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Risk Profile – Sub-Saharan Africa Energy

21 April 2017

The UN's Sustainable Development Goals acknowledge the central role of energy in economic, political and social development. They challenge governments to ensure access to affordable, reliable, sustainable and modern energy for all their citizens by 2030. This will be hardest in Sub-Saharan Africa, where economic ambitions have been frustrated by chronic electricity shortages. These shortages are increasingly viewed by citizens as symptomatic of the region's struggles with securing quality development and governance.

The political implications of utility failures were illustrated in Ghana, in the recent electoral defeat of President John Dramani Mahama. The president had become known as Mr Dumsor, or Mr Power Cut, following increasing costs and load shedding, the practice of scheduling blackouts. His loss reflected the country's frustration with austerity measures, rising inflation and weak economic growth. The nation is counting on the arrival of natural gas production and infrastructure to pay for an improved electricity distribution network.

Ghana's shortages were partly driven by poor rains into Lake Volta, which provides over half of the country's electricity. Climate-change and disrupted weather patterns present heightened economic risks for the region, which is highly dependent on hydropower. Malawi relies on three dams supplied by the country's only river, and experienced a devastating humanitarian crisis due to drought during the El Nino weather cycle last year.

Just as climate change can compound energy and humanitarian crises, increasing pressure on utilities can escalate geopolitical risks. In East Africa, Ethiopia's construction of the massive 6,000 megawatt Grand Ethiopian Renaissance Dam promises to more than double the country's capacity, turning the country into an energy exporter. This project has increased tensions with its downstream neighbours. Egypt, Sudan, South Sudan and Ethiopia all face considerable political challenges, and as population growth on the banks of the Nile outstrips the river's supply, hydropower projects pose a threat to standards of living.

Beyond physical constraints, state-owned utility companies across the region struggle with high indebtedness and governance issues, which drain funds from long term projects and shifting the shortfalls onto citizens and governments in the form of subsidies and high prices. For instance, Madagascar's energy crisis has been exacerbated by huge operational and fiscal problems at JIRIMA, the state utility company. While many countries, including Madagascar, have looked to hydrocarbons to supplement demand, established oil exporters like Nigeria and Gabon suffer load shedding too.

Although both international development agencies and private investors aim to expand Sub-Saharan Africa's capacity, the region faces great obstacles to energy security and independence with demand and the increasing disruption of climate change. As nations and their sponsors rush to drive development, their exposure to the risks involved in increasing their capacity is considered the price of development on their own terms.