Ladies and Gentlemen,
“It is indefensible that Africa’s poorest people are paying among the world’s highest prices for energy. A woman living in a village in northern Nigeria spends around 60 to 80 times per unit more for her energy than a resident of New York City, or of London.” Not my words, but those of Kofi Annan, in his introduction to last year’s report from the Africa Progress Panel on energy use in Africa.
That report sets out in stark terms the challenge facing the continent as it struggles to bring basic levels of electrification to its peoples.
Today, two out of three people across sub-Saharan Africa have no reliable access to electricity. The total grid in sub-Saharan Africa is 90GW, with 45GW in South Africa. This is only a bit larger than Britain’s national grid.
A Comprehensive Strategy
To answer the challenge set by the Africa Progress Panel, we need a comprehensive strategy based on a global partnership between the US and Europe, on the one hand, and Africa, on the other.
Here are the ingredients of a grand strategy for Africa.
I begin with the world as it is.
To me the most striking feature of our contemporary world is the contrast between Europe and the US, which are awash with savings, and Africa, which is chronically short of investment capital, between a developed world sunk in what economists call secular stagnation and an African continent unable to realise its vast economic potential.
Secular stagnation is an expression used by economists, like Larry Summers, the former US Secretary of the Treasury, to describe a period of prolonged economic stagnation,
- a period of low demand, low investment, low inflation but high unemployment;
- an economic system impervious to all the conventional economic instruments that governments have traditionally used to stimulate demand;
- an economic malaise that has led to a glut of savings throughout the developed world, to zero and even negative interest rates, to huge risk adversity on the part of business and, above all, to a universal reluctance to invest in the future.
Many commentators argue that secular stagnation is a threat to the very foundations of western democracy. Personally, I believe that for developed economies it is the great challenge of the age.
Solution to Secular Stagnation
I want to propose a solution to secular stagnation that simultaneously solves Africa’s shortage of capital. I want to do so based on our experience of the past.
When the Great Depression struck the United States in the 1930’s, President Roosevelt launched massive public works programmes to stimulate demand, notably through the Rural Electrification Act and the establishment of the Tennessee Valley Authority.
The focus of these great initiatives was electrification, which President Roosevelt rightly described as the key to modernising the economy and transforming society.
The other precedent from the past is the Marshall Plan, officially known as the European Recovery Program.
It was an American initiative to aid Western Europe in the immediate aftermath of the Second World War.
Under the Plan, the United States gave the equivalent of $120 billion in economic support to help rebuild Western European economies after the end of the War. Europe was in ruins. The United States took on the responsibility of saving Europe. But in rebuilding this shattered continent it stimulated so much demand for American goods and services that the US economy grew at unprecedented rates for over the next thirty years. And so did Europe.
The Marshall Plan provides a template for a similar type of partnership; this time between the developed economies of the West and the nations of Africa. The capital is there, estimated to be around $70 trillion, stashed away in savings that are not being put to use.
The project is there. It is the electrification of Africa.
What is not there, as yet, is the political vision to come up with a New Marshall Plan, this time for Africa.
The good news is that there has been a start.
I welcome the President Obama’s Power Africa plan and also the UK Government’s Energy Africa strategy. They are true public-private partnerships which share the vision first outlined by General Marshall. The aim is to add 30,000MW of new electric power across the continent of Africa by 2030. That is a noble goal, worthy of a new Marshal Plan.
But, I believe we can go further still.
Marshall Plan Two
Call it the Marshall Plan Two, or even a New Deal for Africa. Through an enhanced Power Africa project we can deliver what Africa so badly needs and which, so far, has eluded us. And that is electricity for all, electricity that is reliable, clean and cheap. We all know that without electricity there can be no real economic enterprise and without the proper infrastructure there can be no sustained growth.
The question that my company is asking, and which under-pins the partnership with the IFC and others that we are announcing today, is how can we get international capital to invest in the transformation of Africa to deliver similar results to those achieved through the original Marshall Plan?
How can we build the same foundations in Africa that will not only deliver growth and prosperity but at the same time revitalize the stagnant economies of the West?
We start with an indisputable fact. Africa possesses some of the best resources for generating electricity on the planet, the power of the wind, and the power of the sun. Some of the lowest cost wind and solar power projects throughout the world are being delivered in Africa. From Morocco to South Africa new renewable energy power plant is being built for a fraction of the cost of new fossil or nuclear generation.
In South Africa, wind energy is one third the cost of new coal power. The speed with which new plant can be built is far faster than any competitor technology. We can use the extraordinary advances in wind and solar technology to deliver clean, constant and cheap electricity to Africa. And with it a new life for those millions who live off-grid and struggle, literally in the darkness, to provide for their families and their neighbours.
