05 March 2016, Washington, D.C. — The Electrify Africa Act was signed into law on February 8. The law is aimed at rapidly expanding electricity in Sub-Saharan African countries to drive economic growth on the continent.
The Act seeks to strengthen Power Africa, a White House initiative to double access to power in Africa, by assisting African countries in implementing their national power strategies and develop diversified power solutions. The law is expected to reach more than 50 million people in Africa by 2020.
Power is one of those challenges to growth for business leaders operating on the continent. What does the Electrify Africa Act mean for African companies?
African boasts some of the world’s fastest growing economies and a private sector that is stronger than it has ever been. Without access to power, Africa’s global competitiveness and economic growth will continue to lag behind other regions of the world. Persistent power shortages are only adding to the high cost of doing business in Africa.
Simply put, the industry needs power to grow their businesses and create well-needed jobs on the continent.
We must, first, recognize that commodity-focused economies are no longer delivering big returns for Africa like they used to. Today, the continent must move beyond commodities to build economies that bring value addition through industrialization.
For African countries that have been exporting large amounts of commodities in raw form, the value addition chain will help them to diversify and create an environment that is conducive to both industrial production and trade, which translates into more jobs and more people moving into the middle class. Value addition also creates stability during times of low commodity prices.
Secondly, a new class of entrepreneurs is emerging, alongside technological advancements, increasing access to and affordability of power for African households through new business models that are tailored exclusively for African consumers.
Some business models are expanding power access in their countries by creating a swipe card or “pay-as-you-go” model that can be used for on-grid and mini grid households (i.e. M-Kopa). Others are developing a “point of use” power production for sale (to charge phones, for example) or generation for self-use (solar panels).
Thirdly, Power Purchase Agreements, known as PPAs, can help to accelerate the development of power generation projects. PPAs typically take an inordinate amount of time to negotiate in Africa and are the lynchpin for project financing.
IGD convened a task force of CEOs and senior executives, developers, investors, equipment manufacturers, and regulatory experts to develop a standardized PPA that will fast-track the time between the conceptual need and commercial operation date of new power facilities.
By creating a standardized PPA tailored to the needs of individual African governments, the view was that both transaction costs and project development time could be reduced. Eventually, it will lead to a greater number of bankable power projects in Africa, and African companies certainly stand to benefit.
Overall, the Electrify Africa Act is a step in the right direction. We must work to ensure that Africa’s born- and bred- companies are part of the law’s success.
*Dr. Mima S. Nedelcovych – Initiative for Global Development