African Development Bank President Launches “New Deal on Energy in Africa”
New African Development Bank President Akinwumi Adesina chose last week’s World Economic Forum at Davos for the official launch of the Bank’s New Deal on Energy for Africa, along with a Transformative Partnership for Energy in Africa (TPEA). While a candidate for the AfDB president position a year ago, Adesina placed energy at the top of his list of priorities for the bank and continent. Now as president he is acting on his promises and positioning the AfDB to play the leading role on energy expansion and access in Africa.
The New Deal aims to reach universal access of power for Africans by 2025. Today, nearly 660 million Africans lack access to reliable power. To achieve the New Deal’s goals, Adesina says Africa needs to add 160,000 MWs of on-grid power (about 800 new power plants) for 130 million new connections. In addition, off-grid power solutions will provide another 75 million connections. The AfDB, and other donors, are banking on “pay-as-you-go” home solar systems as a quick fix to the power deficit in rural and peri-urban areas. Although the systems offer commercial scalability — quick roll-out and a good financing model — they do not generate sufficient power for small businesses and agro-processors. Mini- and micro-power grids, which can actually stimulate economic growth, will need to be factored into the New Deal’s mix of solutions.
Borrowing from the model of the G-8’s New Alliance for Food Security, Adesina, the former Minister of Agriculture from Nigeria, is turning to the private sector for investment and know-how. Development banks will continue to perform critical roles, however. According to Adesina, the African Development Bank has invested a total of $34 billion in infrastructure (all forms of infrastructure) over the last ten years. For the next five years, as part of the New Deal, the Bank will double the amount of money it spends on energy from $6 billion to $12 billion. Equally important, he is on a campaign to persuade other development finance institutions and donors to increase their funding commitments for power. As for the private sector, the new TPEA, a virtual investment platform, is expected to leverage an annual minimum of $40 billion in investment through the use of innovative de-risking instruments, such as credit enhancements, early stage equity, political risk insurance, and partial risk guarantees.
Do Africa’s political leaders share this same sense of urgency? Adesina gives a resounding “yes” to the question, but he adds, they will have to live up to their commitments by making tough decisions. First, government spending in the energy sector will need to increase from what is now 0.3 percent of GDP to 3.4 percent. By doing so, Adesina estimates that an additional $50 billion a year would be available for allocation into the energy sector. Equally difficult for leaders will be the tough policy decisions required to attract more private capital into bankable energy deals, everything from improving the legal and regulatory environment to de-politicizing tariffs by creating independent regulatory boards to set pricing.
A critical question is whether the Bank — and everyone else — can actually do what Adesina has envisaged. Success will hinge not only on the Bank’s ability to increase its absorptive capacity, speed up its execution rates, and integrate its numerous instruments more holistically to meet the needs of its clients (i.e. the private sector and governments), but also on the ability of partners to structure bankable projects, build the necessary backbone infrastructure, mobilize vast sums of money, and execute. Some changes in the Bank’s structure and leadership might be needed to break old habits and systems and streamline decision making. It is a long shot that the New Deal will achieve its highly aspirational vision of universal access by 2025, which coincidentally would mark the end of a second term for Adesina as the Bank’s president. It is the boldest initiative ever for the Bank, and Adesina’s presidency will most likely be judged against the goals he announced in Davos.
The AfDB president also acknowledged the importance of the many energy initiatives that seek to increase energy access in Africa, such as “SE4ALL”, the Obama Administration’s “Power Africa”, and the U.K.’s recently announced initiative, “Energy Africa”, among several others. The New Deal, through the Transformative Partnership on Energy for Africa, builds on those initiatives — one could actually say integrates them — lays out a bold vision, and places the AfDB at the helm by bridging donors, the private sector, and African governments.
Can Adesina pull off all the changes necessary for success; or will the New Deal become a reshuffling of the same deck?