over 40% of SSA's infrastructure spending need is associated with power. To put SSA's (excluding South Africa) power deficit into context, the region's electricity generation capacity of 28,000 MW (820million people) is equivalent to that of Argentina (42million people).

The 'Power Africa' Project

On June 30, during the second arm of his three-nation Africa tour, President Obama announced a five-year $7 billion power initiative, which is intended to help double access to electricity in Sub-Saharan Africa (SSA).

These funds will mainly come from a U.S. trade promotion bank.

In addition, $9 billion of pledges from the US private sector has been secured. This power plan will initially cover Ethiopia, Kenya, Tanzania, Nigeria, Ghana and Liberia.

Africa's total infrastructure spending need is $93 billion per annum (2006-2015), according to the World Bank. Of that, Africa must spend $41 billion on power or install 7,000 MW per annum, just to keep up with electricity demand. Current spending on power is equivalent to $12bn or just over one-quarter of the cost required to catch up. The public sector accounts for 60 per cent of this existing spend and external capital makes up the remainder, the firm said.

RenCap said in absolute terms, Nigeria is likely to see the biggest increase - 1,000 Mega Watts (MW). It however said in percentage terms, Kenya's generation capacity is expected to record the biggest, 25 per cent.

"The possible increase in collective power supply as a result of this power initiative is 40 per cent or 5,200 MW, by our estimate, with Nigeria and Ghana as the biggest gainers at 1,700 MW respectively. In this scenario, Ghana and Tanzania would be the biggest percentage gainers, with a 70% increase respectively" the firm said.

Of the six countries that the power initiative will initially cover, under-investment in infrastructure is the main cause of Nigeria's power infrastructure deficit, the firm said; adding that recurrent droughts explain Kenya's hydro-power shortfall, while Ghana's thermal power is susceptible to oil price shocks.

The Power Africa Initiative is a five-year partnership between the United States, six African governments and the private sector. The partnership represents a coordinated cross-border effort to build the regulatory, economic and policy foundation in order to double access to power in Sub-Saharan Africa.

The governments of Ghana, Tanzania, Kenya, Nigeria, Ethiopia and Liberia and a group of private-sector firms are taking part in the initiative to improve access to reliable power in Africa.

The Power Africa project is expected to add more than 10,000 megawatts of more efficient electricity generation capacity - equivalent to 250 per cent of Nigeria's current power generation - increasing access to electricity by more than 20 million new households and businesses.

The African Development Bank (AFDB) estimates that only 42 per cent of people in Africa have access to electricity, compared with 75 per cent in the developing world. In Sub-Saharan Africa access to electricity is even lower, at 30 per cent overall and 14 per cent in rural areas.

Lack of adequate power supply has had ripple effects across many areas, over the years;from education, which is affected because students are unable to study at night, thereby reducing their capacity to perform efficiently, to modern health care facilities which are inaccessible.

Inadequate power is also the cause of major challenges faced by businesses. Due to the unavailability of sufficient power supply, the cost of doing businesses almost doubles.

Businesses have to spend huge funds on generating sets and fuel. The World Bank estimates that if Africa's power sector was run more efficiently, it would save about $6bn per annum and lower the sector's financing gap to $23bn.

"We already expect such savings to be made from the recent divestment of the Nigerian government's power distribution and generation assets to the private sector, which is likely to improve operational efficiencies. Overall, Obama's power initiative is a sign of greater US commitment to Africa's investment opportunities." RenCap said.



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