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The Asian Influence in the sub-Saharan African Electricity Industry
Frost & Sullivan, June 2009, Pages: 106
This Frost & Sullivan research service titled The Asian Influence in the Sub-Saharan African Electricity Industry provides a strategic overview of the Asian financial commitments in the Sub-Saharan African electricity industry. In this research, Frost & Sullivan's expert analysts provide a strategic analysis of the market drivers, market restraints and industry challenges impacting this industry, along with an analysis of the size and value of the Asian-sponsored energy projects. This research service also includes an assessment of the financing modes, future planned Asian-sponsored energy projects and other participants’ views on the involvement of Asian companies in the electricity industry. An overview of key Chinese participants, such as Exim Bank and others is provided. In this research, Frost & Sullivan's expert analysts thoroughly examine the following markets by region: east Africa, west Africa, southern Africa and central Africa. The research covers power generation, transmission and distribution.
Market Overview
Asian Influence to Have a Positive Impact on the Sub-Saharan African Electricity Industry
China’s influence, along with Asia as a whole, on the Sub-Saharan African electricity industry is anticipated to grow stronger due to the need to add significant generation capabilities. Intense energy consumption of the Chinese economy, the need for China to build a strategic political alliance and expand its exports market, the need for Sub-Saharan African Governments to access the available low-interest capital, growing emphasis on technology transfer and perceived intransigence of Western Governments regarding loans are some of the factors boosting growth in this industry. 'Asian countries, notably China and Japan, are interested in several power projects across the African continent,' says the analyst of this research. 'The majority of these power projects are hydro-based because of China’s vast experience in the construction of hydro-power projects.'
The competitiveness of Asian project financing, specifically China, lies in its ability to offer a long payback period, coupled with low interest rates. For instance, the majority of Asian-funded energy projects are payable over 20 years while their interest rates are lower than 3.0 per cent, thereby eliminating the project’s interest rate risk. Four projects, namely Sudan’s Merowe dam, Ghana’s Bui dam, and Mozambique’s Mphanda Nkuwa Dam, have an estimated cost of between $400 million and $1.95 billion. As observed in other Sub-Saharan African countries, Exim Bank is either the main financier or one of the key project financiers of these projects. For instance, in Sudan, the involvement of China in the Merowe Dam project is the result of a long and nurtured relationship between the two countries. Sudan is currently China's third largest African trading partner and accounted for 6.0 per cent of China's imported crude in 2008. Additionally, China’s investments include projects such as Gabon’s Grand Poubara hydroelectric dam, Zambia’s Kariba North (extension) and Botswana’s Dikgatlhong dam. China’s Exim Bank is also expected to be involved in the funding of Botswana’s Mmamabula project.
Sub-Saharan African Governments to Remove the Perception of Few Chinese Labour Imports Limiting All the Potential Jobs
Some of the key challenges that could limit the number of energy projects China is likely to fund in the future are complicated terms of contracts, import of Chinese labour to Sub-Saharan Africa and growing criticism of the resettlement procedures. 'Although China’s funding is made available to willing sub-Saharan African public utilities, there are growing concerns on the contract terms,' observes the analyst. 'The challenge for sub-Saharan African governments is to obtain better terms during the contractor procurement process, while ensuring China’s eagerness to continue providing these funds.'
Nonetheless, this challenge can be overcome, proven by the award of contract for the construction of Mozambique’s MphandaNkuwa dam to a Brazilian engineering and construction company. Despite the fact that Chinese firms often import their own labour, locals still account for the vast majority of the total workforce required for Chinese-sponsored projects. This strategy, if pursued, could limit the economic spill over effects in the region. 'To avoid any potential backlash as observed in countries such as Zambia, governments in sub-Saharan Africa should swiftly act to diffuse the perception that the few Chinese labour imports will limit all the potentially available jobs,' concludes the analyst.
Market Sectors
Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:
By Region:
- East Africa
- West Africa
- Southern Africa
- Central Africa
Technologies
The following technologies are covered in this research:
- Generation
- Transmission
- Distribution
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