Seeds of Opportunity: The African Growth Series
June 2022 | Issue 2
In this week's issue, you will learn more about:
- Private Sector Participation in Africa's T&D Sector
- Top Digital Banking Mega-Trends in 2023
- Digital Infrastructure in Cameroon
- AfDB Financing Boost for Kenyan Highway
- Africa's need for Net-Zero Building
Private Sector Participation in Africa’s T&D Sector
Africa’s power sector, the continent’s last building block for economic development, is in dire need of improvements suffering from inadequate maintenance, vandalism and theft and is likely to become a major bottleneck in the region’s attempt of raising the electrification rate. This is especially true for the African transmission and distribution (T&D) infrastructure, which has historically been a public monopoly and has not seen comparable investments like those made in privately financed independent power production projects. Historically, private power sector investment in Africa has focused largely on generation, mainly through IPPs, and to some limited extent on T&D, through public-private partnerships, concessions, and management contracts. Most T&D concessions in the region have been awarded in conjunction with broader unbundling efforts. But a push towards privatization of a state-owned industry may raise justified red flags locally. Policymakers may rightly be reluctant to invite foreign investment and control over their nation’s critical infrastructure. Only 10 of the 48 nations in sub-Saharan Africa (SSA) have vertically unbundled utilities, of which 6 have allowed private sector participation (PSP). State-owned utilities manage the energy T&D sector in the remaining 38 countries, although minor PSP is allowed in select locations with a narrowed scope of responsibilities. State-owned T&D systems have resulted in insufficient and inefficient national and regional transmission infrastructure development, poor connection between power supply and demand centres, and a lack of flexibility to integrate high levels of variable and intermittent renewable energy onto the grid. It has been estimated that nearly 50% of all future investment needs to be funnelled into the T&D sector and while private sector investment is critical to filling the gap, it requires adequate technical, regulatory, fiscal, and politically enabling environments. But Africa’s energy sector is filled with ample opportunities, home to several renewable resources and perfectly situated to leapfrog an expensive carbon-heavy generation and skip directly to sustainable, off-grid generation.
Top Digital Banking Mega-Trends in 2023
Before the pandemic, banks around the world were already working on increasing their digital channels. The pandemic however accelerated this trend as consumer preferences shifted due to physical branches being shuttered, and in-person interactions being limited. Going forward, the adoption of digital banking is likely to continue to grow, even beyond the pandemic as banks continue to increase their digital service offerings. Capitec Bank, one of South Africa’s largest banks has identified a host of innovations in the financial services sector that is likely to make the banking experience more efficient. Accordingly, by 2023, super apps, banking-as-a-service, behavioural banking and cyber security are some of the main trends that promise to make the future of banking fast, frictionless and personalised. Increased hyper-personalised banking through the use of machine learning, creating trust by reducing fraudulent activity and frictionless functionality are some of the mega trends banks will continue to prioritise in the near future.
Banks around the world have identified the benefits of digitisation and are beginning to investigate improved functionality that helps clients live better. By enabling digital banking, banks can create an ecosystem that offers consumers a simplified and personalised banking experience.
Digital Infrastructure in Cameroon
The deficit in the African digital infrastructure serves to the detriment of the continent. While growth in this sector would undoubtedly have a positive effect on the population at large, and the world economy in general, attention to this market has dwindled, leaving Africa on the global periphery. Although there is a degree of investment in Sub-Saharan Africa, other countries, such as Cameroon, have faced shortfalls in funding. In Cameroon, this is clearly evidenced by a 78% drop in investment in the digital market between 2016 – 2019. In order to foster this growth, the Ministry of Communications has drafted a digital transformation strategy to encourage investment into this sector of the economy. One clear target to remedy this slow growth (currently only at 1.3 million new users from 2020-2021) is to expand the national fibre centre by an additional 5,000 km. However, while the development of fixed communication lines and fibre infrastructure has been stunted, as well as fragmented internet penetration and inconsistent coverage, the mobile market has thrived. In fact, Cameroon currently accounts for 73% of the 1 billion e-payment transactions within the Central African Economic and Monetary Community (CEMAC) countries. Recognition of this opportunity is apparent in both the private and public sector through government encouragement of tech start-up incubation in Silicon Mountain as well as national, and international, business incubators. Recently, the Boris Bison Youth Empowerment Business Incubator, Ludique Works and Start North have collaborated to introduce 5G Mokki Tech Spaces across the continent. The fifth-generation service will provide internet users in the Cameroon with fast and reliable connection, furthering tech development and innovation. This partnership between companies from Africa and Finland indicates the promise for growth in this area and the space for opportunity while also highlighting the tech talent in Cameroon.
AfDB Financing Boost for Kenyan Highway
The state of the transport and logistics industry is a key point to address in the topic of Africa's economic progress. With much trade on the continent relying on road freight, the high costs of transportation and delays in vehicle turnaround (associated with inadequate and ailing infrastructure) are among key threats to the continent's overall trade potential. However, positive progress in some bottleneck road projects on the continent is now taking place due to new financing support. The Kenyan 84 km Kenol-Sagana-Marua highway is one key example. Recent announcements have shown that this Kenyan section of the Trans-African Highway project (initiated in 1971) will be completed in the next 6 months (two years ahead of schedule). The project was kickstarted by financing support from the African Development Bank in 2019. Key growth objectives linked to the project include road infrastructure improvement, job creation and trade efficiency for the local economy (particularly the fresh produce agricultural sector). AfDB's overall infrastructure support in Kenya since 2015 amounts to $4 million, which has been instrumental in driving the country's local economy. This is a testament of the role of institutional financing support in helping the continent achieve its growth objectives.
Africa's need for Net-Zero Building
The global building and construction industries were responsible for 39% of 2018’s total carbon emissions. This is broken down into 28% of operational emissions, which is the energy used to heat, cool and light buildings, and 11% of embodied carbon emissions which are associated with the materials and construction processes throughout the entire building lifecycle. Aiming for Net-Zero building in Africa's built environment industry is crucial to help reduce carbon emissions. The vast majority of urban areas and economic hubs on the continent exist near the coast and are exposed to natural disasters. Africa accounted for only 3% of cumulative global CO2 emissions in 2020, but the socio-economic impact of rising temperatures disproportionately affects the continent. An example of this is the projected decrease in the region's gross domestic product (GDP) to between 2.25% and 12.12% depending on how high global temperatures increase. The United Nations Office for Disaster Risk Reduction has estimated that the cost to rebuild structural damage caused by natural disasters could climb to USD 145 billion a year by 2030. Therefore, investing in Net Zero-compliant infrastructure is necessary to help fortify African cities against the changing climate. Companies are meeting this demand by developing technology to improve Net-Zero construction, from new software for Building Information Modeling (BIM), to improving prefabrication and 3D printing to name a few. An example is 14Trees, which specialises in printing 3D walls in 12 to 18 hours, which can speed up construction projects and reduce carbon emissions by up to 70% when compared to conventional construction methods. It is important to foster stakeholder engagement and build awareness around how Africa's construction industry holds a lot of opportunities to help meet Net-Zero objectives and this week's held by The Big 5 Construct Expos in Southern Africa is an example of such a platform.
To find out more about opportunities in Africa, please contact Lynne Martin.
