Energy

Africa’s chronic power problems are taking a heavy toll on economic growth and productivity. The region has inadequate generation capacity, limited electrification, low power consumption, unreliable services and high costs.

Africa’s generation capacity is woefully inadequate. The installed generation capacity of the whole of sub-Saharan Africa, 48 countries, is 68GW – no more than Spain’s. As much as one quarter of that capacity is unavailable because of aging plant and poor maintenance.

Only about one-fifth of the sub-Saharan population has access to electricity. At current trends, less than 40% of African countries will reach universal access to electricity by 2050.

The cost of producing power in Africa is exceptionally high and rising. The small scale of most national power systems and the widespread reliance on expensive oil-based generation make the average cost of producing power in Africa extremely high.

Power consumption is tiny and falling. Per capita electricity consumption in Sub-Saharan Africa (excluding South Africa) averages only 124 kilowatt-hours a year, barely 1% of the consumption typical in high-income countries. Power shortages have made service even less reliable.

Inadequate power supplies take a heavy toll on the private sector, and the economic costs of power outages are substantial. Many African enterprises experience frequent outages and in many countries backup generators represent a significant proportion of total installed power capacity.

Power sector investment needs

Addressing Africa’s chronic power problems will require major investment in the refurbishment and expansion of power infrastructure. The total spending needs of the power sector amount to US$40.6 billion a year, or 6.4% of the region’s GDP.

Existing spending on the power sector is US$11.6 billion, just over one-quarter of what is required. Existing spending represents 1.8% of regional GDP, although in the non-fragile low-income countries, this share increases to 2.9% of GDP.

Existing resources would go further if the sector operated more efficiently. Addressing the operating inefficiencies of the power utilities could reduce the funding gap by US$3.3 billion a year, improving cost recovery would bring an additional US$2.2 billion a year, and US$0.3 billion a year could be recouped by improving execution of the capital budget.

Even if all these inefficiencies could be eliminated, a sizable power sector financing gap of $23 billion a year would remain. Three-quarters of this financing gap is a shortfall in capital expenditure, while the remaining quarter is a shortfall in operation and maintenance spending.

(Source: AICD)

Commitments to the energy sector, by region

With an increase in 2009 of 75% compared to 2008, the energy sector has experienced the largest rise in commitments by ICA members, receiving US$6.3 billion. This is mainly due to a vast increase in expenditure in South Africa - seven times higher than in 2008. Half of the total contribution, US$3.7 billion, to the energy sector was directed to South Africa in 2009. West Africa showed a sizeable increase too, with a tripling of commitments between 2008 and 2009, to US$1.6 billion.

After a strong step-up in 2008, North Africa’s share weakened from US$1.8 billion to US$362 million. The shares in both Central and East Africa remained nearly on a par with the previous year.

AfDB and the World Bank are traditionally the most significant financiers to the energy sector, with their respective commitments of US$3.6 billion - of which US$2.8 billion was committed to South Africa – and US$1.8 billion in 2009. Together, these account for 85% of total ICA commitments to the sector.