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Power crunch from SA to Nigeria darkens outlook

May 29 2015 07:56
Daniel Magnowski and Olivier Monnier

Unlike load shedding, which is the controlled rotational shedding of electricity supply to prevent the chances of a complete blackout, a total blackout of the national power system would be a catastrophic event, an Eskom GM says. (Photo: Shutterstock

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Johannesburg - Africa’s crippling shortage of electricity is among the biggest threats to the continent’s economic outlook, delegates and leaders at a key banking conference in Ivory Coast said.

From Nigeria to Ghana, and South Africa to Zambia, inadequate power supply and the lack of infrastructure to deliver electricity is crimping economic growth, frustrating businesses and depriving millions of families of basic facilities. That’s undermining growth on the continent at the same time that falling prices for oil and commodities such as copper and iron ore force governments to cut back on spending.

“The energy deficit is a real obstacle to our development,” Alassane Ouattara, Ivory Coast’s president, said in a speech at the African Development Bank’s annual meeting in Abidjan, the commercial capital. “With abundant energy, Africa will be able to develop its industrial fabric and process its commodities.”

The AfDB, as the bank is known, estimates the continent needs investment of $93bn each year until 2020 to help fix power shortages and other infrastructure bottlenecks. The World Bank estimates that the 48 countries in sub-Saharan Africa, which has a combined population of about 800 million, generates almost the same amount of electricity as Spain, a nation of 47 million people.

Nigeria and South Africa, Africa’s two biggest economies, can’t produce enough power to meet demand, restricting growth and investment in those markets.

‘Big problem in SA’

“For everybody, energy is identified as the key constraining factor for growth, not only economic growth, but development and social growth,” Konrad Reuss, managing director for southern Africa ratings at Standard & Poor’s, said in an interview in Abidjan. “It’s become, even in South Africa, so prevalent, so big a problem.”

Eskom, South Africa’s state-owned power utility, is implementing regular rolling blackouts across the country following plant malfunctions and shutdowns due to maintenance. That curbed manufacturing output last quarter, causing economic growth to slow to 1.3% from 4.1% in the previous quarter.

In Nigeria, homes and businesses rely on generators rather than grid power, which works for only a few hours a day. Despite being Africa’s biggest oil producer, the West African nation has to import the bulk of its gasoline, diesel and kerosene. This week a severe shortage of fuel saw planes grounded, offices shut, and queues for gasoline reaching up to 18 hours.

Plant faults

The power shortage in Nigeria reduces the economic growth rate by as much as 1.5 percentage point, while in Ghana it restricts the rate by 0.5 percentage point, Jean-Louis Ekra, president of the African Export-Import Bank, said in an interview in Abidjan.

Last month a fault at a Zambian hydropower station caused a blackout there that disrupted copper production and cut supplies to large parts of Zimbabwe.

There’s appetite for investment, said Vincent Le Guennou, chief executive officer of Emerging Capital Partners.

“The main issue is the governance of the power sector in African countries,” he said in an interview in Abidjan. “When there is a precise framework, the money is not a problem.” His company has invested in the Ivorian energy sector, he said, while other territories remain too risky.

“Virtually every country has a power deficit,” Andrew Alli, the chief executive officer of Nigeria-based lender Africa Finance Corp, said in an interview in Abidjan.

While there’s demand for power, there’s not sufficient “bankable projects”, he said. “It’s not that banks are reluctant to lend to projects, the problem is that a lot of projects are generally more ideas than projects,” he said.

* With assistance from Baudelaire Mieu in Abidjan.

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