Seeds of Opportunity: The African Growth Series
July 2022 | Issue 3
In this week's issue, you will learn more about:
- Africa's Diverse Electricity Generation Portfolio
- An IFC Loan used to Construct a Recycling plant in Gauteng, South Africa
- Healthcare and Electricity in Sub-Saharan Africa
- The US$180 Billion Internet Opportunity in Africa
- South Africa's Export Highs and GDP Recovery
Africa's Diverse Electricity Generation Portfolio
Africa is a diverse continent and not a country. While this is a reasonably logical statement, the world often misrepresents Africa as a uniform region where one size fits all approach can be applied. However, Africa is a hugely diverse continent from a social, cultural and economic perspective and more intricate industrial levels such as the power sector. Africa’s energy generation portfolio ranges from natural gas as the primary feedstock source in North Africa to hydropower in central and East Africa to coal in South Africa. Overall, Africa’s energy landscape is dominated by fossil fuels because of North and South Africa’s heavy reliance on natural gas and coal. However, recent investment trends recently added capacity trends, and investment pledges by global development agencies and private investors indicate that this generation landscape will change in the near future. Investors are increasing emphasis on funding renewables such as solar PV, wind and hydropower, which are set to become the primary source of electricity by 2030. However, Africa is facing a proliferating energy crisis. The continent is the fastest growing region in the world, growing annually on average by 2.5%, double the global average rate and is expected to be the home of 1.7 billion people by 2030. This will create a demand by 2030 double that of today’s, which the capacity supplied by renewables alone won’t be able to meet. Africa, therefore, needs country by country approach with some sort of base load supply capable of meeting this growing demand. This supply needs to be coupled with modern transmission and distribution networks capable of transferring the generated capacity to the end-users. Africa’s energy sector is in a unique position compared to the rest of the world, facing an opportunity to leapfrog expensive outdated carbon-heavy technology and invest straight into modern, clean supply, positioning itself as a provider of clean energy not just to its people, but also use this opportunity to establish the supply of renewable energy to the rest of the world.
An IFC Loan used to Construct a Recycling plant in Gauteng, South Africa
An integrated waste management company, Averda has secured a loan from the International Finance Corporation (IFC) to support waste management in emerging markets. This USD 30 million loan is expected to help deliver climate–changing benefits through private – sector-led integrated waste management services. The investment is expected to help Averda accelerate other sustainability projects, with a portion of the loan already being used to support several existing sustainable waste management projects in Oman, Morocco and South Africa. In South Africa, a part of this loan is being used to fund the construction of a new plastics recycling plant in Rosslyn, Gauteng. This plant will enable Averda to reduce the amount of waste sent to landfills while increasing the volumes of waste composted, recycled, and transformed into energy, contributing to South Africa’s circular economy. This plant, which will be operating at the end of this year, aims to process 12,000 t/y of high-density polyethylene (HDPE) and low-density polyethylene (LDPE) and convert them back to reusable A-grade plastic pellets. Averda’s customers will use these pellets to remold or extrude new products.
Healthcare and Electricity in Sub-Saharan Africa
In 2021, over 50 thousand healthcare facilities across Sub-Saharan Africa (SSA) struggled to have reliable access to electricity. That year, over 80% of those facilities in countries such as Mauritius, Madagascar, the Central African Republic and Chad did not have access to electrical energy. Investing in constructing decentralised photovoltaic systems in rural areas can increase the access to electricity for healthcare facilities and create infrastructure for rural homes to power devices they can use for remote healthcare services. The benefits of remote healthcare through a mobile device are reducing the workload on the physical facilities, enabling the training of health personnel in remote areas and saving the patient time and money associated with travelling to remote facilities. Power Africa is one of the SSA's off-grid energy infrastructure projects backed by the US government. The project aims to add more than 30 thousand megawatts of new electricity generation capacity throughout the region by 2030. Power Africa has awarded over $3 million in grant funding to electrify over 250 health facilities in ten of SSA's countries. The project’s goal is to facilitate 60 million off-grid electricity connections to more healthcare facilities, rural homes and businesses. Remote healthcare startups, such as Ugandan-based Rocket Health, are growing alongside the increasing electrification of the SSA. The startup has 30 doctors and multiple delivery drivers who offer remote healthcare services to their 40 thousand active customers. Rocket Health raised $5 million in a Series A in March 2022 and plans to use the funds to take on the pan-African marketplace by scaling into Kenya.
The US$180 Billion Internet Opportunity in Africa
While the Covid-19 pandemic stagnated sectors across the world economy, it highlighted the resilience and necessity of the internet and digital markets in Africa. The digital opportunities are broad across the continent, with over 700,000 professional developers working within this sector. The market is not concentrated to one country. Instead, it is neatly fragmented between North, South, East and West Africa, where over 50% of these professional developers are working. In addition, there has been a shift in the industry in Sub-Saharan Africa to allow for the inclusion and upliftment of female coders within this cohort, reflecting a positive trajectory in the dynamics of this sector. As such, women now account for 30% of the industry. The growth of this market is driven by a myriad of factors, including public and private sector investment, policy adjustments, strong developer talent and private consumption. The high usage rates of the Internet in Africa are most accurately reflected in the mobile internet traffic rates, whereby Africa was ranked highest in the world – 3% above the global average. A true reflection of the growth in this market is MaxAB, one of many emerging tech start-ups. MaxAB, a retail ‘super app’ founded in Egypt, offers e-commerce solutions by re-engineering the retail market with innovative supply chains and creating an all-in-one platform for e-commerce, Fintech and data analytics. In 2021, the start-up raised over US$40 million for expansion to disrupt logistics operating within FMCG through technology, indicating the growth and opportunity in this space. Across the continent, Africa is experiencing massive start-up funding and development, indicating a large space for growth and opportunity in this sector.
South Africa's Export Highs and GDP Recovery
South Africa's macroeconomy and international trade have fortunately remained strong in the midst of several economic woes, the global and local economy has faced in 2022. Recording a cumulative value of exports of R791 billion during the first five months of the year, the country has set its new record in the last ten years. In June, new vehicle sales alone recorded a 7% increase in the domestic market and 18% (YoY) export sales. Stats SA reported a 1.9% expansion in GDP in Q1 of 2022, with eight out of ten industries recording positive growth in GDP production. Manufacturing was the key highlight industry (particularly in petroleum & chemicals, food and beverages, metals and machinery), while construction and mining contracted in Q1.
Overall, the closing figures for the first half of 2022 speak to remaining business confidence in South Africa from that foreign investor, riding on the prospects for securing sustainable growth, despite the daunting challenges that remain. Renewed investor faith in the country’s economic future has was also strengthened by the gradual implementation of market-friendly reforms in recent years. With one of its worst energy challenges at hand, many eyes are on the outcomes of recommendations made by the National Planning Commission to review the deregulation of South Africa’s energy supply chain.
To find out more about opportunities in Africa, please contact Lynne Martin.
