In this column called “The Indicator”, we will be taking an economic or financial statistic from East Africa and breaking it down into bite-sized nuggets of knowledge for investors.
This month’s indicator figure is 121,365,103
There are presently 121,365,103 people living in East African Community (EAC) countries without access to electricity. This relates to 78% of the total population of 158 million in the EAC who do not have access to electricity.
What do you mean by access to electricity?
According to the International Energy Agency’s “World Energy Outlook”, access to electricity is defined in a number of methods which include, but are not limited to, a household’s ability to consume enough electricity to power small devices such as lights, floor fans, or an electric outlet for mobile phone charging. Other items may be included to increase the number of people who have access to electricity which could involve a minimum distance to travel to find a minimum amount of electricity in a public health facility, school, or government office.
In addition to the varying definitions, the numbers for access to electricity can be difficult to measure accurately as they rely upon estimates from rural areas and are compiled from publicly available official statistics which may be measured differently country by country.
Which EAC country has the largest and which has the least number of people living without access to electricity?
Tanzania has the largest reported quantity of people without access to electricity at 36 million or 71% of the population but on a relative basis Burundi has over 10 million or 93% of the population without access to electricity. Rwanda has the highest percentage of the population with access to electricity at 34%.
How does access to electricity in the EAC compare to other regions of the world?
Without a doubt Sub-Saharan Africa is the least electrified region in the world and electrification rates highly correlate to development and GDP per capita in other regions. In short, the EAC is presently at the bottom of the rung globally when it comes to access to electricity.
Is the access to electricity figure increasing or decreasing?
It is increasing as more people gain access to electricity. This is due to concerted efforts by countries, multi-lateral institutions, and investors to increase access to electricity. Energy access is increasing faster than population growth in EAC countries.
What challenges are EAC countries facing in increasing energy access?
Developing energy generation, transmission, and distribution services to non-urban consumers requires investments in the hundreds of millions of dollars. Borrowing from the global capital markets to pay for energy infrastructure would be challenging due to perceived high risk in lending to EAC countries.
Another key challenges is that people in the EAC generally live relatively far away from each other in rural areas. These far distances make extending a grid to reach those consumers even more expensive.
In addition, the number of consumers who have the ability to pay for electricity service connection fees and ongoing consumption of electricity is quite small. In many areas throughout the EAC the business case to extend a national grid to reach small consumers does not pay off for several years, if not decades.
What are the ways in which these challenges can be overcome?
As we saw in a prior Indicator article on interest rates, if EAC countries are able to increase political stability, tax collection, debt management, fiscal responsibility, and economic growth then the global capital markets will perceive these countries to be less risky to lend to and therefore offer lower interest rates. If interest rates are lower for a country to borrow, then more energy projects become economically feasible.
In addition, not all consumers need to be connected to a country’s national electricity grid. As discussed in another prior Indicator column, EAC countries are blessed with abundant solar radiation as well as water and wind resources.
This results in the potential for both renewable energy powered mini-grids as well as solar home systems to provide EAC citizens with energy access.
What are some companies that are serving the EAC with mini-grids and solar home systems?
Solar home system companies allow for people to put solar panels on their roofs and pay for the unit over a period of one to three years. Some examples of these companies include Off.grid electric, Mobisol, M-Kopa, BBox, and others with tens of thousands of homes using their systems each and hundreds of competitors seeking to bring a new technology and service model that is better, faster, or cheaper than what is being offered currently.
Mini-grid companies connect entire villages or multiple villages using solar or in some cases hydro power as a generation source. Some examples of mini-grid companies operating in East Africa include PowerHive, PowerGen, Mesh Power, and Mwenga Hydro.
What are EAC countries doing to increase access to electricity among their citizens?
Each of the EAC countries has publicly set aggressive targets to increase access to electricity. Tanzania has developed a Power System Master Plan calling for 90% access rate by 2035. Kenya has targeted connectivity to one million customers a year and a target of universal access to electricity by 2020. Uganda has targeted 51% coverage by 2040 and universal access by 2040. Rwanda has set a plan for 70% access by 2018 and 100% access by 2020. Burundi seeks to increase from its current electrification rates to 25% by 2020 and 40% energy access by 2030.
What are the economic effects of increased electricity access for EAC?
Electricity increases the efficiency of markets, labour and information flow. Increased access to electricity will bolster these facets of the economy leading to both higher economic growth and strengthen the fundamentals of the economy simultaneously. In the East African environment, the demand for electricity is still elastic. So the more precisely the price of electricity is set, the more likely these gains will be realized in all sectors of society.
The governments of the EAC have proposed various plans to increase electrification, all of which require a high investment of funds. However, the gains to be realized are far higher in the long-term than the short-term cost. In this increasingly globalized and digitized economy, connecting individuals and enterprises to market opportunities and providing them the means to use more efficient storage and distribution systems will result in a long-term phase of economic growth.
How can I learn more?
To learn more about the topics in this article you can visit:
World Energy Outlook – http://www.worldenergyoutlook.org/resources/energydevelopment/energyaccessdatabase/
Kenya Energy Access Plans – http://www.president.go.ke/projects/access-to-electricity/
Tanzania Power Sector Master Plan – http://www.ewura.go.tz/wp-content/uploads/2017/01/Power-System-Master-Plan-Dec.-2016.pdf
Uganda Rural Electrification Strategy and Plan – http://www.rea.or.ug/resources/strategy%20and%20plan%202013-2022.pdf
Rwanda Rural Electrification Strategy – http://www.mininfra.gov.rw/fileadmin/user_upload/aircraft/Rural_Electrification_Strategy.pdf
Infrastructure Action Plan for Burundi – https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/An%20Infrastructure%20Action%20Plan%20for%20Burundi%20-%20Main%20Report%20v1.2.pdf
About the authors:
David L. Ross is Managing Director of Statera Capital and US Ambassador to the Open University of Tanzania active in growing companies in Eastern and Southern Africa through primary investment, investment advisory, strategic partnerships, and executive education. Connect on LinkedIn at http://tz.linkedin.com/in/davidlross1 or at firstname.lastname@example.org.
Catherine Mandler is a Senior Analyst at Statera Capital. Connect on LinkedIn at http://www.linkedin.com/in/CatherineMandler or at email@example.com.