OromianEconomist

Africa Progress Panel: WORLDS APART Range of time Viewed from Africa, energy use patterns in rich countries represent another universe June 26, 2015

Affordable and reliable electricity underpins every aspect of social and economic life. But Sub-Saharan Africa has an energy crisis that demands urgent political attention. Two in every three Africans, around 621 million in total, have no access to electricity at all.

Ethiopia, with a population of 94 million, consumes one-third of the electricity supplied to the 600,000 residents of Washington D.C. Greater London consumes more electricity than any country in Africa other than South Africa. By international standards much of Africa’s energy infrastructure is dilapidated, reflecting several decades of under-investment. According to the IEA, the average efficiency of Sub-Saharan Africa’s gas-fired power plants is around 38 per cent. Similarly, most of Africa’s coal-fired power plants employ sub-critical technologies, rather than the super-critical technologies that could generate far more electricity from the same amount of fuel. Recent super-critical coal-fired power plants built in China generate on average 30 per cent more electricity than those operating in Africa. Economic growth has intensified pressure on Africa’s creaking energy infrastructure. One symptom of that pressure is a boom in leasing of emergency power. Unable to meet base-load demand through the grid, governments are turning to high-cost energy providers using technologies designed to meet emergency needs. Low levels of power generation are both a symptom and a cause of wider development challenges. In part, Africa’s limited power generation is the product of low average incomes. But it is also a contributory factor in keeping incomes low. In that context, the widening energy gap between Africa and other regions is a matter of concern. There is a very real sense in which today’s inequalities in energy are tomorrow’s inequalities in economic growth, international trade and investment.

DISCONNECTED AFRICA APP_REPORT_2015

Unreliable power supply has created a buoyant market in diesel-powered generators. Around 40 per cent of businesses in Tanzania and Ethiopia operate their own generators, rising to over 50 per cent in Kenya.15 In Nigeria, around four in every five SMEs install their own generators.16 On average, electricity provided through diesel-fuelled back-up generators costs four times as much as power from grid.17 Diesel fuel is a significant cost for enterprises across Africa, even in less energy-intensive sectors such as finance and banking. According to McKinsey, diesel fuel represents around 60 per cent of operator network costs for mobile-phone operators.18 High cost and unreliable supply add to the cost of doing business in Africa, with damaging consequences for economic growth, investment and tax revenues. The World Bank has estimated the losses at 2-4 per cent of GDP.19 Lack of reliable and cost-effective electricity is among the top constraints to expansion in the manufacturing sector in nearly every Sub-Saharan country.20 Small and medium enterprises account for most of the job creation but face particularly severe problems, with around half citing the high cost and unreliability of supply as a barrier to enterprise development. Lack of electricity reinforces the poverty trap Restricted access to electricity has direct and damaging consequences for household poverty. Africa’s poor typically pay higher unit costs for energy than the rich. This is partly because the rich are subsidized, but also because the poor use inefficient energy sources including batteries, candles, and charcoal.If the poor could use more efficient energy sources they could reduce the share of income that they spend on energy and free up resources for other priority areas. It could also reduce the amount of time that women and girls spend collecting firewood and cooking. Households across Africa, including very poor households, spend a significant share of their income on energy. Data from 30 countries showed that the average share of household spending directed to energy was 13 per cent.21 The poorest households typically spend a larger share of their income on energy than richer households. In Uganda, the poorest one-fifth allocated 16 per cent of their income to energy, three times the share of their richest counterparts. Women and girls spend a lot of time collecting firewood and cooking with inefficient stoves. Factoring in the costs of this unpaid labour greatly inflates the economic costs that come with Africa’s energy deficits. Estimates by the World Bank put the losses for 2010 at US$38 billion or 3 per cent of GDP.

DISCONNECTED AFRICA APP_REPORT_2015