By Terje Osmundsen
The Coronavirus pandemic has left Africa’s economies bleeding. After 25 years of uninterrupted growth, gross domestic product in sub-Saharan Africa is expected to contract this year, forcing millions into unemployment and poverty. The need for a post-pandemic recovery plan for Africa is becoming ever more urgent.
There will be no sustainable growth in Africa unless the recovery efforts address the Achilles heel of most African economies, which is the lack of manufacturing and technology-related jobs. Despite overall growth in manufacturing production in the last two decades, the share of manufacturing in the gross domestic product (GDP) of the countries of sub-Saharan Africa declined from 18% in 1975 to 11% in 2018. Similarly, the share of manufacturing in the countries’ total employment fell in the same period.
Businesses in Africa suffer from the world’s highest costs of electricity. Solar PV on the user’s site can slash energy costs, improve competitiveness and create hundreds of thousands of jobs, but government regulations are holding investments back.
High cost of electricity
Businesses of Africa are penalized twice in terms of electricity, firstly by paying more for grid electricity from the grid than businesses elsewhere, and secondly for having to pay for diesel back-up power when the grid is not working.
Starting with the first, I was surprised to discover how much Africa’s businesses pay for the electricity from the grid. As shown in the table below, businesses in nine of the selected ten East and West Africa countries pay 25-100% more for the electricity they get from the grid than businesses in other parts of the world. The world average end-user tariff for businesses in 2019 was $0.12 per kWh. The same year businesses in Kenya paid $0.18 per kWh, and those in Uganda $0.16 per kWh. As for West-Africa, a recent comparative study by ECOWAS reports that the tariffs paid by businesses there ranged from $0.16 per kWh in Nigeria to $0.24 in Senegal and Guinea respectively. The business tariff in Ghana was $0.19 and in Ivory coast $0.17 per kWh.
Adding to this the second handicap: As a result of regular power outages, businesses across Africa – and in particular in West Africa – have become heavily reliant on diesel back-up generators. A recent World Bank study estimates that energy users in sub-Saharan Africa spend on average more than 30 % of total energy cost on fuel for back-up generators, although gensets only account for 7% of the total electricity supplied. In parts of sub-Saharan Africa, the spending on fuel for back-up generators account for more than 50% that of spending on the grid, at a cost of 0,40 $ per kWh or more depending on local conditions and logistics.