Seeds of Opportunity: The African Growth Series
November 2021 | Issue 4
In this week's issue, you will learn more about:
- The Energy Transition in Sub-Saharan Africa.
- How Road Construction is a catalyst for economic growth in South Africa and its surrounding regions.
- South Africa's Light Vehicle Export Market and the need to change its local production capacity away from ICE vehicles and towards EVs.
- Structural changes within South Africa's Rail Industry and how this will strengthen the economy.
The Energy Transition in Sub-Saharan Africa
To raise the electrification rate of the African continent, African countries have been supported by developed nations through investments driven by agendas such as the Sustainable Development Goals targeting modern, reliable, and clean energy for all by 2030. The UN Human Development Index (HDI) includes a measure of electricity consumption per capita, effectively enabling countries to be assigned to one of three categories: Low-Watt (<1 MWh), Transition-Watt (>1 - <4 MWh) and High-Watt (>4 MWh) countries. But what needs to be considered is the population size in these categories. The low-watt countries are home to 3.3 billion people, with over 600 million in Africa alone, representing about 45% of the global population. The high-watt countries account for a population share of just 19%, or 1.4 billion people. The UN has set the Human Development Index dividing line between developed and developing countries at 4,000 kWh per capita. Sub-Saharan Africa’s (SSA) and Africa’s HDI sits at an average low of 474 kWh/capita and 600 kWh/capita, respectively, well below the World’s average at 3,520 kWh per person per year.
Figure I (a) – Electricity consumption per capita by country; Figure I (b) – UN HDI split by population
Effectively bringing any form of electricity despite it being modern, reliable, and clean electricity to nearly 3.3 billion people simply reflects the magnitude of this challenge. In terms of energy transition, this is a considerable problem. The population in the low-watt category, when confronted with either generating and consuming electricity with a considerably high carbon footprint or facing energy-poverty will without a question choose the former. The developed world needs to take responsibility and ensure that this generation is done as cleanly and modern as possible.
Foreign Direct Investment (FDI) that is funnelled to developing regions is shifting away from carbon-heavy sources towards more renewable and environmentally friendly options. This is a great driver of the energy transition, effectively allowing developing regions such as Africa to leapfrog investments into coal and develop renewables from the get-go. The continent is enriched in natural resources, spanning from vast renewable opportunities over natural gas to new technologies such as battery energy storage systems and green hydrogen. The opportunities are plentiful.
The issue with renewables, however, are the operational limitations and subsequent requirement to be coupled with some sort of battery energy storage systems (BESS), most prominently Lithium-Ion Batteries (LIB). Despite the already registered drop in LIB prices by 88% between 2010 and 2020 and forecasted further decline, energy storage prices remain high.
Figure II – Lithium-Ion Battery historical price trend from 2010 to 2020 and projected to 2030
For renewables, which generally are classified as peak load energy resources, to work 100% effective, a base load source is required. The ideal source for this is natural gas, an abundant resource in Africa which would further qualify the region to become a key exporter of gas to the international market. An additional benefit of natural gas is the possibility of retrofitting the plants to run on green hydrogen, which has currently been identified as the cleanest energy source especially for the European market that heavily relies on its current gas supply from Russia.
Alternative voices have been raised supporting nuclear power as a baseload source. Nuclear power technology has come a long way since Chernobyl and Fukushima in terms of safety, however, there are some factors that challenge the suitability of nuclear power on the African continent. The main issue is the astronomical capital expenditure costs associated with this resource. Nuclear power agreements have historically been shrouded with secrecy but estimated total costs of one plant is around $25-30 billion, a sum way out of an average African country’s fiscal possibilities. African countries would therefore have to take out loans, which are typically structured in a way that repayments start between 10-13 years after the loan is made and continue annually for 22-28 years thereafter. Once these installments kick in, consumers will be faced with a massive burden with annual interest rates potentially reaching up to 40%.
