Energy Access Is Key to Sub-Saharan Africa's Economic Recovery
When COVID-19 first spread, sub-Saharan Africa was feared to be hit hardest by the pandemic. But as soon as cases began to be confirmed in the region, governments quickly instituted containment measures. They leveraged public health infrastructure and lessons from Ebola and other pandemics — including contact tracing, case containment, social distancing and remote working.
These actions may have contributed to low mortality rates in the continent. According to the WHO, as of January 27, 2021, there were 2,402,273 confirmed cases and 58,097 deaths in the region’s 47 countries (excluding Djibouti and Swaziland, where data are unavailable).
While the health impacts of COVID-19 may be lower in Africa compared to other parts of the world, the pandemic has still led to major economic disruptions across the continent. In October 2020, the International Monetary Fund projected sub-Saharan Africa’s economies to contract by 3% for the period 2020-21. People continue to experience huge losses of jobs and livelihoods. The World Bank’s updated estimates show that this region will be the second hardest hit after India, with millions of people having lost their jobs and income by end of May 2020.
Greater access to affordable and reliable energy would play a significant role in addressing these economic disruptions. As countries prepare for economic recovery, governments in sub-Saharan Africa will need to create more jobs and spur economic growth. Investments in energy access can do both those things.
Why Access to Electricity Is Key for Africa
The COVID-19 crisis has demonstrated the importance of access to reliable energy. Without power, containment measures imposed by governments would have made life unbearable. Access to electricity has enabled people to work from home, schools to provide online classes, and governments to continue functioning (for example, through online court systems).
Electricity also helps provide clean water for washing hands — one of the important guidelines for reducing the spread of coronavirus. Recent electrification efforts in sub-Saharan Africa have increased access to power for households and public institutions, including schools and hospitals. Importantly, electricity has enabled health facilities to run lifesaving equipment, including ventilators.
Reliable electricity, especially in rural areas, has been a major concern among healthcare experts during the coronavirus pandemic. Some governments, such as Kenya’s, identified schools to be turned into COVID-19 response centers should the regular health facilities be overrun by demand. Reliable electricity was one of the main considerations.
However, according to a 2019 report by the World Bank, close to 60% of sub-Saharan Africa’s healthcare facilities lack access to electricity. Further, out of those facilities connected to electricity, only 34% of hospitals and 28% of health clinics experience reliable power throughout the day. Additionally, more than 600 million people in the continent lack access to electricity, with more than 80% of them residing in the rural parts of the region.
Small businesses and poor and vulnerable populations in sub-Saharan Africa have been hit hardest by the pandemic due to limited capacity to absorb economic shocks. Recovery efforts, including in the energy sector, need to incorporate specific interventions targeted for these groups. Kenya’s lifeline tariff, introduced in 2018 to reduce electricity costs for low-income households and small businesses, is such an example.
Building resilience for both economies and people, as well as protecting infrastructure from future shocks, should be central to recovery efforts. Here are five reasons why African governments should consider energy access as they design their recovery plans:
1. An Opportunity to Transition Away from Fossil Fuels
Reduced oil demand due to COVID-19 has led to the biggest drop in the price of oil in the last 18 years — below $25 per barrel. This has negatively affected countries such as Angola and Nigeria, which depend on oil revenues to finance their national budget. While it is not clear when prices will recover, one thing is clear: Demand may not return to its previous height.
As countries adapt to the new normal of working from home and teleconferencing, we will see reduced fuel consumption due to reduced use of cars and air travel. Investments in the oil (and gas) sector will become low-return and high-risk, as most investors become uncertain of the future.
Further, as the international community seeks to meet climate change goals, global oil and gas prices will remain unpredictable, posing risks for many fossil-fuel dependent countries, including the risk of stranded assets. As African countries build their economies, diversifying investments away from fossil fuels will be the most strategic option, especially for ensuring future resilience.
2. Distributed Renewables Can Create Jobs While Providing Affordable, Reliable Energy
In addition to enabling access to energy, decentralized renewable energy — including “mini” electric grids powered by solar and wind energy, as well as standalone solar home systems — can create jobs. Power for All’s 2019 Powering Jobs Census identified that decentralized renewables accounted for 10,000 direct, full-time jobs in Kenya and 4,000 in Nigeria, and supported another 15,000 and 9,000 jobs in the informal sectors in Kenya and Nigeria respectively.
Viable and sustainable business models focused on powering available economic opportunities should be part of electrification strategies. Development organizations working with rural communities should develop shovel-ready energy access projects that can attract investment. On the other hand, as public facilities in rural areas, including health clinics, don’t attract investment easily, innovative business models can help support their electrification efforts.
In one potential model, targeted health facilities receive reliable electricity from sources like solar panels and generate additional electricity at a fee for nearby businesses. Blended financing models that include grants from development partners can minimize the risk for investors and help attract private sector financing. National and local governments should also allocate funding from their annual budgets to support these electrification efforts.
