Lagos — The El Niño-linked drought that parched Southern Africa in 2024 emptied one of the most important pieces of energy infrastructure on the continent. Lake Kariba, which stretches across the border between Zambia and Zimbabwe, dropped towards some of its lowest usable levels in years as rainfall across the Zambezi basin dwindled. In Zambia, the consequences were felt through a power system closely tied to copper production and mining expansion, while in Zimbabwe the pressure exposed the limitations of an already strained and aging generation fleet.
The drought was perhaps the clearest recent example of how the same event can carry profoundly different implications from one African country to the next, and why risk across African energy projects similarly cannot be approached through a single lens.
There is little doubt that Africa’s energy sector has become one of the world’s most significant long-term investment opportunities, but this premise is often discussed in ways that imply a degree of uniformity that does not actually exist. Investors may speak about “Africa” collectively, yet projects ultimately move through individual jurisdictions with very different realities.
In South Africa, for example, a renewable-energy investor is often less concerned with whether private generation is politically acceptable than whether a project can physically connect to the grid at all, particularly in the country’s strongest wind and solar corridors where Eskom’s own transmission assessments show much of the available grid capacity has already been depleted. In
Nigeria, the same investor encounters a very different problem: tariff politics, foreign-exchange volatility, and weak distribution-company collections that have been shown to destabilise project economics.
These differences become even more pronounced where projects depend on regional infrastructure and cross-border electricity trade. Power interconnectors may link multiple markets, but their implementation is often shaped by regulatory and operational conditions that differ from one jurisdiction to the next. For investors, this means risk cannot be assessed solely at either a country or continental level; it requires both a local understanding of individual markets and a regional perspective on how those markets interact.
That is why when advising investors now, particularly those coming into African energy markets from outside the continent, the term that comes up more and more is jurisdiction-specific risk management.
Technically, this means structuring projects around the regulatory, financial, political, and operational conditions of the individual market in which they are being developed, rather than applying a standardised risk approach across multiple African countries. That can influence everything from project financing structures and currency hedging to offtake arrangements, tariff assumptions, political-risk cover, transmission planning, and the way investors engage with the wider institutional environment over the life of the asset.
For many investors, that level of localisation has not always been a given. But perhaps one recurring theme changing that perception now is financial-market risk.
For example, it is easy to treat foreign-exchange (FX) risk as a single, universal challenge, but
it plays out very differently across markets. It depends on the depth of currency liquidity, access to local currency funding, and the rules around convertibility and dollarisation. In stronger systems, investors can manage exposure with some predictability, while in others, thin markets and restricted convertibility make hedging difficult or, at times, impractical.
Interest-rate risk presents a different challenge: the maturity of local benchmark rates. Where credible, long-dated benchmarks exist, investors can price and structure long-term projects with greater confidence, but where they do not, the absence of reliable reference rates limits the ability to manage financing costs effectively, adding another layer of uncertainty to project viability.
Hedging has become one of the most important tools for managing foreign-exchange exposure, particularly in markets where currency risk can undermine a project long after construction has been completed. Yet many of the conventional hedging instruments commonly used in more developed markets are not always practical or affordable in the African context. There are areas where currency convertibility constraints and thin derivatives markets make long-term protection against depreciation difficult to secure, while local currency financing is often limited or unavailable at the scale and tenor large infrastructure projects require. That creates a difficult mismatch for projects earning revenue in local currency while carrying debt exposure tied to dollars or euros.
What has emerged instead is a much more adaptive approach to managing currency exposure. In some markets, convertibility mechanisms are facilitated directly by central banks or structured through commercial banks with central bank backing, offering protection in jurisdictions where local capital markets are limited. In others, developers are relying more heavily on contractual structures that align pricing, payment terms, and currency exposure in ways that reduce vulnerability over the life of the asset.
As renewable investment scales across the continent, conventional risk tools will need to be complemented by market-responsive strategies that reflect the institutional and financial realities of each context.
One of the biggest mistakes that can be made here though is treating risk management as something largely resolved once a project reaches financial close. Energy projects can operate for decades, while market conditions around them may change several times over during that period. That is why active management is becoming such an important part of how investors approach these projects today.
The further renewable investment scales across the continent, the harder it may become for investors to rely on broad continental assumptions in place of a deep understanding of how individual markets actually function over time.
*Vuyo Mafrika (Head: Global Markets, Client Solutions – Africa Regional Offices), Chewe Chumanya (Bank Manager, Absa Zambia), and Opy Ramaremisa (Head: Client Solutions – Absa CIB).