In conclusion, Africa needs to be supported on its path to secure stable, feasible, reliable and clean energy. Ideally through the combined use of peak load renewables (Solar PV/Wind), energy storage solutions and natural gas as a base load source until green hydrogen becomes commercially available.
Sources: Frost & Sullivan, NBEF, The Conversation, IEA, UN, IRENA
How Road Construction is a Catalyst for Economic Growth
Road infrastructure can be synonymous with arteries. They are the arteries through which the economy pulsates through, connecting producers to markets, workers to jobs, students to schools and the sick to hospitals. Road infrastructure is therefore vital to any development agenda as its development is critical for fostering economic growth while improving the living standards of Africans. This is the reason why the African Development Bank has earmarked road construction and infrastructure development as one of its 5 transformative agendas across Africa. While improved road infrastructure connects people, it is also a catalyst for economic growth, creating jobs, improving traffic and road safety while improving the socioeconomic standard of its surrounding communities. Roads further assist people in need, especially when it comes to emergencies and gaining access to medical facilities. Particularly those in underdeveloped communities that are far away from hospitals.
To find out more on how roads can be a catalyst for economic growth in South Africa and the surrounding region, join me as I present at the Roads Evolution Forum and Showcase Conference on the 29th of November 2021, at the Inkosi Albert Luthuli International Convention Centre Complex (Durban ICC).
Book your delegate seat today. https://lnkd.in/datt-894
#transportevolution
.png)
South Africa’s Light Vehicle Export Market
South Africa’s light vehicle production is facing an immediate crisis. Around 64% of all locally produced vehicles are exported. The majority of the exported 64% is destined for the European Market, with nearly 50% being exported to the UK alone. However, the UK as well as other major EU export markets such as Germany will no longer permit the importation of Internal Combustion Engine (ICE) Vehicles with the intent of moving fully towards Electric Vehicle (EV) or Plug-In Hybrids (PHEV). South Africa now needs to change its stance on its local production capacity away from ICE vehicles and towards EVs. While the DTIC has drafted a green paper on the advancement of battery powered vehicles in SA, by first developing hybrid and eventually full EV production capabilities. However, there still exists a significant price gap between EV and ICE engines in SA. The OEMs alone cannot shoulder the investments in the local EV market alone and rely on the government to lower the import tax on EVs to create a local demand market while creating further EV export incentives. Further hurdles that need to be addressed include loadshedding and the lack of sufficient charging stations. However, despite these drawbacks, South Africa is uniquely positioned to take advantage of the growing global EV trend and has the opportunity to position itself as a key producer and exporter of EVs. The country has the required infrastructure, skills, trade agreements and resources to facilitate battery production and, eventually, EV and PHEV production.
Strengthening South Africa's Rail Industry
South Africa’s Rail industry will undertake some structural reforms, which have already been recognised as a key step forward towards economic recovery and sector growth. Amongst these reforms is the announcement of third-party access to South Africa’s rail system. South Africa’s rail network, is among the world’s top 20 largest networks (ranking 11th ). Until now, State-owned entity, Transnet has been the main operator of this network system. Pre-existing challenges with infrastructure maintenance and networks operation (related to policies and management) were further exacerbated by Covid-19. This magnified the call to diversify management of the network through third-party operations. As of 2022, third-party access will be granted to private operators, who will be able to operate some of the core rail networks. The private operators will pay access fees to Transnet, simulating the toll-gate road system. Overall, the bigger picture of the reform is looking brighter on most fronts as it will foster upstream job creation, unburden road networks as millions of cargo will move from the road to the rail and is a faster, cleaner, and cheaper alternative. Some key market players like Traxtion are already gearing up to take hold of this opportunity, with the ability to service over 300 locomotives. It is now vital that government follows through on their end of the bargain in 2022, to ensure the economic and sector recovery we all wish to see.
To find out more about opportunities in Africa, please contact Lynne Martin.
