This is a guest post by Aala Abdelgadir, research associate for the Council on Foreign Relation’s Civil Society, Markets, and Democracy Initiative.
While on his Africa tour in June 2013, President Obama announced a new U.S. effort to expand energy access in Sub-Saharan Africa, where two thirds of the population are without electricity. The Power Africa initiative identifies and facilitates energy transactions between private enterprises and governments in African countries to generate 30,000 megawatts of new energy and reach 60 million households and businesses by 2020.
The U.S. government committed over $7 billion in financial support for the program to be disbursed over five years. The bulk of this pledge breaks down as follows: $5 billion from the Export-Import Bank (Ex-Im) to finance the export of U.S. products for African energy projects; $1.5 billion from the Overseas Private Investment Corporation (OPIC) in direct loans, guarantees, and insurance for U.S. private sector investments in African power; and $1 billion from the Millennium Challenge Corporation in the form of grants to improve power systems in Africa. The remainder will fund the U.S. Agency for International Development (USAID), the central coordinating body of Power Africa, and the eight other U.S. agencies providing technical and planning assistance.
The initiative has also leveraged more than $20 billion of commitments from the private sector, World Bank, African Development Bank, and Swedish government. After only a year, Power Africa has facilitated transactions that will generate about 3,000 megawatts of new energy.
Despite bipartisan support, international backing, and private sector buy-in, Power Africa has not been universally popular. Critics have expressed concern that the gains facilitated by Power Africa are merely commitments on paper and have neither translated into energy projects nor generated a single benefit to Africans. Furthermore, some claim that Power Africa is merely a way to subsidize U.S. companies’ entry into African markets. Indeed, between the $5 billion pledged by Ex-Im and the $1.5 billion by OPIC, the lion’s share of U.S. federal spending on Power Africa is geared toward the U.S. private sector.
Concern also abounds that Ex-Im will not be able to disburse its $5 billion budget, the majority of the U.S. contribution to Power Africa. Apparently, Ex-Im has only spent a small amount of its funds. Ex-Im has not been particularly active in Africa, financing only $1.2 billion worth of transactions in the African energy sector between 2000 and 2013. In contrast to Ex-Im, OPIC has made progress in whittling down its $1.5 billion mandate, with $300 million approved for projects in Kenya and Nigeria as of June 2014. Yet, officials claim that Ex-Im has a long list of Power Africa projects in the pipeline.
These concerns are important. It is imperative to ensure that energy transactions facilitated by Power Africa come to fruition. On the whole, Power Africa is a boon for Africans.
U.S. private sector companies that get involved in the African energy market will certainly benefit, but completed projects will also benefit African citizens and communities. Besides, U.S. companies need incentives and assurances to offset the risk associated with business in Africa. Ultimately, private sector involvement is imperative to achieving universal electrification in Africa, a task simply too large for governments. Indeed, the International Energy Agency (IEA) estimates that $15-20 billion of investments would have to be made every year until 2030 to electrify Africa. U.S. companies are well positioned to invest financially and can also contribute the technology and expertise. To this end, Power Africa has increased interest in the continent’s energy potential and is contributing to a rise in investments from the U.S. and African private sectors.
At this point, Power Africa represents great potential for advancing energy access in Africa. The initiative has deep pockets and a wide array of dedicated private, governmental, and nongovernmental partners. Whether Power Africa can transform that commitment and political will into greater energy access remains to be seen.