If we can mobilise the balance sheets of the West to provide the capital and if governments can de-risk investments in renewables then we can start on a Marshal Plan for Africa.
It is for these reasons that I am so excited – and honoured – to be launching our plans later today to help electrify Africa. I will be announcing the investment of 117 million dollars in our Lekela Power platform by the International Finance Corporation, and a powerful group of impact investors led by Ascension Investment Management and Sanlam.
We will put this money to work to build 1,300MW of wind and solar power across Africa, working with governments and many others, including Actis, our partners in Lekela.
In South Africa, in Egypt, in Ghana and in Senegal we are at work building tomorrow’s electricity plant, today.
For me, and for Mainstream, this is only the beginning of our plans to deliver significant amounts of renewable energy to homes and businesses from Cairo to the Cape.
Helping to accelerate the electrification of Africa was one of the reasons that I set up Mainstream. It is why our goal is to bring 1,300MW of new renewable power plant to financial close across Africa next year. It is why I want to take advantage of the dramatic fall in the cost of wind and solar energy to provide new, cheap and reliable power to communities across the African continent, to electrify Africa by 2030.
The Big Ideas
So, my thinking about that task is as follows. There is great potential for bringing three big ideas together:
- a solution for secular stagnation,
- a Marshall Plan for Africa and,
- the electrification of Africa by 2030.
Action on the first two depends on the West; action on the third will depend on Africa itself.
From the perspective of any potential investor in Africa the over-riding need is to de-risk investments that typically will take 15 years or so to recover the capital and make a satisfactory return.
That’s a long time. It’s a long time in which things can go wrong.
In order to transform the investment climate I propose a set of six actions that will mutually reinforce each other.
Here are the risks that have to be addressed:
- Policy Risk
- Bureaucratic Risk
- Regulatory Risk
- Cultural Risk
- Land Risk, and
- Currency Risk.
These first four risks are common to all economies.
In fact these risks are much higher in some European countries than in Africa. Nevertheless, they need to be systematically addressed by African governments.
I just say that there can be no hint of corruption and no subsidisation of fossil fuels which distort markets and penalise renewables.
As regards land risk, it arises from complex forms of ownership and can only be removed by action on the part of African governments in conjunction with local communities and local leaders. I am sure that solutions will be found.
But currency risk is a different matter. It arises from the mis-match between investments being in dollars and revenues in local currencies. This mis-match is the single most important factor inhibiting inward foreign investment into African renewables.
It cannot be solved by the host governments. Rather, it is an matter for the governments of the investors, and indeed for international financial organisations like the World Bank.
I am no expert in international finance but I know that what investors need is insurance against inflation and currency depreciation. In short, they need certainty about the value of future revenue streams so that their capital is recovered intact and in the meantime is adequately rewarded in real terms.
There is no way private sector funds will flow into Africa in the quantities required unless these two preconditions are met. It is up to western governments to ensure that they are.
Lastly, if we are to deliver a new Marshall Plan for Africa, which combines the heft of the public sector with the ingenuity of the private, we need to look at ways to direct invest-ment into Africa through incentive programmes which properly reflect the risks for investors and the long-term societal benefits accruing from that investment.
If we are to leverage the 70 trillion dollars that’s currently moldering away in banks and bonds, then governments need to find ways of enticing investors to overcome risk adversity and to put that capital to work.
For years, governments have recognised the role of tax allowances and tax reliefs in stimulating investment. My own country has used these instruments successfully for over fifty years.
Here is a clear example of a massive public benefit in the West which would accrue from mobilising unused savings for the electrification of Africa. Give people an incentive, and they will invest. An imaginative programme would be the final piece of the jigsaw.
The other pieces are, as I’ve said, a solution to secular stagnation in the West, the launch of a Marshall Plan for a continent in crying need of investment and the rapid electrification of Africa.
I think it is a coherent picture. I commend it to you for the following reasons.
We know Africa has 1.3bn people, the same population as China.
We know it is blessed with vast natural resources.
And we know it is producing more graduates than China or America. We know it can develop rapidly if given the chance.
So, our challenge is simple.
Help Africa to help itself – and thereby help all of us. Let Africa be the engine that drags the rest of the world out of recession while pulling a billion people out of poverty.
I hope that this “Grand Strategy for Africa”, this new Marshall Plan will meet the challenge that Kofi Annan has set us, and that we can meet that challenge with the ambition it deserves.
I hope you think it worthy of consideration.