Data mapping platforms such as Energy Access Explorer can help policymakers, development partners and investors identify opportunities for electrification, as well as locally available clean energy resources to meet such needs. For example, an analysis from the tool reveals that 60% of the places where schools and hospitals in Uganda are situated have commendable potential for small-scale hydropower. Similarly, in Kenya, the platform reveals that 68% of the places where health and education facilities are located have significant potential for small-scale hydropower, while in Tanzania, almost the entire area containing schools and hospitals (98%) has high potential for solar, and 70% has potential for hydropower.
3. Energy Access Can Improve Agricultural Productivity
An integrated approach to recovery, which considers the connections between energy and other sectors, will be central in creating jobs and promoting resilient livelihoods. For example, agriculture continues to play a key role in sub-Saharan Africa’s economy. Maximizing agricultural productivity — with help from greater electrification — will enhance food security, create jobs and ensure resilience for the two-thirds of the population that depend on agriculture for livelihoods.
An analysis by McKinsey shows that with increased investment, including about $65 billion in irrigation and $8 billion in crop storage, huge potential exists to double or triple the region’s agricultural productivity. For example, installing solar-powered irrigation pumps on more farms could increase productivity and create local jobs. And electricity access would help power cold storage for harvested produce — thus increasing shelf life, while reducing food loss. However, this success would require investments in rural infrastructure, including road networks and decentralized energy systems.
4. Energy Infrastructure Can Boost Local Manufacturing
The COVID-19 pandemic has led to major disruption of global supply chains. With China as Africa’s main supplier for most manufactured goods, closure of factories and ports in the Asian country has significantly interrupted trade in sub-Saharan Africa’s markets.
Some African countries requested local companies to adjust their manufacturing capacities to produce face masks, simple ventilators and other medical supplies — previously perceived as not viable for local production. In addition to meeting the supply gap, this effort has retained jobs that would have otherwise been lost, particularly in the apparel industries.
As industries seek to shift manufacturing away from China to lower production costs, there is an opportunity for African countries to grow manufacturing exports. The recently established Africa Continental Free Trade Area will provide manufacturers in different African countries access to a market of about 1.2 billion people across the continent. National governments will also need to implement relevant policies and invest in infrastructure that will enable the realization of this dream.
This includes energy infrastructure. As reliable and affordable power is central for industrial growth, expanding access to energy for manufacturing will be a major prerequisite. According to a New Climate Economy working paper, on average, businesses in Africa lose about 4.9% of their annual sales due to power outages. Worse, unreliable power supply has been found to have major negative effects on the productivity of businesses, including manufacturing. Additionally, promoting industrial efficiency will be critical in reducing unnecessary energy consumption, as well as reducing carbon emissions from the industrial and electricity sectors.
5. Public-Private Collaboration in Energy Investments
According to the African Development Bank’s March 2020 report, Africa’s total debt was projected to reach $2.1 trillion in 2020 under the worst-case scenario. Although this figure was lowered following support from international financial institutions and other creditors, as well as debt relief from G20 countries, the continent still faces a substantial financing gap — upwards of $40 billion. Meeting the level of financing needed to support economic recovery efforts will require a raft of strategies.
More than ever, cooperation between the public and private sectors will be critical in harnessing the billions of dollars the African continent will require. The private sector will play an essential role in raising finance needed for investment in the energy sector, both for centralized electric grids and for distributed renewables. National governments must urgently adopt policies and regulations to attract private sector interest in the energy sector.
Development banks and multilateral development partners also need to signal where investment will be directed in the next few years, by putting resources into the clean energy sector. Philanthropic institutions need to supplement private sector financing for small but important renewable energy projects.
Further, national planning processes will be critical to ensure that renewable energy is built into countries’ climate and development plans, including Nationally Determined Contributions under the Paris Agreement and related Long-Term Strategies. This will help signal countries’ preference in green investment to funders and investors, including China’s Belt and Road Initiative (a large portion of which targets Africa’s energy and transport sectors).
Clean Energy Access: A Key Investment for Recovery
Lessons from previous economic recovery efforts, such as after the 2008 financial crisis, show that planners favor investments with immediate results. While this is understandable, governments should balance immediate needs with long-term priorities.
The COVID-19 pandemic has demonstrated Africa’s vulnerability to commodity shocks in oil and gas, and the importance of energy in sustaining populations and economies. Electrification is central for economic sectors such as manufacturing and agriculture to thrive. While grid extension will continue to play a major role, decentralized renewable energy systems bring access in areas where grid extension is not economically feasible.
Promoting access to affordable and reliable energy — particularly in the unserved and underserved parts of sub-Saharan Africa — will be key for the success of recovery efforts, both in the short and long-term.