US President Barack Obama returned on July 2 from his first extended trip to Africa, following a trip to Ghana in 2009. This six-day trip to Senegal, Tanzania and South Africa highlighted economic growth and development, as well as US-Africa economic and trade policy. President Obama used the visit to announce the framework for a signature initiative, Power Africa, aimed at improving electricity generation in African nations. The details of this initiative have yet to emerge, leaving a question whether it would be truly additive in addressing the significant shortfall of electricity across the continent. However, there appear to be opportunities for US and other businesses to help shape the policy content of the Power Africa initiative and, in turn, to benefit from the public-private partnerships necessary to alleviating the power sector constraint on Africa's growth potential.
Despite its suboptimal power sector and other structural impediments, Africa has become the fastest-growing continent on the globe. This dramatic change in relative economic prospects on the continent has demanded a new engagement by the US government. In our view, the issue goes beyond the visibility of the presidential visit—then-Secretary of State Hillary Clinton was notably very present on the continent during the Obama administration's first term. Rather, the question has been whether the administration would advance new policy initiatives beyond the approach of the first term, which largely focused on security concerns and continuing programs initiated by Presidents Bill Clinton and George W. Bush.
Power Africa
On June 30, in South Africa, President Obama unveiled the framework for a new "Power Africa" initiative. With more than two-thirds of sub-Saharan Africa's people lacking access to electricity (in rural areas, the share is 85 percent), Power Africa recognizes that limited access to power is also the number one obstacle businesses face on the continent. Power Africa aims to double the number of people with access to electricity in the region and to add more than 10,000 megawatts of clean, efficient energy generation capacity.
The Power Africa initiative takes a holistic approach to power production, emphasizing domestic resources, such as oil and gas reserves, while also incorporating geothermal, hydro, wind and solar energy sources. The initiative will also work on expanding power grids and increasing the infrastructure for power generation and transmission. The first partner countries for the initiative are Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. Additionally, Uganda and Mozambique will partner with the Power Africa initiative on responsible oil and gas management, with an increased focus on transparency and accountability.
The president announced that the US government would commit over US$7 billion in financial support over the next five years towards the Power Africa initiative. These funds likely represent a reallocation of funding to the initiative, rather than additional total funding through the relevant US government agencies. Just as importantly, in an atmosphere where both the US Congress and the American public lack the appetite for funding new government programs overseas, the Power Africa initiative also seeks to leverage private sector participation, including US$9 billion in initial investment commitments from some of the world's leading power and finance companies. While these investments will go some way toward improving energy infrastructure in Africa, the International Energy Agency estimates that sub-Saharan Africa will require more than US$300 billion in investment to achieve full electricity access by 2030.
The Power Africa initiative is intended to provide incentives to host governments, private investors and donors to accelerate progress in the development of Africa's energy sector. To that end, the initiative provides for a US Interagency Transactions Solution Team which will leverage financing, insurance, technical assistance and grant tools from across the public and private sectors in order to bring in and develop power and transmission projects.
"Plug Africa Into the Grid of the Global Economy"
When announcing Power Africa at the University of Cape Town, President Obama stated: "We believe that nations must have to power to connect their people to the promise of the 21st century. Access to electricity is fundamental to opportunity in this age. It's the connection that's needed to plug Africa into the grid of the global economy."
Although the specific details of this program have yet to emerge, Power Africa represents an attempt to identify a potential legacy program that will help alleviate the electricity crisis on the African continent and create business opportunities for US companies.
As investors from around the world continue to increase their focus on Africa, now is a critical time to consider opportunities on the continent. For more information on strategies for entering African markets—and overcoming obstacles—see " Investing in Africa: More Than Meets the Eye".
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