Development Finance Impact Project – Digital ArtifactTopics: Financing technology for African countries

Before the introudction, what do you think of the living standard in Africa?

Background

In the past ten years, Africa is experiencing a strong growth in economic performance, as well as the increasing energy demands across the continent. Unfortunately, power supply has not kept pace. It has become imperative to take definite steps to end energy insecurity and to set Africa on a sustainable energy path. Given its abundant natural resources and the many innovative environment-related financing instruments available, Africa has the opportunity to grow under a low-carbon, clean energy path that not only bridges its energy gap, but also attracts significant private investment in the energy sector in support of strong growth, job creation, and poverty reduction on the continent.

What are the problems the Africans are facing?

Commerical Banks are rarely invest on African renewable resources technology. And local financing is sometimes available but it is either too expensive or they are only willing to lend for five or six years. Tenors are a real issue in project finance deals where you have to go out 15 to 17 years in order for the financing of the project to work. Local banks can typically not provide that kind of tenor.

Currently, the requisite licences and consents are obtained under different pieces of legislation and from different government departments with different timings and procedures. A single umbrella legal framework for renewable energy procurement with a‘one-stop shop’ government department for licenses and consents would make the bidding process more efficient and this would also help reduce the costs associated with liaising with different departments.

Possible policy recommendation

• Enabling smaller scale projects to gain a foothold in Africa’s emerging renewable energy industry.

• Create incentives for new technologies: African governments should help promote the development of local green technology industries and encourage the transfer and diffusion of technologies from other parts of the world. For example, Ghana ceased subsidizing petroleum products in 2005 and diverted those resources to developing clean technology. This has the benefit of lining up with the 2009 G20 pledge to phase out subsidizing fossil fuels in the medium term.

• To relax import barriers, such as high import duties on products used in renewable energy production. Yet another option could be to promote the domestic production of renewable energy components, like solar panels or wind turbines, to ensure sustainable development of green technology domestically

Conclusion

• Given the urgent and enormous financing needs, a mixture of financing instruments/sources will be needed to address them. The private sector will need to contribute and innovative sources of financing will need to be found.

• At the same time, the public sector has a vital role to play, also through crowding in private resources.

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References

African Development Bank Group, Financing of Sustainable Energy Solutionshttp://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/C-10%20Note%203%20English%20(final)_for%20posting.pdf

Clean Energy Pipeline, Clean Energy Africa Finance Guide (2015 Edition)http://www.cleanenergypipeline.com/Resources/CE/ExpertGuides/CleanEnergyAfricaFinanceGuide(2015Edition).pdf