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A simple equation: Energy + Africa = Growth

Darryl Jago

Darryl Jago,

Johannesburg

Charles Marais

Charles Marais,

Johannesburg

29 May 2017

Consider this simple equation:  Energy + Africa = Growth.

The World Economic Forum on Africa ("WEFA") took place in Durban, South Africa from 3 to 5 May 2017.  One of the key areas of focus that was discussed at WEFA was how to develop and access economic growth on the African continent.  Amongst various solutions that were advanced, sharp focus was placed on the importance of developing Africa's infrastructure. 

It is common cause that Africa is rife with opportunity. This assertion must be understood against the background that Africa is a vast continent comprising fifty four separate countries each with its own distinct opportunities and obstacles.  Experience has shown us that it is best to invest in countries with sophisticated financial sectors and a high regard for the rule of law.  One cannot simply apply a "one-size-fits-all" approach to Africa and despite referring to Africa as a whole throughout this post, it is important to assess the circumstances of each African country on a case-by-case basis.

During  the annual Africa Energy Forum held in 2016, it was noted that more than thirty percent of the world's oil and gas discoveries were made in Africa over the last eight years and there is huge potential that exists for the development of renewal energy installations such as wind and solar. Such opportunity is however meaningless without an ability to access and capitalise on the same.  This is why energy infrastructure is the key to unlocking Africa's full potential for economic growth.

Africa's electrical infrastructure is of particular importance to its advancement, which, according to several reputable sources, is a key factor in driving socio-economic growth on the continent.

The United Nations Department of Economic and Social Affairs has identified a direct link between the access to electricity and the levels of education and the standards of healthcare respectively.  Furthermore, the World Bank notes a positive correlation between the access to electricity and the efficiency of industry to produce goods, the quantum of foreign direct investment and economic growth respectively.

This creates a very strong argument as to the significance of energy infrastructure on a continent where the majority of the population does not have access to electricity and nearly three-quarters of the population do not have access to a reliable supply of electricity.

According to the World Bank, a lack of energy infrastructure in Southern Africa was responsible for a two percent decline in economic growth and a forty percent decline in business productivity.

The main limitation on the development of energy infrastructure is the cost associated with same.  A press release by the White House Press Secretary, which cites a study conducted by the International Energy Agency, notes that in order to achieve universal access to electricity by 2030, sub-Saharan Africa will require an investment of more than $300 billion.  To put this figure into perspective, South Africa's Gross Domestic Product for 2015 was approximately $314 billion.

The high cost associated with developing and maintaining Africa's energy infrastructure is a result of, amongst other things, the sporadic distribution of its population. According to the African Development Bank, only thirty six percent of Africa's population resided in urban areas in 2010.

Consider another simple equation: Investment + Energy + Africa = Opportunity.

Universal access to electricity is the key to unlocking Africa's true economic potential.  The availability of electricity is critical to the growth of industry, which in turn will increase production for domestic consumption or foreign exports, create more jobs, generate additional tax revenue and ultimately result in increased development throughout the continent.

The importance of energy infrastructure in Africa is unquestionable and the investment in same may act as the catalyst for a wholesale change in the continent's socio-economic landscape and ultimately initiate a shift from Africa being an emerging market to a developed market.

Follow Hogan Lovells Africa on twitter: @HLAfrica

Darryl Jago

Darryl Jago,

Johannesburg

Charles Marais

Charles Marais,

Johannesburg

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