Sub-Saharan Africa is living through a crisis in power supply. Thanks to decades of underinvestment in, and mismanagement of, electricity infrastructure, the region’s power grids are underpowered and dysfunctional. Sub-Saharan Africa today consumes 30 percent less electricity than South Korea, despite having 20 times its population, and on March 31 of this year, the entire country of Nigeria—population 180 million—generated no electricity for two hours. Even where electricity is available, it may be of low quality, which can be just as damaging. The cost of such dysfunction can be high: a 2014 report from the International Energy Agency (IEA) estimated that businesses in sub-Saharan Africa lost nearly five percent of their annual sales owing to power outages. No wonder unreliable power supply has been identified by business leaders as the single most pressing obstacle to the region’s growth, ahead of corruption, red tape, and access to capital.
Yet despite its energy deficit, the region’s growth, which averaged 5.1 percent annually from 2007 to 2014, still beat the global average. Such an impressive performance underscores what sub-Saharan Africa’s economy could achieve if liberated from the constraints imposed by its inadequate power supply. Lifting those constraints may prove expensive, however. According to a study by McKinsey & Company, the cost of the necessary investments in the region’s electricity grid is estimated at some $800 billion through 2040—a outlay that can be met only by attracting private capital from abroad. Historically, private investment in the region has been limited in scope because of political risk, economic uncertainty, and other challenges. But there are opportunities to supply reliable power to sub-Saharan Africa that, if properly structured, offer both compelling returns and a sure path toward development.
POWER TO THE PEOPLE
To date, investment in Africa’s power sector has tended to focus either on large, centralized generation projects (such as power plants) or on small-scale rural electrification schemes that service individual farms and households. Both are necessary. Yet large plants have encountered, among other challenges, diseconomies of scale inadequate infrastructure, and a lack of viable customers. Rural electrification, meanwhile, is important for those who receive its benefits, but recent studies in India and Kenya suggest that its overall economic impact may be negligible. Between these macro and micro approaches, however, there is another method, captive power generation, which may offer a profitable means to quickly build capacity while stimulating broader economic growth.
Loading, please wait...