Access to energy is an essential step in African development

Stock SectorMay 7, 20187min16

The need for investment in energy supplies and associated infrastructure in Africa can hardly be overstated. There are some 1.25bn Africans. By 2050 that is set to increase to more than 2bn, with Africa accounting for more than half of global population growth. By then, Nigeria alone will have more than 300m citizens.

The continent has great economic potential. Some countries, such as Ghana, Ethiopia and Côte d’Ivoire, already have economic growth rates of more than 6 per cent a year. Others, like South Africa and Zimbabwe, have new leadership focused on replacing the corruption of the past with modern, competitive economic structures. But there are still almost 600m Africans living in subsistence conditions without access to electricity according to the International Energy Agency, and many more still living on the edge of poverty.

Secure, low-cost energy supplies (and the grids and pipelines to get them to the end users) are essential but current investment levels are far too low. The IEA estimates that investment of more than $1.5tn will be needed between now and 2050 in the power sector alone. Projects needed range from power stations and electricity grids to much smaller, but still crucial, off-grid supplies to more isolated locations.

Access to energy provides the first step in the ladder of development — without heat, light or mobility there is little chance of an escape from poverty.

The EBRD can help improve the reputation of countries in the international capital markets as it done in parts of eastern Europe

But the private sector regards much of Africa as dangerous and companies can be overwhelmed by the challenges of security and corruption. Parts of the continent represent a very high risk environment that many simply choose to avoid.

That is one good reason why the board of the European Bank for Reconstruction and Development, meeting this week in Jordan, should agree to extend its activity into sub-Saharan Africa.

A development bank cannot do everything but it can set an example and encourage private investors to take risks that they would not take on their own. By setting good standards the bank can help improve the reputation of countries in the international capital markets as it has done in parts of eastern Europe and elsewhere over the last 27 years.

But there is another factor that the EBRD should take into account. Africa — particularly to the north and south of the Sahara — is particularly vulnerable to the effects of climate change. An excellent but frightening study published by the Max Planck Institute describes the prospect of north Africa becoming uninhabitable as temperatures rise, water supplies dry up and the possibility of growing crops is reduced.

If an area becomes uninhabitable people move. The migrant route through Niger to the north African coast is already well defined as the main transit route for those trying to escape conflict or harsh local conditions. The obvious destination for the migrants is still Europe — despite the physical risks involved, the introduction of naval patrols in the Mediterranean and the prospect of spending years in camps in Turkey or on the Greek islands.

More than 1.25m migrants arrived in Europe in 2015. The decision by the German Chancellor Angela Merkel to accept more than 1m refugees undermined her authority, while in eastern Europe the prospect of growing numbers of migrants has fuelled a resurgence of racial discrimination and nationalism. The flow has since then been limited. But if substantial areas of Africa become uninhabitable then what has happened over the past five years could become the norm.

Investment in energy and infrastructure across Africa cannot on its own solve the whole of that problem — but it could help. Projects to manage water supplies are crucial and depend on the availability of energy supplies. Well-targeted investment could encourage the development of areas less likely to be harshly affected by climate change. Low-cost energy supplies, including the use of the latest solar power technology, can give communities the chance to adapt and prepare against growing risks.

It is hard to think of a better use for the EBRD’s skills and resources.

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